7.1. SR 12-06-2004 - Laserfiche WebLink

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Truth in Taxation Report December 6, 2004 Page 2 of4 levy limits upon municipalities in 2004 and the new levy limits formula provided for no increases due to inflation or growth factors. Now then, flipping the coin once again, the Legislature also approved a new LGA funding formula and in 2005 it is projected that the city LGA amount will more than double from what was received in 2004; plus there are no levy limits in place for 2005. Clearly the State Legislature has had direct involvement with municipal budgets and tax levies over the past few years. Additionally, we will now have to wait and see how the State Legislature will address the upcoming state budget deficit. In many respects in 2005 the city expects to "catch up" from some of the budget reductions and delays in hiring of new staff members that the city experienced since 2003 when LGA was reduced. In this regard, the 2005 budget should be compared to the original 2003 budget before adjustments were required based on LGA cuts. The 2005 budget is proposed to increase 20.8% over the original 2003 budget. This increase only covers inflation and the 8% growth per year that the city experienced (based on residential building permits that were issued). When considering the inflation and growth factors, this type of budget increase seems appropriate simply for the city to maintain providing quality services. On the other hand, when just looking at comparing the adopted 2004 budget to the proposed 2005 budget, it shows an increase of 17.9% and this is far higher than inflation and the 8% growth factors. One note when comparing the 2004 and 2005 budgets is that early in 2004 the City Council became aware that revenues would exceed the budget; and therefore, added some staff throughout the year that were not included in the budget. In this regard, the 2004 actual expenditures are going to exceed the budget; and when comparing 2004 actual expenditures to the 2005 proposed budget, the increase is much smaller than 17.9 percent. Taxes On September 13, 2004, the City Council adopted a resolution (R 04-71) establishing the proposed maximum 2005 tax levy for the city. This resolution is attached for your reference. The maximum 2005 tax levy is established at $7,623,985. This is a $1,059,182 or 16.1 % increase in the tax levy. Most of this increase is for general fund purposes. City taxes are approximately one-third of the total tax bill. The 2004 city tax rate is 43.78. There is no change being proposed in the city tax rate for 2005. Accordingly, a property owner will not see an increase in the city share of their taxes if the property value did not increase. However, if their property value did increase then the city portion of the tax bill will also increase. Based on recent history of increasing property values in the area and the state law related to the phase out of the limited market value program, it is likely that most property values in the city increased somewhat for taxes payable in 2005. According to Sherburne County information that was provided to the city in September 2004, the city Net Tax Capacity (NTC) is increasing by 16.1 %. This increase in the city NTC is identical to the increase being proposed in the tax levy. The citywide increase in the NTC is why the city tax revenue can increase and yet the city tax rate remains flat. 2005 Revenues and Expenditures The 2005 general fund budget it proposed in the amount of $9,284,100. This is a $1,408,700 increase from the adopted 2004 budget. Of this amount, the property tax increase in the general fund is $867,550; the increase in LGA is $393,650; and the increase in growth related revenues is $226,400. The remaining general fund revenue sources in total are projected to decrease slightly in 2005. s: \ Council \ Pat \Budget \2005 \ truthin taxation.doc