Truth in Taxation
Public Information Hearing
December 5, 2011
6:00 P.M.
BUDGET PROCESS TO DATE
City Council and Staff held work sessions over the summer and fall on the proposed budget for 2012
City Council adopted the preliminary budget and levy in September
Truth-in-Taxation Notices were mailed to all city property owners last month
City Council met on November 7th and November 21st to revise budget and levy
BUDGET PROCESS TO DATE
Truth-in-Taxation Hearing PurposeThe main purpose of the Truth-in-taxation hearing is to enhance the public participation in the property tax system by allowing a public forum to:
Discuss the Budget Discuss the Tax Levy Explain the Increases Hear Public Comments and Questions on Budget
and Tax Levy
BUDGET PROCESS TO DATE
TONIGHT – Truth-in-Taxation Hearing
MONDAY, DEC. 19th: Continuation of Truth-in-Taxation Hearing (if necessary)
DEC. 19th – DEC. 28th: Budget and levy must be adopted by the City Council
A REMINDER
Tonight we discuss the City’s share of your total 2012 tax bill,
not property valuations
BRIEFLY ON VALUATIONS
In Minnesota, the market value of a property is determined by January 2 of the year prior to the year in which taxes on that property are due. In other words, market values for taxes payable in 2012, were set in January 2011.
Property Values on Statements recently received are based off of home sales from October of 2009 to September of 2010.
Property owners will receive new notices of market values from the assessor in March/April of 2012. Questions on Valuations should be addressed at the Equalization Hearing in May/June.
FIRST OFF!
The preliminary tax levy set in September, and the property tax affect (Statement you got in the mail) showed a tax increase of 5.0%
The revised budget now shows a 2.2% tax levy increase
The City has eliminated roughly $21,000 in expenses since it’s preliminary budget was adopted
WHERE WE STAND
Where does Arlington Stand in regards to the rest of the County when it comes to our City property tax rate?
Arlington’s 2011 Average City Tax Rate ranked the 2nd lowest in Sibley County!
1. Henderson 144.06%
2. Gibbon 142.41%
3. Green Isle 130.41%
4. New Auburn 111.22%
5. Gaylord 82.00% Preliminary Proposed
6. Arlington 73.00% 91.21% 88.75%
7. Winthrop 61.65%
2011 TAX COMPARISON OF CITIES IN SIBLEY COUNTY
Home Value
City $50,000 $100,000 $150,000 $175,000 $200,000
Winthrop $478 $1,074 $1,797 $2,159 $2,520
Arlington $544 $1,205 $1,994 $2,388 $2,782
Gaylord $579 $1,276 $2,100 $2,512 $2,924
New Auburn $753 $1,623 $2,621 $3,120 $3,619
Green Isle $832 $1,781 $2,858 $3,397 $3,935
Gibbon $846 $1,809 $2,900 $3,445 $3,991
Henderson $932 $1,981 $3,158 $3,746 $4,334
EXPLANATION OF PROPERTY TAX RATE
Arlington’s Property Tax Rate is set by taking the city’s tax levy and dividing it by its total tax capacity.
$756,805 / $852,716 [Total Tax Capacity] = 88.75%
Total Tax Capacity = Tax capacity is determined by multiplying a property’s market value by its classification rate. Each property rate is assigned a classification rate depending on its use by the State Legislature. Properties associated with income production (commercial & industrial) have a higher classification weight than other properties. The City’s total tax capacity is an accumulation of all parcels within the city, minus adjustments.
PROPERTY TAXATION 101
How do I determine the City’s portion of my proposed tax bill?
[parcel market value] x [parcel class rate] x [city tax rate] = City portion of your tax bill
Example:
$125,000 (home) x 1.0% (class rate) x .8875 (city tax rate) = $1,109.38
MARKET VALUE EXCLUSION
If the taxy levy was raised by 5%, why did my city property tax increase by much more than that?
State had over a $5 Billion deficit 2011 Legislative Action Changed the Market Value
Homestead Credit program and replaced it with the Market Value Exclusion program
The change in the Homestead Credit Program meant that property owners no longer receive a “credit” that reduces the property taxes paid. Instead, a portion of a property’s value is now excluded from taxation
This change saved the state $261 Million The change was both good and bad to the City
OLD MARKET VALUE “CREDIT” SYSTEM
Arlington’s Tax Levy Under the “Credit” System:
2011 Net Levy Ag Credit State Credit Levy as Seen by Taxpayers
$740,726 $114 $91,096 $649,516
Problem with “Credit” System = Cities weren’t receiving full paymentsIn 7 of the last 9 years, the State didn’t make full “credit” payments to local governmentsArlington was shorted $50,961 in 2010 and 2011This was on top of LGA cuts in 2008, 2009, 2010 & 2011.
