HomeMy WebLinkAboutCity Council Packet 11-08-2011 SpecialCITY OF PLYMOUTH
AGENDA
SPECIAL COUNCIL MEETING
November 8, 2011
Immediately Following Regular Council Meeting
MEDICINE LAKE CONFERENCE ROOM
1. CALL TO ORDER
2. TOPICS
A. 2012 Budget
3. ADJOURN
Special Council Meeting 1 of 1 November 8, 2011
rp)City of Agenda
Plymouth Number:
Adding Quality to Life
To: Laurie Ahrens, City Manager
SPECIAL
COUNCIL MEETING Prepared by: Jodi Bursheim, Finance Manager
November 8, 2011
Item: Budget Meeting #6
1. ACTION REQUESTED:
Review budget changes to finalize the proposed 2012 budget and provide staff direction on the
2013 budget.
2. BACKGROUND:
The Council has held five scheduled budget meetings:
June 14, 2011
July 26, 2011
August 16, 2011
September 6, 2011
September 13, 2011
Information from each of these meetings is available on the city website.
The City Council adopted the preliminary 2012 budget and tax levy with a I% increase over
2011 at the September 13, 2011 meeting. The final levy may be reduced but not increased
before final certification to Hennepin County on December 15, 2011.
The Council scheduled a work session for November 8, 2011 to consider reducing the I% tax
levy increase to 0% before final adoption which would occur after the public hearing on
December 13, 2011.
The following changes have been reflected in the updated 2012 printed budget materials:
General Fund Changes:
Revenue changes: Increase (Decrease)
Tax levy reduction to zero percent (288,710)
Park & Recreation field maintenance fees (15,000)
Tax abatements (30,000)
Community Development permit revenues 116,000
Police grant revenues were adjusted to awarded amounts 2,967
Page 1
Expenditure changes: Increase (Decrease)
Contingency (192,540)
Risk Management allocations (45,049)
Public Facilities allocations (22,854)
Salary and benefits were adjusted for contract settlements 44,917
All other funds:
Revenue changes: Increase (Decrease)
Transit — MVST revenue (981,000)
Expenditure changes: Increase (Decrease)
Park & Recreation — donation increase to Music in Plymouth 20,000
Risk Management allocations (15,137)
Public Facilities allocations 22,857
Salary and benefits were adjusted for contract settlements 18,848
Water - debt service principal payment eliminated (830,000)
It is difficult to project the tax impact to city properties. Several factors contribute to the complexity
of identifying the impact to residents:
Legislation repealed the market value homestead credit and enacted the market value
homestead exclusion
Volatile real estate market with values changing at inconsistent rates
Shifting of the tax burden from commercial to residential due to commercial industrial
values declining at a faster rate than residential
The effect fiscal disparities will have on Plymouth's tax base
The shift of the tax burden from other taxing jurisdictions
In the attached document, staff has estimated tax impacts based on the best information available.
The total of all properties in Plymouth will experience a tax increase of approximately 1.8% due to
the legislative change in the market value homestead program.
The 2013 budget is currently balanced reflecting a 2.14% levy increase over a 0% levy increase in
2012. Staff originally proposed a levy increase of 1 % in 2012 and 1 % in 2013. Reducing the 2012
levy to 0% would result in a larger percentage increase to 2013. The City Council has spent a
significant amount of time reviewing the 2012 budget. The 2013 concept budget has not been
thoroughly reviewed or discussed by the Council. Therefore, we anticipate material changes will be
made next year when considering the 2013 budget for adoption.
