Legislative changes, declining property values deal city of Elk River difficult hand in setting budget for 2012
by Joni Astrup
Elk River is moving towards approval of a 2012 budget that reduces the city’s total property tax levy by a little more than $800,000.
The end result for taxpayers?
Most homeowners would see their property taxes for city services decrease, but many commercial-industrial properties are still likely looking at a slight tax increase.
“That’s not us doing that. That’s the jokers in St. Paul that have done that,” Council Member Paul Motin said, referring to legislative changes that have caused property tax increases.
The reason an $800,000 decrease in the property tax levy isn’t enough to cut people’s taxes across the board is because the city is facing a double whammy in 2012. Elk River’s tax base is shrinking, as the city’s net tax capacity will decrease 5.7 percent next year due to declining property values. The other hit is an additional 5.4 percent decrease in the city’s net tax capacity related to the market value exclusion calculation, which was caused by legislative changes.
Also, part of the reason for the proposed commercial-industrial tax increase is that those types of properties have held their value in Elk River. They decreased at nearly one-third the rate of residential, according to City Administrator Cal Portner.
The bottom line is the city’s net tax capacity is projected to go from $24.3 million in 2011 to $21.6 million in 2012.
So even though the city has made adjustments and proposed a large reduction in the levy, it’s not enough to keep the city’s tax rate from increasing from 45.72 percent in 2011 to a proposed 47.55 percent in 2012. That is, however, down from the preliminary proposed rate of 51.4 percent.
Mayor John Dietz, who has advocated not raising the tax rate, laid out a final budget proposal during a work session Monday night, Nov. 21, that would have kept the tax rate at 45.72 percent. By doing so, “we’d be a leader in the area rather than a follower,” Dietz said.
The proposal met with mixed reaction.
In the end the City Council is looking at collecting a total of $10,275,815 in property taxes in 2012. That’s down from $11,112,391 this year. It’s important to note that the $10,275,815 figure is less than what appears on property tax statements that were sent to property owners recently. Those statements reflect the maximum tax levy set by the City Council in September. Since then, the council has discussed adjustments to arrive at the $10.3 million figure.
A presentation and opportunity for public comment on the budget will be held at 6:30 p.m. Monday, Dec. 5 at Elk River City Hall, 13065 Orono Parkway. After that the City Council is expected to take final action to set the 2012 budget.
Here are some highlights of the budget discussed by the Elk River City Council at a work session on Monday, Nov. 21.
Energy City is spared cuts
After being threatened by cuts, it appears Elk River’s Energy City program will emerge intact for 2012.
At Monday’s budget work session, the council considered cutting the Energy Expo and rolling it into the chamber’s Business Expo. But only Mayor John Dietz and Council Member Nick Zerwas were in favor. Zerwas, for instance, argued that the money saved could help the city fill a vacant police officer position instead. “To me that’s a better use of that $30,000, hands down,” Zerwas said.
But council members Paul Motin, Jerry Gumphrey and Matt Westgaard favored leaving the Energy Expo in place for 2012.
“For me it’s a service that we provide residents of Elk River,” Gumphrey said.
Motin said he doesn’t think the expo costs anywhere close to $30,000. He’d also like the city to seek grants to defray costs associated with it.
In a related matter, Dietz said he has dropped his idea of asking Connexus Energy, Great River Energy and CenterPoint Energy to pay $3,500 each to help fund the Energy City program, although he said he did get a call from a representative of one of them. That person told Dietz he personally thought the idea was a good one, but “publicly our company would not participate,” Dietz said.
Police officer hiring can begin
A police officer position that became vacant due to a series of promotions brought on by the retirement of Police Chief Jeff Beahen in November 2010 will finally be filled.
The council voted 4-1 to fill the position, after much discussion. Dietz voted “no.” He had said he would support the hiring only if the tax rate was held to last year’s figure of 45.72 percent. The cost of the officer position, pay and benefits, is estimated at $64,729.
Police Chief Brad Rolfe had made a firm argument in favor of the position, telling the council: “I just think it’s bad government and it’s not in the public interest to leave this position unfilled.”
Employees will get a 2 percent raise
Council members were unanimous in their desire to give city employees a 2 percent raise in 2012. Police union members got a 1 percent raise in 2011, but other city employees received no cost-of-living increase.
Police union members negotiated a 2 percent raise for 2012 and the council wanted other employees to get the same.
There was talk of giving employees 1 percent of the raise in January and the other 1 percent in July, which would have saved $28,000, but the council opted for the full 2 percent in January. Other cuts will be found to save the $28,000.
Some positions will be decided later
The council agreed to put $192,000 in contingency for 2012 specifically for staffing. That will give City Administrator Cal Portner, who started with the city in October, time to review the city’s staffing needs and make a recommendation on what positions to fill.
The city currently has seven vacant positions (including the police officer that the council has agreed to hire) totalling about $500,000 in salary and benefits. In addition, there are a number of other position requests that are not in the budget.
In another personnel-related matter, Dietz had suggested removing $82,000 for one building inspector from the 2012 budget, but there was no move from the council to do that.
Landfill expansion fee will help pay off police, fire facility
As a means of reducing the levy, the council agreed with Dietz’s suggestion to use money from the Government Building Fund to help write down the debt on public safety bonds that financed construction of the city’s police and fire facility. Payments on the bonds are approximately $617,000 a year for the next 10 years, which is the remaining life of the bonds. The council agreed to allocate $250,000 a year for the next 10 years to that public safety bond from the Government Building Fund, which is funded by an “expansion fee” the landfill is paying to the city through 2030.
Council won’t use more of fund balance
Dietz proposed drawing down the fund balance in the General Fund from 41.5 percent of the $12.6 million proposed expenditure budget to 40 percent. The proposed 2012 budget already calls for taking $339,630 from the fund balance. Going to a 40 percent fund balance would amount to an additional $116,000.
Dietz said that the city is on track to have a surplus at the end of this year, which he said would quickly rebuild the fund balance.
The city’s policy is to fund the General Fund’s fund balance at a minimum of 40 percent. The city is putting a surplus from 2010 into 2012 and maintaining a reserve balance at year-end at a higher level than the city policy requires, according to Finance Director Tim Simon. The surplus is due to restrained spending, unplanned position vacancies and higher-than-budgeted revenue, he said.
Council members, meanwhile, expressed some interest in Dietz’s idea to use more of the fund balance. At one point Westgaard, for instance, said “It’s a rainy day fund. Well, it’s raining.”
But in the end the majority, including Westgaard, decided to stay at 41.5 percent.
Motin called the 40 percent figure “pretty bare bones.”
Council Member Jerry Gumphrey said: “I’m nervous at dropping it to 40 percent. Too many things can happen.”