NEW MARKET VALUE “EXCLUSION” SYSTEM
Under the new system, a defined portion of a property’s market value is exempt from taxation
This results is some of that taxes that would have been borne by a property will now be shifted to all remaining taxable property value
The “Exclusion” is based on a formula (handout) where the exclusion equals 40% of the first $76,000 in market value. It is reduced by 9% until it hits $0 at $413,800 of market value
Will have a different impact for different cities based on the tax base composition.
“OLD” MARKET VALUE SYSTEM VS. “NEW” SYSTEM
Old/Current System (2011):
Market Value Taxable Value Tax Capacity Levy Tax Rate
$96,303,800 $96,110,800 $1,014,728 $740,726 73.00%
New System (2012):
Market Value Taxable Value Tax Capacity Levy Tax Rate
$96,245,700 $79,820,100 $852,716 $756,805 88.75%
% Change % Change % Change % Change % Change
-0.06% -16.96% -15.97% 2.6% 22.2%
IMPACT ON PROPERTY TAXPAYERS
All else being equal, taxes paid by a homeowner that previously qualified for the “Credit” will increase because the State will no longer be paying a portion of the taxes.
The taxes paid by those same homes will be reduced because a portion of the home’s value will no longer be subject to taxation
The homeowner relief under the new system results from taxes formerly paid on the now excluded value being shifted to other property types
All else being equal, tax shifts occur because the exclusion will reduce the tax base of the City, which will have the direct effect of increasing the City’s property tax rate
IMPACT ON PROPERTY TAXPAYERS
For homes, the tax rate increase will be offset by a reduction in the home’s value. However, for other types of property that do not receive an exclusion, the tax rate increase will simply increase the property’s taxes
QUICK FACTS The City did not “Levy Back” for the loss of the Market Value
Credit The City would have had to reduce it’s budget by $118,243
(16%) over 2011’s budget to account for the loss of taxable market value for it’s tax rate not to change.
A 0% levy increase would have increased the tax rate to 86.87%
A budget reduction of $91,096 (Market Value Credit), would have still increased the tax rate to 76.18%
“EXCLUSION” SUMMARY
1) State money is no longer reducing total taxes Entire local property tax levy will be paid by taxpayers
2) The reduction in taxable value increases tax rates With taxable value being reduced by exclusion, same levy =
higher rate
3) The reduction in taxable value shifts the relative burdens of who pays
With homestead values being reduced, other properties pay a larger share
4) The exclusion provides less benefit in low tax areas than the credit.
Lower tax areas = less benefit; higher tax areas = greater benefit.
14 REASONS PROPERTY TAXES VARY FROM YEAR TO YEAR
1. THE MARKET VALUE OF A PROPERTY MAY CHANGE
2. THE MARKET VALUE OF OTHER PROPERTIES IN YOUR TAXING DISTRICT MAY CHANGE, SHIFTING TAXES FROM ONE PROPERTY TO ANOTHER
3. THE STATE GENERAL PROPERTY TAX MAY CHANGE
4. THE CITY BUDGET AND LEVY MAY CHANGE
5. THE TOWNSHIP BUDGET AND LEVY MAY CHANGE.
6. THE COUNTY BUDGET AND LEVY MAY CHANGE
7. THE SCHOOL DISTRICT’S BUDGET AND LEVY MAY CHANGE
8. A SPECIAL DISTRICT’S BUDGET AND LEVY MAY CHANGE
9. SPECIAL ASSESSMENTS MAY BE ADDED TO YOUR PROPERTY TAX BILL
10. VOTERS MAY HAVE APPROVED A SCHOOL, CITY/TOWNSHIP, COUNTY OR SPECIAL DISTRICT REFERENDUM
11. FEDERAL AND STATE MANDATES MAY HAVE CHANGED
12. AID AND REVENUE FROM THE STATE AND FEDERAL GOVERNMENTS MAY HAVE CHANGED
13. THE STATE LEGISLATURE MAY HAVE CHANGED THE PORTION OF THE TAX BASE PAID BY DIFFERENT TYPES OF PROPERTIES
14. OTHER STATE LAW CHANGES MAY ADJUST THE TAX BASE
2012 PROPOSED BUDGET
PROPOSED TAX LEVY AND GENERAL FUND BUDGET
BRIEFLY ON THE 2011 BUDGET
In the spring of 2011, the City was notified that it would be facing an additional cut of $50,961 in Market Value Homestead Credit (State Aid) due to the State Budget Deficit.