Page 2
3. ATTACHMENTS:
City and HRA levies
Tax impacts
MN Department of Revenue — Understanding Recent Changes in Homestead Benefits
Hennepin County — Homestead Market Value Exclusion
Percent change in tax due to Homestead Credit Elimination and Value Exclusion
League of MN Cities — Market Value Exclusion 101
2012 budget impacts
Page 3
City and HRA Levies
Levy Type
Levy Limit Base
General Fund Base
Market Value Homestead Credit
Street Reconstruction
Recreation Fund
Park Replacement
Capital Improvement Fund
Total Levy Limit Base
Special Levies
PERA
PublicSafety
GO 2003B Street Recon Bonds
GO 2003C Street ReconBonds
2003D Open Space Refunding
GO 2004A Public Safety
MV GO 2007A Open Space
MV 2009B Activity Center Bonds
MV GO 2010A Open Space
Total Special Levies
TOTAL CITY LEVY
HRA Levy
TOTALLEVY
Updated Scenario
2012 Increase/ 2013 Increase/
22,701,000 23,343,010
0 0
2,686,024 2,686,024
559,480 559,480
130,000 100,000
391,432 391,432
16,860,943
CITY and HRA TAX LEVIES
26,756,646 60.04% 27,079,946 1.21% 26,467,936 58.31% 27,079,946 2.31%
101,012 108,728 157,588
2009 2010 Increase/ 2011 Increase/ 2012 Increase/ 2013 Increase/
12,856,138 13,050,115 12,560,323 22,989,710 23,343,010
510,000 589,795 552,502 0 0
2,458,092 2,531,835 2,607,790 2,686,024 2,686,024
678,497 618,497 618,497 559,480 559,480
267,257 281,326
130,000 100,000
358,216 368,962 380,031 391,432 391,432
Updated Scenario
2012 Increase/ 2013 Increase/
22,701,000 23,343,010
0 0
2,686,024 2,686,024
559,480 559,480
130,000 100,000
391,432 391,432
16,860,943 17,159,204 1.77% 16,719,143 -2.56% 26,756,646 60.04% 27,079,946 1.21% 26,467,936 58.31% 27,079,946 2.31%
101,012 108,728 157,588 0 0 0 0
9,231,614 9,183,835 9,593,124 0 0 0 0
178,355 179,038 179,563 179,524 179,314 179,524 179,314
424,531
551,277 551,277 551,277 551,277 551,277 551,277
267,257 281,326
596,354 596,958 601,683 598,953 601,053 598,953 601,053
255,486 255,223 254,764 254,108 253,255 254,108 253,255
432,016 410,989 407,558 412,125 410,970 412,125 410,970
263,259 264,036 265,716 264,036 265,716
11,486,625 11,016,097 4.10% 11,457,539 4.01% 1,708,746 -85.09% 1,710,308 0.09% 1,708,746 -85.0W% 1,710,308 0.09%
28,347,568 28,175,301 0.61% 28,176,682 0.00% 28,465,392 1.02% 28,790,254 1.14% 28,176,682 0.00% 28,790,254 2.18%
551,277 551,277 551,277 551,277 551,277 551,277 551,277
28,898,845 $28,726,578 -0.60% $28,727,959 0.00% $29,016,669 1.00% $29,341,531 1.12% $28,727,959 0.00% $29,341,531 2.14%
11/3/2011 2:59 PM
Page 4
Tax Impact for Proposed Tax Levy
Residential Property
Estimated Estimated Percentage
2011 2012 Increase Increase
Lower Value Concentration to Median Value
Initial/ Max Exclusion
Final Exclusion Amount
Adjusted Taxable Value
Tax Capacity at 1 %
Tax Capacity Rate
Tax based on tax capacity
Market Value Rate
Tax based on market value
Total City & Market Value Property Tax
HRA Tax Capacity Rate
HRA Property Tax
Total Property Tax
Market Value Credit
Total Net Property Tax
162,100 160,300
30,400
22,813
162,100 137,487
1,621 1,375
26.791% 28.057%
434.28 385.75
0.010% 0.011%
16.60 16.91
450.88 402.66
0.540% 0.566%
8.75 7.78
459.63 410.44
59.46)
Market Value Rate
400.18 410.44 10.27 2.57%
Estimated Estimated Percentage
2011 2012 Increase Increase
Median Value 261,600 260,300
Initial/ Max Exclusion 30,400
Final Exclusion Amount 13,813
Adjusted Taxable Value 261,600 246,487
Tax Capacity at 1 % 2,616 2,465
Tax Capacity Rate 26.791% 28.057%
