9. SR 08-03-2009 - Laserfiche WebLink

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reduction taken from MVHC. The MVHC aid is actually part of the City’s tax levy so in essence the State is taking part of the City’s tax levy when it reduces MVHC aid. The MVHC program reduces residential homestead property taxes to the property owner with the State being responsible to pay the local jurisdiction for the reduction. In 2009 the State reduced homestead property owners’ taxes by $388,065 in Elk River and the State will reimburse the full $388,065 thus the City will collect the full amount it levied. In 2009 the City will lose $393,476 of LGA but will not lose any MVHC unless additional unallotments are made by the Governor. In 2010 the City will lose all of its $686,820 of LGA in addition to $221,078 of its tax levy through a reduction in MVHC. This is a total loss of $907,898. In order to make up this state aid loss through the tax levy, the tax levy would need to increase over six percent just to maintain the aids and tax levy at the same level as the Council approved in the 2009 adopted budget. Net Tax Capacity For taxes payable 2009 the City’s net tax capacity increased 2.48 percent. This was a significant change from prior years when the City experienced double digit increases in both market value and net tax capacity. The very preliminary estimates for taxes payable in 2010 indicate that the market value will decrease over five percent and the net tax capacity will decrease approximately four percent. It is very probable that these decreases in value will be even higher when the final values are calculated by the County Auditor’s office. This means that even if the tax levy stays the same, this reduction in net tax capacity will cause a tax rate increase. However, the important factor to note is that this tax rate increase does not always result in a tax increase for property owners. Most property owners whose value decreased will not incur a property tax increase in this scenario. On the other hand, those property owners whose value stayed the same or increased would experience a tax increase due to an increase in the tax rate. Tax Levy and Estimated Tax Impact The adopted 2009 budget included total revenues of $10,234,929 from the tax levy and state aids. The 2009 amended budget reflects a LGA reduction of $393,476 resulting in total property tax and state aid revenue of $9,840,853. In 2010 the City will lose $907,898 in state aid, all $686,820 of LGA and $221,078 of MVHC. Therefore, in order to have the same tax and aid revenue available in the 2010 budget, the levy would increase substantially. Fortunately, special levies will decrease by $219,783 in 2010 making that portion of the tax levy available to the general fund. The state aid losses and the reduction in net tax capacity (NTC) create a difficult tax levy situation. In the past property values have consistently increased making the tax rate the focus of discussion when setting the tax levy. In this new environment, the tax rate is no longer an accurate comparison of the tax impact on property or the amount of tax it will generate. The focus should be on the amount of the tax levy and the actual change in tax that the property owners will incur. The tax rate is determined by dividing the tax levy by the net tax capacity. When the net tax capacity goes down, the tax rate goes up to generate the same tax revenue. The tax rate is applied to each property’s NTC to determine the tax due on the property. If the value of a