This was on top of an already reduced payment of Local Government Aid in the amount of $87,791 (reduction was budgeted for)
The City Council covered the reduction in Market Value Credit by using Fund Reserves
PROPOSED TAX LEVY
2011 2012 IncreaseGeneral Fund Levy $591,817 $591,817 0.0%Other Levies $0 $2,888 100.0%
Special Levies (Debt Service)
Comm. Ctr. Debt $45,000 $50,000 11.1%2010 Fire Cert. $17,274 $21,600 25.0%2009 GO RF Bond $0 $35,500 100.0%2000 Improv. Bond $16,535 $0 -100.0%2001 Improv. Bond $15,100 $0 -100.0%2004 Improv. Bond $55,000 $55,000 0.0% TOTAL LEVY $740,726 $756,805 2.2%
TAX LEVY BREAKDOWN
TAX LEVY TREND SINCE 2002
ADDITIONAL INFORMATION ON THE TAX LEVY
Since 2002, the City’s tax levy has nearly doubled, increasing by 84%.
Since 2006, the City’s tax levy has increased by 23%
From 2008-2011, the average year-to-year levy increase was at 3.0% (Inflation was at 2.1%)
Since 2002, the City has had it’s State Aid reduced 5 times. Of those 5 times, 4 have taken place within the past 4 years
THE 2012 TAX LEVY ACCOUNTS FOR A PER CAPITA TAX OF $339, UP FROM $331 IN 2011
PROPOSED GENERAL FUND REVENUES
2011 2012 Increase
Taxes $591,817 $591,817 0.0%
Local Gov’t Aid $636,892 $636,892 0.0%
Other State Aid $50,743 $52,943 4.3%
Licenses/Permits $24,560 $20,295 -17.4%
Other Revenue $55,347 $238,376 330.7%
Total General Fund $1,359,359 $1,540,323 13.3%
2012 GENERAL FUND BUDGET - REVENUES
ADDITIONAL FACTS ON GENERAL FUND REVENUE
38% -- Property taxes account for 38% of the revenue in the general fund, down from 43% in 2011.
41% -- Local Government Aid accounts for 41% of the revenue in the general fund; down from 47% in 2011.
21% -- All other revenue sources in the General Fund account for 21% of General Fund Revenues. This is a large increase from 10% in the 2011 budget.
$186,300 – Transfer of “Other Funds” into the General Fund for 2012. This is due to the closing of 3 funds with fund balances (TIF Fund and two Debt Funds)
Local Government Aid and Property Taxes are the biggest supporters of the General Fund
PROPOSED GENERAL FUND EXPENSES
Department 2011 2012 IncreaseCouncil $34,943 $33,624 -3.8%Administration $230,459 $220,460 -4.3%Elections $0 $2,550 100.0%Assessing $9,350 $9,350 0.0%Law/Legal Serv. $7,520 $8,020 6.6%Planning/Zoning $51,180 $42,772 -16.4%Buildings/Plant $22,356 $25,263 13.0%Police Department $245,969 $233,699 -5.0%Fire Stations $32,363 $17,860 -44.8%Civil Defense $1,852 $1,852 0.0%Animal Control $455 $455 0.0%
PROPOSED GENERAL FUND EXPENSES
Department 2011 2012Increase
Public Works $241,367 $238,045 -1.4%
Street Lighting $9,600 $10,200 6.3%
Parks & Recreation $41,054 $41,508 1.1%
Libraries $26,214 $27,955 6.6%
Health Services $258 $258 0.0%
Econ. Develop. $16,821 $16,365 -3.3%
Miscellaneous $5,000 $5,000 0.0%
Transfers $382,498 $605,087 58.2%
Total General Fund $1,359,359 $1,540,323 13.3%
2012 GENERAL FUND BUDGET - EXPENSES
ADDITIONAL FACTS ON GENERAL FUND EXPENSES
23% -- General Administration accounts for 23% of the general fund expenses, down from 27% in 2011.
23% -- Public Safety accounts for 23% of the general fund expenses, down from 30% in 2011.
16% -- Public Works/Streets account for 16% of the general fund expenses, down from 19% in 2011.
6% -- Parks and Recreation account for 6% of the general fund expenses, down from 7% in 2011.
4% -- Percent of General Fund dollars that go to help pay off debt, same as in 2011
ADDITIONAL FACTS ON GENERAL FUND EXPENSES
27% -- Percent of General Fund Expenses that will go to help fund the Capital Improvement Fund, up from 12% in 2011.
28% -- of General Fund Expenses go to employee wages and benefits, down from 36% in 2011.