Tax based on tax capacity 700.86 691.57
Market Value Rate 0.010% 0.011%
Tax based on market value 26.78 27.46
Total City & Market Value Property Tax 727.64 719.03
HRA Tax Capacity Rate 0.540% 0.566%
HRA Property Tax 14.13 13.95
Total Property Tax $741.77 $732.98
Market Value Credit ($35.95)
Total Net Property Tax $705.81 $732.98 $27.17 3.85%
City of Plymouth 11/3/2011 2:59 PM
Market Value Exclusion:
76,000
No exclusion for
properties over $413,800
Page 5
Tax Impact for Proposed Tax Levy
Residential Property
Higher Value Concentration to Median Value
Initial/ Max Exclusion
Final Exclusion Amount
Adjusted Taxable Value
Tax Capacity at 1 %
Tax Capacity Rate
Tax based on tax capacity
Market Value Rate
Tax based on market value
Total City & Market Value Property Tax
HRA Tax Capacity Rate
HRA Property Tax
Total Property Tax
Market Value Credit
Total Net Property Tax
Estimated Estimated Percentage
2011 2012 Increase Increase
311,700 310,300
1,000,000
30,400
866.99
9,313
311,700 300,987
3,117 3,010
26.791% 28.057%
835.08 844.48
0.010% 0.011%
31.91 32.73
1,000,000
877.21866.99
0.540% 0.566%
16.83 17.04
11,694
894.25883.82
24.12)
105.49
3,343
859.71 894.25 $34.54 4.02%
Commercial Property
Estimated Estimated Percentage
2011 2012 Increase Increase
Tax Capacity Rate
Market Value Rate
On a $1,000,000 Property
Tax Capacity
less: Fiscal Disparity contribution rate
Net Tax Capacity
Tax based on tax capacity
Tax based on market value
Total Property Tax
26.791% 28.057%
0.01% 0.01%
1,000,000 1,000,000
19,250 19,250
0.371552 0.392500
12,098 11,694
3,241.09 3,281.09
102.38 105.49
3,343 3,387 $43.11 1.29%
City of Plymouth 11/3/2011 2:59 PM
Page 6
MINNESOTA• REVENUE
Understanding Recent Changes in Homestead Benefits
For Property Tax Purposes
What Changed?
The 2011 Legislature repealed the Homestead Market Value Credit, (the homestead credit), and
replaced it with a new Homestead Market Value Exclusion. The last year of the credit is for
property taxes paid in 2011 and the exclusion begins for property taxes payable in 2012.
What is a credit? What is an exclusion?
A credit is a reduction in the An exclusion is a reduction in the
amount of taxes due. amount of value subject to tax.
The old law with the credit was as simple as: X — Y = Z
If your initial tax was X, and your credit was Y, then the tax you had to pay was Z.
Under the new law, an exclusion changes the initial tax amount (X), and with the credit gone, the
new initial tax becomes the final tax (X = Z).
HOW DO HOMESTEAD BENEFITS CHANGE?
Under the old law, the credit itself equaled the homestead benefit, and its calculation depended
only on the value of the homestead. Because the credit was subtracted from the initial tax
amount, the credit affected each taxpayer independently.
Under the new law, the exclusion is still calculated using the value of the homestead, but the tax
benefit depends on a variety of factors other than homestead value. Because the exclusion is a
reduction in the value subject to tax, it also affects tax rates and the taxes of all properties.
WHY IS THIS CHANGE COMMONLY RESULTING IN TAX INCREASES?
There are four reasons why the change commonly results in increases:
1) State money is no longer reducing total taxes. For 2012, the state was projected to pay
approximately $260 million of local taxes through the credit program. With the change, there
will be no state paid credit and the entire local property tax levy will be paid by taxpayers.
