HomeMy WebLinkAbout[08b] 2012 Budget Recommendations •
CITY OF ST. JOSEPH
www. cityof stjoseph.com
DATE: November 16, 2011
MEMO TO: St. Joseph Economic Development Authority
FROM: Cynthia Smith - Strack, Municipal Development Group
RE: EDA Budget - 2012
Capital Improvement Plans for 2012
Administrator
Judy Weyrens Background
The City Council is working on finalizing the 2012 budget and CIP. Finalizing the budget is
Mayor complicated by the impact of a decision by elected officials at the State level earlier this year that is
Richard Schultz effective with taxes payable 2012.
Councilors In 2011 elected officials at the state level made a fundamental change to the property tax system.
Steve Frank During a special session elected officials at the state level abolished the Market Value Homestead
Bob Loso Credit Program and the established a Market Value Exclusion Program.
Renee Symanietz
Dale Wick The result is the creation of more than $260M in savings in the state budget. But the result also
means an immediate decrease in the tax base for cities. That's because a portion of the value of
EDA owner occupied dwellings will automatically be excluded from the taxable market value. For
Carolyn Yaggie example, 40% of a home valued at $76,000 or Tess will not be taxed. This means that instead of
Heinen paying taxes on a home valued at $76,000, the property owner would pay taxes on a value of
Chad Davey $45,600. This also results in a shift of the tax burden onto rental income property and commercial
Steve Frank industrial property (residential market value decreases but apartments and commercial /industrial do
Tom Skahen not).
Dale Wick
Additional information on the change created by the League of MN. Cities is attached to this memo.
The decrease in tax base (market value) means that cities (counties and schools too) must either
increase tax levy rates or decrease 2012 costs. At this time the City Council has expressed a desire
to keep the tax rate steady which means the 2012 budget will need to be reduced, possibly by up to
$250,000.
The EDA has been asked to again review its 2012 operations budget and capital program requests.
The proposed revised 2012 budget and CIP are attached for your reference. Please note at this time
the 2012 budget included $8,000 that had been in years past dedicated to the St. Cloud Area
Economic Development Partnership. The majority of the $8,000 was redistributed in the preliminary
2012 EDA budget to cover marketing efforts (i.e. $7,000). Some members of the City Council favor
keeping the $8,000 in the 2012 EDA budget but using it specifically for participation in the Greater St.
Cloud Economic Development Corporation rather than for marketing purposes.
In addition, the EDA's revised CIP request was reduced by the City Council at their September 15,
2011 meeting. The following table represents the changes. The final column in the table is for EDA
use during discussion if proposed changes are recommended.
•
CITY OF ST. JOSEPH
www.cityof stjoseph.com
Included in
Program Item EDA Request Preliminary Difference Changes?
Budget
Let's Go Downtown $ 20,000.00 $ 15,000.00 $ 5,000.00 $
Business Development/TIF $ 10,000.00 $ 10,000.00 $ - $
Producer /Processor Institute $ 2,500.00 $ 2,500.00 $ - $
Business Demolition Program $ 8,000.00 $ 6,000.00 $ 2,000.00 $
BFA Grant/Loan Program $ 8,000.00 $ 8,000.00 $ - $
Rental Conversions $ 2,500.00 $ 2,500.00 $ - $
CSAH 2/3 Collection Street $ 5,000.00 $ - $ 5,000.00 $
TOTAL $ 56,000.00 $ 44,000.00 $ 12,000.00 $
Action:
The EDA is asked to review the operational budget and CIP requests to potentially identify cost
savings. If identified, MOTIONS to approve such recommendations are in order.
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How can | find out if my property qualifies state property tax policy. It may make changes to the
for the homestead market value exclusion new exelusion prograrn or it may not. The effects u|the
program? Only homesteads (defined »xowner- HM\lh on pi owners' fulure Lax bilk are very
occupied homes for tax purposes) quaIiU'for the difficult to predict—for some properties, tax biUmbeyond
exclusion. Hornesteads valucd at less Lhan $76,000 2012 may increase whik for others they rnay decrease.
will have 4() perceni of thcir value excluded. The transition from the MVRC system mz the new F{M\/E
1-or hornesteads valucd at more than $76.000the system will be complete in 2012 so rnovingforward there
exclusion percentage is reduced intil 11 hits 0% wilt not he any effects on property tax hifls due to the
u/ homesteads valued u( more than $413J78.The conversion itself. Regardless o[ what happens with the
proposed tax staternents property owners will receive T1CW cxclusion prograrn. property tax hills can still go up
this fall may be confusing. They niight show a change or down due 10 changes in ihe properly's assessed value.
in the value ofthe horne hut 'on't specifv how or changes in citv, county. or school district levies.