10% -- of General Fund Expenses go to pay for professional services (Attorney, Auditor, Building Inspector, Engineer, etc.), same as in 2011.
$690 -- Amount the City will spend, per capita, for General Fund needs, up from $658 in 2011.
2012 PROPOSED BUDGET
SPECIAL FUNDS, CAPITAL FUND, AND ENTERPRISE FUND BUDGETS
PROPOSED SPECIAL FUND REVENUES
Department 2011 2012 IncreaseFire Fund $93,547 $99,477 6.3%Ambulance Fund $230,697 $235,702 2.2%Community Center $91,585 $87,103 -4.9%EDA Loan Fund $7,671 $10,151 32.3%Revolving Loan Fund $11,902 $18,127 52.3%Cemetery $8,591 $6,157 -28.3% Cemetery Perp. Fund $1,500 $1,500 0.0%Park Dedication Fund $460 $600 30.4%TIF District #2 $5,000 $0 -100.0% TOTAL SPECIAL $450,953 $458,817 1.7%
ADDITIONAL FACTS ON SPECIAL FUND REVENUES
TRANSFERS (TAX DOLLARS) FROM THE GENERAL FUND TO HELP SUPPORT THE SPECIAL FUNDS IS AT $130,500, A DECREASE OF $35,900 (22%) FROM 2011
28% -- PERCENT OF TAXPAYER $$$ THAT GO TO SUPPORT SPECIAL REVENUE FUNDS, DOWN FROM 37% in 2011
THE AMBULANCE AND FIRE DEPARTMENT HAVE INCREASED COVERAGE RATES FOR 2012.
RENTAL RATES FOR THE COMMUNITY CENTER WERE INCREASED IN 2011, FULL IMPACT TO TAKE AFFECT IN 2012.
TIF FUNDS WILL BE DECERTIFIED IN 2011, EXCESS FUNDS TO HELP SUPPORT THE CAPITAL IMPROVEMENT FUND
PROPOSED SPECIAL FUND EXPENSES
Department 2011 2012Increase
Fire Fund $93,547 $99,477 6.3%Ambulance Fund $230,697 $235,702 2.2%Community Center $91,585 $87,103 -4.9%EDA Loan Fund $1,170 $1,278 9.2%%Cemetery $8,591 $6,157 -28.3%TIF District #2 $4,791 $0 -
100.0%EDA Special Fund $0 $3,000
100.0%TOTAL SPECIAL $430,381 $432,717 0.5%
ADDITIONAL FACTS ON SPECIAL FUND EXPENSES
69% -- Percent of Fees and Charges collected that support the expenses of the Fire and Ambulance Department, up from 58% in 2011.
59% -- Percent of Fees and Charges collected that support the expenses of the Community Center and Cemetery, down from 64% in 2011.
$264 -- When you combine the Special Fund Expenses of the Fire Department and Ambulance with the General Fund Public Safety Expenses, the City spends more per capita ($264) on public safety than any other function besides the Enterprise Funds.
CAPITAL PROJECT FUND
2011 2012 Increase
Budgeted Expenses $161,500 $446,405 176.4%
Capital Needs $383,670 $1,872,646 388.1%
PAYMENT METHOD
2011 2012 Increase
Cash Through Taxes: $119,500 $420,705 252.1%
Cash Through Utilities: $47,000 $209,000 344.7%
CIP Reserve: $0 $22,700 100.0%
EDA Reserve: $0 $3,000 100.0%
Sibley County: $44,778 $112,241 150.7%
Federal Grant: $0 $105,000 100.0%
City Issued Debt: $0 $1,000,000 100.0%
Cash through taxes include $186,300 in Fund Closures
2012 BUDGETED CAPITAL $$
Proposed Budget
Comm. Center = $8,000
EDA = $13,000
Public Works = $261,500
Railroad Crossing = $126,855
Parks = $28,050
Police = $9,000
TOTAL = $446,405
Capital Expenses are the Single Biggest factor for a 2.2% tax levy increase
PROPOSED ENTERPRISE FUNDS
Department 2011 2012 Increase
Water Revenues $432,646 $441,028 1.9%
Sewer Revenues $503,699 $84,692 -83.2%
AG-I Revenues $0 $491,364 100.0%
Electric Revenues $1,584,755 $1,672,510 5.5%
TOTAL REVENUES $2,521,100 $2,689,594 6.7%
Department 2011 2012 Increase
Water Expenses $425,272 $444,348 4.5%
Sewer Expenses $435,106 $137,585 -68.4%
A-GI Expenses $0 $404,606 100.0%
Electric Expenses $1,637,185 $1,683,870 2.9%
TOTAL EXPENSES $2,497,563 $2,670,409 6.9%
ADDITIONAL FACTS ON THE ENTERPRISE FUNDS
5% -- Budgeted water user rate increase for 2012
$6.00 -- Budgeted monthly sewer base rate increase for 2012 (To help pay for the 2011-12 plant upgrade). This on top of a $5 increase in 2011.
