Loading...
HomeMy WebLinkAbout08-27-01 WSa ~ s i CITY OF LAKEVILLE COUNCIL WORKSESSION MEETING MINUTES MONDAY, AUGUST 27, 2001 The meeting was called to order at 5:30 p.m. at the City Hall. Present: Mayor Bob Johnson, Council members Mulvihill, Luick, Bellows and Reib; City Administrator Robert Erickson; Finance Director Dennis Feller. Legislative Impacts Affecting Budgets and Property Taxes Mr. Feller reviewed the AMM/LMC memorandum dated August 16, 2001 related to 2001 Legislative changes to property taxes and state aids and the 2001 Omnibus Tax Bill: Frequently Asked Questions. Mr. Feller stated the literature provides excellent information relative to the 2001 Legislative process, which resulted in significant changes to property tax laws and state aid distributions. Mr. Feller also reviewed the Burnsville Sun Current editorial dated July 25, 2001, "Sorting Out the State's new property tax system", Governor Jesse Ventura's letter to the editor in response to the Burnsville Sun Current Article and the Star Tribune article dated August 22, 2001 "Rebate checks are on the way". Mr. Feller reviewed the Omnibus Tax Law relating to state aid to cities and property tax credits. Unlike the regular HACA, manufactured home HACA cannot be recovered with the property tax levy. Elimination of manufactured home HACA results in an approximately • $50,000 net loss of revenues to the City of Lakeville. Council member Mulvihill stated that it was ironic that the Legislature would eliminate manufactured home HACA at a time when it is endeavoring to encourage cities to provide affordable housing opportunities. Mr. Feller distributed a report prepared by the Minnesota Department of Revenue, which shows the LGA distribution to Minnesota cities.. First Class cities received 102.5% of their 2001 HACA plus LGA and the one-time limitation for all other cities equal to 40% of the sum of its net levy per taxes payable 2001 plus its 2001 HACA. For most non-metro cities over 10,000 population LGA allocation was favorable as a result of the city aid base which was increased for 2001 by the lesser of $60 times the population over 5,000 or $2.5 million. As such, the City of Winona receives $958 per household of state-aid; the City of Lakeville's state-aid was reduced. to $37 per household ($11.57/capita). First class cities of Duluth, Minneapolis and St. Paul received state-aid increases of $3.1 million, $2.8 million and $1.9 million, respectively. The City of Winona received a $2.5 million increase. The City of Lakeville, however, will incur a $1,748,000 decrease in state aids. The City can increase its tax levy for the $1.7 million loss of HACA; however, the City's share of the overall property tax levy will go up dramatically. Mr. Feller stated that levy limits were imposed for the next two years. The levy limits are increased each year by: 1) annual percentage increase in households within each city; 2) percentage increase in inflation as defined by the implicit price in deflator (3.36%); and 3) the • annual percentage increase in new construction of commercial and industrial property within the City. Mayor Johnson stated that levy limits are especially punitive to Lakeville because ~~ household growth (for levy limit calculation purposes) is down due to the moratorium. However, tax levy. constraints due to levy limits must serve a population, which is growing rapidly after the expiration of the moratorium. The City is authorized to levy special property taxes. for debt service, increases due to matching grant fund requirements, and employer contributions for PERA Coordinated. The overall net revenue increases due to levy limits taken into consideration the levy for losses due. to HACA will result in a net revenue increase of approximately $865,000. Mr. Erickson stated that levy limits constrain the City's ability to provide adequate appropriations for needed employee positions, expansion of existing services as well as new programs. All departments have experienced a significant increase in service levels as a result of growth including street mileage (snowplowing), park trail facilities, fire calls and police activity. Mr. Erickson reviewed the following budget issues and concerns. A. Pavement Mana eg_m~nt For more than two decades, Lakeville specially assessed property owners for half the cost of sealcoating. One of the most significant 2001 tax levy policy changes adopted by the City Council is financing pavement management costs, including sealcoating, with ad valorem taxes rather than special assessments. With the reimposition of levy limits, the City Council may have to reconsider the policies of financing pavement management with special; assessments rather than property taxes. • B. Transportation The Legislature provided no funding appropriations for transportation projects. within the City of Lakeville. It places that obligation or burden upon the City to finance the County Road 70 and. the County Road 60 interchanges with limited resources. C. Liquor: Wine in rg ocer st~ores_ The Legislature entertained the "wine in grocery" legislation that would have authorized grocery stores to sell wine. Although the bill did not pass during the last session, the proposed legislation is likely to be reconsidered during the coming year. If the legislation were to .pass, the Liquor Fund would experience a significant loss of net income. Any degradation of Liquor Fund net income would jeopardize the construction financing of city facilities such as Fire Station No. 4. (2003-4 CIP) D. Building Fund Projects -Fire Station #4 The Capital Improvements Plan and proposed city budget anticipated the construction of Fire Station No. 4 in coming years. In addition to financing the construction costs as discussed above with the "wine in grocery" legislation, the city will also need to finance operating costs • (firefighters) associated with the new facility which are subject to levy limits. 