much of that change is due 10 the new exetusion as
opposed to changes in the housing rnarket. The final Why is the stte government involved in this at
tax statements sent in the apringnii| be more specific all? k thought property taxes were set by local
about what portion of the value is cxcludcd for each governments? While city councils and mayors set city
homcsiuod, hudgcts and deterniine the amount of property taxes 10
collect, policy dccisioiis made at thc statc level about
What does the change mean for business and how the properly tax s works also affect property
apartment owners? 11 is likely ihai taxes on busi- tax bilis. The slale designs property tax relief programs.
ness and apartrnent properties will rise in 2012.This tike the rnarketvalue hornestead credit and the new
is hecause thc non-business and apariment portion of market value escivaiun,u:md|ua the local government
citV tax bases vill shrink with the exclusions given 10 aid pvog„xum (general aid paid directly oouiheo).'Re
homesteads. In other words, business and apartment state also establishes different catcgorics of property and
properties will hecorne higger pieces of the tax base determines the porlion of each type of property that is
pie. In ordcr 10 generate at least the same amouni of taxable through the system of classification rates.
property tax dollars to provide cit services. the tax
rate would need 10 be higher. Alt properties in a corn- What are the other things that impact how much
munity wouhi he subject 10 the higher tax rate. property tax pay? Besides SIaIC poticy choices. other
things that can affect your property taxes include city
Are all cities affected by this change in the spending decisions, changes in the valuation of your
same way? No two cities will he affected in exacUy property, changes in the valuation o( other properties
thc same way becausc the mix of differcnl property in your community. and spendiiig decisions of your
tvpes is dit'fereni in each comrnunity. In sorne cities, county and school district. Your property tax hill includes
most o! the properiy tax basc is hornes. in others. property taxes paid 10 counties. ciiies, schools. and
business property or farm property makes up a larger special districts, like watershed dimhots.
portion of the tax base. Thc amount of homcsiead
property—specifically, the amount of honies that Are there other property tax relief programs
qualify for the exclusion deiermine the effcct 011 available for homeowners or business owners?
the city's tax base. The state ;Administers several property tax relief
programs, including the regular property tax refund
Is thls charige permanent? Will it make my program (also known as the "circuit hreaker" program).
taxes go up or down next year? The State lnformation about (he different programs and eligibitity
Lcgisiature can aivays take acuon on any pari of rules are avaiiabie at www.taxes.state.mn.us.
___ - _____---- -----------____-__-____---_-_-_-___________-___'__--_-
For more information
LEAGUE OF MINNESOTA ClT[ES �� |�j
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145 University A'enu West, St. PauI, MN 55103'2044 LEAGUE OF
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LEAGUE OF CONNECTING & INNOVATING
MINNESOTA SINCE 1913
CITIES
Market Value Exclusion 101
October 2011
The Market Value Exclusion (MVE) program (hereafter referred to as "the exclusion ") replaced
the Market Value Homestead Credit (MVHC) program for taxes payable in 2012 and beyond.
This guide describes how the exclusion works and highlights some of the issues that cities should
keep in mind when examining the effects of the new program on their communities. Many of the
issues relate to the ways that different aspects of the property tax system interact. A detailed
description of the overall property tax system can be found in the "Property Taxation 101" guide.
An overview of the new exclusion program and will be available on the League's site.
Background
During the 2011 special session, legislators eliminated the MVHC program, creating a
savings of more than $260 million for the state budget. Cities had experienced years of
cuts to the reimbursement payments from the state, leaving them with shortfalls in their
property tax levies at the end of the year. The table below shows the amount cities
expected to receive in reimbursement and the actual amount paid by the state for each
year of the program (2002 through 2011). The state fully reimbursed cities for the
amount of credit going to homeowners in only two years since the program's inception
(2002 and 2007). The elimination of the program means that cities will no longer have to
deal with the unpredictability and in consistency of reimbursement payment amounts.
The new exclusion program, however, has created a lot of questions for local officials
and property owners. The exclusion program begins with taxes payable in 2012.
Original Final
Year Amount Amount
(cities) (cities)
2002 87,512,765 87,512,765
2003 85,539,919 65,425,091
2004 85,290,722 66,279,257
2005 82,636,505 65,087,094
2006 78,921,393 62,809,103
2007 75,935,548 75,935,548
2008 75,810,435 63,310,311
2009 76,770,261 57,204,103
2010 82,053,176 12,106,217
2011 est. 60,246,987 12,148,508
145 UNIVERSITY AVE. WEST PHONE (651) 281 -1200 FAX: (651) 281 -1299
ST. PAUL, MN 55103 -2044 21 TOLL FREE: (800) 925 -1122 WEB: WWW.LMC.ORG
How it works for homeowners:
Much like in the MVHC program, homeowners will not have to take any action in order
to benefit from the market value exclusion. It is applied automatically. The maximum
exclusion will go to homes valued at $76,000 or less. The exclusion at that level is 40%
of market value. For a $76,000 home, that means $30,400 of value is not taxable. In
other words, all property taxes are applied only to the remaining $45,600 of market value.