$18.27 -- Estimated total sewer base rate increase needed to eventually pay for the 2011-12 plant upgrade
7% -- Budgeted electric user rate increase for 2012
A-GI Fund -- 1st Year of Fund. Created to track $$ better
WHY THE NEED FOR RATE INCREASES?
SEWER FUND –
To help pay for the 2011-2012 Plant Improvement Project
WATER FUND –
Fund has been in the negative 4 of the last 6 years. General Fund dollars (taxes) were used to balance the fund in 2009.
ELECTRIC FUND –
Fund has been in the negative the last 4 going on 5 years
2012 PROPOSED BUDGET
DEBT SERVICE FUNDS
DEBT SERVICE PAYMENTS
Fund 2011 2012Increase
2000 Imp. Bond $21,080 $0 -100.0%2001 Imp. Bond $31,410 $0 -100.0%2004 Imp. Bond $90,778 $88,153 -2.9%2009 GO. Improv. $41,085 $41,085 0.0%2008 GO. Equip. $81,213 $83,625 3.0%2010 Fire Cert. $34,547 $33,674 -2.5%2004 Pub. Proj. $59,873 $63,433 5.9%TOTAL DEBT $359,686 $309,070 -14.1%
Fund balances in the 2000 & 2001 Improvement Bond Fund will be transferred to the General Fund
2012 will be the first year that the City levies ($35,411) for principal payments for the 2009 GO Improvement Bond (Payment due in February of 2013)
FUTURE DEBT PAYMENTS
FUTURE DEBT LEVIES
OTHER DEBT SERVICE INFO
$826,320 -- Total debt payments in 2012, up from $737,772 (12%) in 2011.
$223,871 -- Dollar amount of property taxes that go to pay for City Debt, up from $209,006 (7%) in 2011
30% -- Percent of the total tax levy that goes to pay for city debt obligations, up from 28% last year.
15% -- Percent of all City Expenses that go to cover debt obligations, the same as last year
THE REMAINING DEBT IS COVERED BY ASSESSMENTS, INTEREST EARNINGS AND/OR USER FEES (WATER/SEWER)
2012 PROPOSED BUDGET
IN CONCLUSION
2012 PROPOSED BUDGET – ALL CITY FUNDS
2011 2012 % Increase
GENERAL FUND $1,359,359 $1,540,323 13.3%
SPECIAL FUNDS $430,381 $432,717 0.5%
ENTERPRISE FUNDS $2,497,563 $2,670,409 6.9%
DEBT SERVICE $359,986 $309,970 -13.9%
CAPITAL IMP. FUND $161,500 $446,405 176.4%
TOTAL BUDGET $4,808,789 $5,401,574 12.3%
2012 BUDGET - ALL CITY EXPENSES
2012 BUDGET - ALL CITY REVENUES
ADDITIONAL FACTS ON THE 2012 BUDGET
Total Budgeted Revenues will increase by 12.8% in 2012 – Mainly due to Utility Rate Increases and Fund Balance Transfers
Total Budgeted Expenses will increase by 12.3% in 2013 – Mainly due to an Increase in Capital Expenses and Debt in Utility Funds
The City will spend $2,419 per person in 2012, up from $2,328 in 2011.
Top 5 Per Capita Spending:
1) Enterprise Funds -- $1,196 2) Public Safety -- $264 3) Capital Projects -- $200 4) Administration -- $153
5) Debt Service -- $139
CITY CONCERNS
Tax Base remains stagnate, property values falling Poor/Stagnate Economy What happens at the Federal/State Level? Good News! – State Projecting a $876 million Surplus!
$255 million will be used to increase State cash flow $621 million will be used to increase reserves
Means there shouldn’t be any additional State Aid cuts in the near future
City’s fiscal condition is currently healthy
LOCAL GOV’T AID (2003-2012)
NEXT STEPS
TONIGHT: Questions from Council Members Open Public Hearing and Receive Input Close Public Hearing or Continue
FUTURE: MONDAY, DEC. 19: Continuation of Truth-in-
Taxation Hearing (If Necessary) MONDAY, DEC 19 – DEC. 28: Authorize Final
Budget and Tax Levy
Truth in Taxation HearingThank you for your Attention!
December 5, 2011
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