7.0. SR 08-26-1996 - Laserfiche WebLink

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Budget Worksession Memo August 26, 1996 Page 2 TAXES For budgeting purposes, the city is projecting its general fund tax revenue to increase by the identical amount that it did last year. The 1996 general fund property tax revenues increased by $337,400 and this amount is also being used in the 1997 budget. In 1996, the City Council approved this amount of tax increase in the general fund based on the assumption that the net tax capacity (NTC) in the city would increase by 15% and that the net effect would be no change in the city tax rate. This did not quite turn out to be the actual case, but it was very close. Tax revenues can increase in the budget without a tax rate increase due to additional tax base being added to the community through new development and the reassessment of existing properties to reflect the current market. If the total tax rate for the city, county and school district does not change, then property owners would see a change in their taxes only if their valuation increased or decreased. The total tax rate for the city, county and school district in Elk River went down last year from 104.321 to 103.497. The impact of this 1997 proposed additional tax revenue on the city tax rate is unknown at this time due to not having the NTC information available from the county. If the city's NTC increases about 15 percent like it did last year, there will be a very minor (if any) change in the city tax rate in order to generate this amount of additional tax revenue. However, if the city NTC only increases 10 percent this year, then generating $337,400 in additional general fund tax revenues will cause the city tax rate to increase about 5 percent (or about 1.2 from 24.033 to 25.233). At this time it is uncertain as to what our NTC increase will be for 1997. The city's share of the total tax burden is about 23 percent. Accordingly, if the city tax rate changed from about 24 to 25.2 then this is a 5 percent increase. If the county and school district had no tax rate change, then this city increase would be "diluted" to about a I percent total increase. Again, this is in reference to the tax rate and does not take into consideration any increase in valuation that individuals may see in the property that they own. The council should note that even with $337,400 of additional general fund tax revenues being projected, the city is still facing a "budget gap" whereby requested expenditures exceed available revenues. This budget gap relates directly to additional personnel requests and capital outlay items. We should look at the increase of $337,400 as a worst case situation and balance the budget using this tax revenue figure. Then we can make further adjustments as deemed appropriate by the council. The council should also note that in September we are talking about the proposed maximum lev¥~ and that this amount can be reduced in December once a more accurate NTC amount is