As home value increases, the portion of market value eligible for exclusion phases out
and is attzero percent for homes valued at more than $413,778. Note that market values
are determined in the year prior to the year in which taxes are paid. For example, values
used to calculate taxes payable in 2011 were set in early 2010. Property owners will
receive notices stating the value of their property for 2012 taxes early in the spring of
2012. That will be the first time that homestead owners see the amount of their value
excluded.
Below is a sample calculation of total taxes due (city, county, and school district taxes)
before and after the exclusion from the Department of Revenue:
Sample Home Market Value 1 $76,000 1 $150,000 1 $300,000 1 $450,000
Previous Law: MVHC
Net Tax Capacity (market value x 1% class $760 $1,500 $3,000 $4,500
rate)
Gross Tax at rate of 105.81% (rate x tax $804.16 $1,587.15 $3,174.30 $4,761.45
capacity)
Current MVHC $304.00 $237.40 $102.40 $0
Net Tax (total tax less credit) $500.16 $1,349.75 $3,071.90 $4,761.45
New Law: Exclusion
Market Value Exclusion $30,400 $23,740 $10,240 $0
MV after exclusion $45,600 $126,260 $289,760 $450,000
Home Net Tax Capacity (market value x 1% $456 $1,263 $2,898 $4,500
class rate)
MVHC Credit $0 $0 $0 $0
Net Tax at rate of 110.92% (rate x tax capacity) $505.80 $1,400.48 $3,214.02 $4,991.40
*the total tax rates used in this example are statewide averages before and after the effects of the exclusion
What it means for cities
The immediate effect of the exclusion is a decrease in the tax base. The valuations used for
calculating taxes owed in 2012 were set in early 2011. They won't be updated until early
2012 for taxes payable in 2013. So, a portion of homestead value will be excluded and
values for other kinds of property will not be updated. The extent of the decrease in tax
base depends on the portion of homestead property each city has.
The tax base decrease will mean that in order to generate the same amount of city property
tax dollars as in 2011, city tax rates will have to go up. For example, if prior to the
conversion a city's tax base was 1000 and its tax levy was 100, the tax rate would be 10 %.
Now, in that same city the tax base has been reduced 40% to 600. The city still needs to
generate 100 in property taxes. The rate climbs to almost 17 %. For many cities, it will
likely be very difficult to hold levies flat given the repeated cuts to Local Government Aid
(LGA) payments and to ongoing cost pressures, like the cost of healthcare, fuel and
infrastructure maintenance.
2
The exclusion will result in a shift in tax burden from homestead properties to other kinds
of property. The extent of this shift will be influenced by the portion of all homestead
property made up of lower value homes. The more lower -value homes a city has as a
portion of its tax base means more tax burden shifting.
In many communities, lower value homes will pay more in taxes even if the levy remains flat.
This is because of the increase in tax rate necessary to generate the same amount of tax levy. This
effect is more likely in cities where a high portion of property is lower value homes.
Property tax bills, of course, reflect the levy decisions and tax bases of not just the city, but also
the county, the school district and any special districts. The tax bases of all local governments will
be affected by the new exclusion program. A given city may not see a big decrease in its city tax
base and therefore experience little shifting of city tax burden. The county containing that city
may have a lot of lower -value homes and therefore experience a big tax base loss. That will affect
property owners within the city.
Other issues to consider
The new HMVE program will interact with other aspects of the tax system, namely Tax Increment
Financing (TIF), Local Government Aid (LGA), and market value levy limits. The interactions
are described briefly below:
MVE and TIF: The new program will mean that current values of TIF properties will be adjusted
but the Dept. of Revenue has indicated that the base year values will NOT be adjusted. This will
result in a decrease in the increment captured and may cause problems for cities in paying off debt
associated with the TIF district.
MVE and LGA: The current LGA formula takes city tax base into account in distributing the
LGA appropriation. The exclusion will reduce tax capacity in each city. That will mean a
reduction in the capacity side of the need vs. capacity comparison the formula makes.
MVE and market value levy limits: The Dept. of Revenue has indicated that market values for
determining HRA and EDA levy limits and certain debt limits will be the values after the effects of
the exclusion.