2 .~ - E. Bond Referendums In light of levy limitations and potential "wine in grocery store" legislation, the City Council may have to consider referendums for construction of city facilities such as Fire Station No. 4. F. Certificates of Indebtedness Certificates of Indebtedness are short-term (matures in less than 5 years) debt instruments utilized to finance acquisition of equipment. Tax levies for Certificates of Indebtedness. are exempt from levy limits. Historically the City Council has approved budgets whereby equipment such as squad cars ($172,898), which have a useful life of less than two years, are financed with cash rather than Certificates of Indebtedness because the equipment is retired before the bonds are paid in full. As a result of levy limits constraints, the City Council may be compelled to finance all equipment acquisitions .with Certificate of Indebtedness. G. PERA pension increases .The omnibus tax bill outlines increased employee and employer contributions by 0.35 percent in both the basic and coordinated programs. Employees in the coordinated plan will contribute 5.10 percent (currently 4.75 percent); Employers will contribute 5.53 percent (currently 5.18 percent). Contribution increases are effective Jan. 1, 2002. The cost of PERA due to the .35 percent increase can be financed with special tax levy ($19,000), which is not subject to levy • limits. H. Salar~~employee compensation The City Council has endeavored. to pursue market (salary) surveys to support the compensation program to attract and retain employees. The imposition of levy limits adversely impacts the City's ability to finance employee compensation adjustments. I. National Conferences. The City Council has historically approved appropriations for the Department Heads to attend National Conferences on a biannual basis. With the imposition of levy limits, the City Council may wish to revisit that policy. J. Building Permit Fee Limitations Minnesota Statute 16B.63 limits permit fees to $15 or 5%, whichever is greater, for improvements, installation or replacement of residential fixtures or appliances that does not modify gas or electric service, has a labor cost of $500 or less and is done by the homeowner or licensed contractor effective January 1, 2002. The $15 permit fee does not provide adequate revenues to cover the actual cost of services provided. • 3 The law also requires annual reporting of building related information to the Minnesota Department of Administration relating to fees collected from builders, developers and subcontractors. If the legislature expands the laws to other building-related permit fees, the impact to General Fund budget would be significant -especially within the constraints of levy limits. K. Residential Moratorium In light of levy limits and building permit fee legislation, the City Council may wish to consider a moratorium on future residential development. L. Tax Increment Financing House File No. 1, First Special Session, significantly reduced property taxes by changing property class rates and by the removal of the state mandated school financing from the property tax levy. A portion of the local school levy is replaced by a statewide levy on commercial industrial property; the. state levy is not captured as tax increment. Lakeville can anticipate significant declines in tax increment revenues for existing districts beginning with taxes payable in 2002. The projects most significantly impacted are Fairfield Business Campus (for I-35/County Road 70 project), Di Hed Yokes and Southfork Apartments (Arts Center ). Mr. Erickson suggested the City prepare Messages articles that would provide information regarding levy limits and growth. Levy limits restrict the City's ability to make good choices. Mayor Johnson stated the City should prepare athree-part series m the Messages page regarding the levy limits, state-aids and property tax distribution. Taxpayers should be informed that the City's share of taxes is increasing as a result of the shifts in state-aids. Council member Reib reminded council members and staff that the City of Lakeville has historically hadthe lowest tax capacity rate in Dakota County for almost a decade. The City of Lakeville also is amongst the lowest in the number of employees per capita and in spending per capita. Mr. Erickson suggested the City Council may wish to consider authorizing the Mayor to send a letter to Lakeville's Legislative Representatives stating that the City cannot continue to grow and provide increased service levels with the imposition of levy limits. Citizens expect high levels of city services. Mr. Luick also suggested that Lakeville's Legislative Representatives be invited to attend the September 17 Council meeting (when the tax levy is approved) to explain the Legislature's rationale regarding the 2001 Omnibus Tax Bill. Meeting adjourned at 6:45 p.m. Respectfully submitted, Dennis Feller Finance Director 4