5.5. SR 03-24-2003 - Laserfiche WebLink

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State law currently restricts the ability of cities to increase property tax levies from one year to the next. The state imposes property tax levy limits on all Minnesota cities as a means of limiting property tax burdens on owners of all taxable property, including residential and commercial properties. The effect of levy limits on transportation investments is that city officials have had to be very selective in determining which projects and programs are approved and incorporated into capital improvement and maintenance plans. City General Obligation Bonds Cities have the authority to issue bonds to support capital construction programs. In effect, using bonding to finance public infrastructure improvements results in the cost of an improvement to be spread over the expected life of the improvement, rather than up front as the improvement is actually made. The total amount of debt Minnesota cities are authorized to issue is limited by the debt financing policies implemented by city elected officials. Usually, city officials are very reluctant to issue bonds which would require debt service levels that may jeopardize or threaten a city's bond rating. The 2002 Legislature adopted new legislation (M.S. §475.58, Subd. 3b) which allows a city to issue general obligation bonds to cover the entire cost of street reconstruction projects, without a referendum vote as is typically required. The bond issue can take place as long as the following conditions are met: 1) a public hearing on the issue must be conducted, 2) the Council must adopt a 5-year plan on the reconstruction project, 3) the bond issue, once approved, is subject to reverse referendum, and 4) the bond issue must maintain a total city net debt limit of no more than 2 percent of general fund spending. Another "borrowing" mechanism available to Minnesota cities for road and bridge improvements is the Transportation Revolving Loan Fund (TRLF). The TRLF is an innovative finance tool that can be used to finance transportation projects that may not get financed through traditional transportation funding methods. Established in 1997, the TRLF operates much like a commercial bank providing low interest loans to cities, counties, and other governmental entities for eligible transportation projects. When the loans are repaid, the funds are returned to the TRLF and used to finance additional transportation projects. It should be understood, however, that the TRLF is not a panacea for cities seeking low interest loan funding. A recent determination of the Minnesota Public Facilities Authority determined that revenue bonds could not be sold to finance local projects through the TRLF that were to be repaid with Municipal State Aid funds. As a result, less funding is available to finance local transportation projects. The important point to keep in mind regarding city bonding is that cities repay those bonds with property tax revenues. Issuing bonds generates revenues from the bond sales up front, but the debt must be paid back over time, with interest, and that is typically achieved by using the property tax. Special Assessments Under Minnesota Statutes §429, cities have the authority to assess property owners for certain local improvements based upon benefit received. Special assessments are a major source of funding for initial transportation improvements, and for that reason, they are more effective in cities that are still growing and adding new roadways than they do in cities that are fully developed. In short, special assessments are charges against real property for a specific project that directly benefits the property or properties being assessed. Special assessments are often preferable to financing road improvements with general property tax levies or bonding because they are viewed as a 8