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Strategies for Cities <br /> <br />For city officials who remember previous state budget shortfalls and subsequent city aid cuts, <br />much of this situation and the strategies that follow may sound familiar. Below are several <br />considerations that may help you weigh the pros and cons of revenue enhancements, expenditure <br />reductions, and use of reserves as you consider setting a budget for 2003. Ultimately, you will <br />have to make decisions that best reflect the needs of your community. <br /> <br />L Consider increasing your property tax levy to cover or at least partially offset potential state <br />aid reductions. If aid reductions do not materialize, you can adjust your 2004property tax levy <br />accordingly. <br /> <br />A.) For cities over 2,500 population, levy limits are in place for taxes payable in 2003. Due to <br /> an extremely low inflation adjustment for this year's levy limits, cities affected by levy <br /> limits might not have sufficient levy authority to cover even normal budgetary pressures. <br /> Levy limits are due to expire, but they could certainly be extended by the 2003 <br /> legislature. <br /> <br />B.) Increasing your property tax levy could potentially result in a larger state aid reduction. <br /> Last January, the Governor unveiled a new proposal that based a portion of each city's aid <br /> reduction on the size of each city' s increase in property tax levy plus state aids. In other <br /> words, the larger the city's revenue, the greater the reduction in state aids. Although the <br /> Governor's concept was not adopted by the Legislature, this proposal could always <br /> resurface in the 2003 legislative session. <br /> <br />c.) <br /> <br />Although property tax increases could be implemented to offset potential budget cuts, the <br />property tax increases of cities could be viewed as municipal preparation for state aid cuts <br />and legislators could rationalize cuts because cities are financially "prepared" for the <br />reduction. <br /> <br />D.) <br /> <br />Increasing property taxes to cover a speculative state aid cut could be criticized or <br />misunderstood by your citizens and business owners. You may want to consider enhanced <br />discussions with your citizens, businesses, and legislators about the difficulties facing the <br />city and setting a 2003 budget. <br /> <br />E.) <br /> <br />Consider the implications of tax reform on any tax increment financing (TIF) districts <br />within your city. Past tax reform efforts, including the major changes enacted in 2001, <br />may have severely impacted the revenue stream of TIF districts and the city may already <br />be committed to property tax increases to cover TIF obligations. <br /> <br />F.) <br /> <br />Given the magnitude of the state budget deficit, other local units of government may also <br />be considering increases in their property tax. With the new state property tax, legislators <br />might be considering their own property tax increase to address the shortfall. You might <br />want to consider the combined impact of these potential increases for your taxpayers. <br /> <br />4 <br /> <br /> <br />