Resources
League of Minnesota Cities
http: / /www.lmc.org/page /1 /property- tax - state - funding- fiscal - issues j sn
•
St. Joseph Economic Development Authority
2012 Preliminary Budget, Adopted September 15, 2011
2009 2010 2011 2011 2012 Diff 2011
Object Description Actual Actual YTD Amount Budget Budget to 2012
FUND 150 Economic Development
DEPART 46500 Economic Development Authority
103 Legislative Bodies 1,260.00 1,190.00 - 1,390.00 1,390.00 -
151 Workers Comp. Insur. Prerr 31.33 27.80 1.75 150.00 10.00 (140.00)
200 Office Supplies 126.81 182.84 63.83 500.00 500.00 -
215 Software Support - 434.93 529.52 450.00 540.00 90.00
300 Professional Services 29,464.49 27,658.86 13,381.16 28,000.00 28,000.00 -
303 Engineering Fee - 2,853.50 1,947.04 2,000.00 2,000.00 -
304 Legal Fees 1,950.75 - 1,176.50 1,000.00 1,000.00 -
321 Telephone 788.46 733.06 692.77 1,200.00 785.00 (415.00)
322 Postage 28.00 255.60 - 350.00 350.00 -
328 Marketing - - - - 8,000.00 8,000.00
331 Travel & Conference Expen - 304.97 - 150.00 150.00 -
340 Advertising 135.28 108.29 88.89 500.00 500.00 -
410 Rentals 71.10 15.00 - - - -
433 Dues & Memberships 8,000.00 8,000.00 - 8,000.00 - (8,000.00)
434 Certification Fee 46.00 - - - - -
582 Computer Software - - - 300.00 - (300.00)
588 EDA Programs 10,926.78 7,952.72 30,366.05 40,000.00 44,000.00 4,000.00
52,829.00 49,717.57 48,247.51 83,990.00 87,225.00 3,235.00
FUND 156 TIF 1-4 St. Joe Development
DEPART 46500 Economic Development Authority
101 Salaries 232.60 124.38 322.29 - - -
121 PERA Contributions 15.71 8.70 23.38 - - -
122 FICA Contributions 13.66 7.21 19.07 - - -
123 Deferred Comp- Employer 4.75 2.37 5.78 - - -
125 Medicare Contributions 3.19 1.68 4.46 - - -
131 Health Insurance 32.31 18.22 52.41 - - -
133 Life Insurance 0.32 0.23 0.69 - - -
134 Disabilty Insurance 0.13 1.03 3.60 - - -
300 Professional Services 40.00 60.00 3,371.00 - - -
340 Advertising 30.00 27.44 98.34 - - -
588 EDA Programs - - 47,000.00
- -
622 Tax Increment Payments 59,572.92 61,482.26 29,873.24
- -
59,945.59 61,733.52 80,774.26
- -
FUND 157 TIF 2 -1 Millstream
DEPART 46500 Economic Development Authority
101 Salaries 232.60 91.20 253.46 - - -
121 PERA Contributions 15.69 6.39 18.38 - - -
122 FICA Contributions 13.66 5.32 14.99 - - -
123 Deferred Comp- Employer 4.74 1.75 4.54 - - -
125 Medicare Contributions 3.20 1.25 3.51 - - -
131 Health Insurance 32.31 12.22 43.44 - - -
133 Life Insurance 0.33 0.14 0.53 - - -
134 Disabilty Insurance 0.13 0.51 3.07 - - -
300 Professional Services 100.00 - - - - -
317 Other fees - - - - - -
331 Travel & Conference Expen - - - - - -
340 Advertising 30.00 27.44 32.34 - - -
30
622 Tax Increment Payments 5,760.00 28,701.30 21,222.80 - - -
720 Transfers to Other Funds 5,625.50 - - - - -
11,818.16 28,847.52 21,597.06
- -
FUND 158 TIF 2 -2 Meat Market
DEPART 46500 Economic Development Authority
101 Salaries - - 17.58 - - -
121 PERA Contributions - - 1.27 - - -
122 FICA Contributions - - 1.05 - - -
123 Deferred Comp - Employer - - 0.31 - - -
125 Medicare Contributions - - 0.25 - - -
131 Health Insurance - - 3.00 - - -
133 Life Insurance - - 0.03 - - -
134 Disabilty Insurance - - 0.25 - - -
300 Professional Services - - 108.00 - - -
340 Advertising - - 165.00 - - -
622 Tax Increment Payments - - - - - -
- - 296.74 - - -
FUND 250 Revolving Loan Fund
DEPART 46500 Economic Development Authority
300 Professional Services 1,054.56 - - - - -
304 Legal Fees 22.50 - 54.00 - - -
317 Other fees - - - - - -
434 Certification Fee - - - - - -
455 Revolving Loan Proceeds 24,000.00 - 26,000.00 - - -
25,077.06 - 26,054.00 - - -
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