2) The reduction in taxable value increases tax rates. With the total taxable value being reduced
by the exclusion, raising the same total levy as the prior year requires a higher rate.
3) The reduction in taxable value shifts the relative burdens of who pays. With homestead values
reduced, other property types (and homes with higher values) pay a larger share of the tax.
4) The exclusion provides less benefit in low tax rate areas than the credit. The computation of
the exclusion and credit amounts are roughly comparable where the tax rate is close to the
state average, but in lower tax rate areas the excluded value provides less benefit. High rate
areas may see greater benefit.
Minnesota Revenue, Understanding Recent Changes in Homestead Benefits
Page 7
COMPUTATION OF CREDIT AND EXCLUSION AMOUNTS
E th h th t b f'it f th d"t d thvenour, a eaxens o a cre i an e
exclusion are not equal, the calculation of the
exclusion amount is similar to the calculation of the
former credit. Both reach their maximum at $76,000
of market value ($304 for the credit; $30,400 for the
exclusion). Both reduce to $0 at about $414,000 of
market value.
Credit = 0.4% of the first $76,000,
minus 0.09% of the value over $76,000.
Exclusion = 40% of the first $76,000,
minus 9% of the value over $76,000.
Example: A house valued at $116,000.
Credit = (0.4% x $76,000) — ($40,000 x 0.09%)
304 — $36
268
Exclusion = (40% x $76,000) — ($40,000 x 9%)
30,400 — $3,600
26,800
WANT MORE DETAILS? CONSIDER THIS THEORETICAL ILLUSTRATION
Similarly computed amounts do not yield equal benefits:
AVERAGE TAX RATE ILLUSTRATION
Old Law:
63.486%
Credit
Estimated Market Value 116,000
Exclusion 0
Taxable Market Value 116,000
Class Rate 1%
Net Tax Capacity 1,160
Tax Rate 105.810%
Gross Tax 1,227
Credit 268
Net Tax 959
New Law:
Exclusion i
116,000
26,800
89,200
1%
892 '
110.920%
989
0
989
LOW TAX RATE ILLUSTRATION
Tax Rate 63.486% 66.552%
Gross Tax 736 594
Credit 268 0
Net Tax 468 594
NOTE: This illustration does not reflect an actual location
Let's say you live in a house valued at $116,000.
Under the old law the full value was taxed, but
the new exclusion lowers the taxable value.
Different classes of property are taxed at different
levels. The first $500,000 of homestead value has a
rate of 1%. (Higher value has a rate of 1.25%.)
Net tax capacity" is a term describing the taxable
value after class rates are applied. Again, this is
lower under the new law due to the exclusion.
Tax rates increase because the exclusion shrinks the
taxable value. This illustration shows statewide
average rates before and after the change.
The gross tax under the old law was higher because
there was no exclusion, but the credit reduced the
net tax. Under the new law the gross and net are
the same. Here the increase is modest, but...
Tax rates affect the relative strength of the
exclusion because multiplying excluded value by a
low rate is less beneficial than multiplying it by a
high rate. So, under a "low tax rate" example, the
increase in tax is more extreme.
WHAT ELSE AFFECTS MY TAXES (IN ADDITION TO THE HOMESTEAD BENEFIT)?
Local levy decisions, including the effects of changes in state aid and local budget priorities.
Market forces can affect property taxes in two ways:
The value of your property may increase or decrease.
The value of other properties may increase or decrease and change the share that your
property is of the total tax base, whether your property's value changed or not.
Various other changes (the classification or your property, eligibility for other benefits, and
miscellaneous law changes) may also affect property taxes.
Minnesota Revenue, Understanding Recent Changes in Homestead Benefits 2
Page 8
Homestead Market Value Exclusion
Background
Legislation (2011 omnibus tax act) repealed the market value homestead credit
and enacted the market value homestead exclusion.
The homestead market value exclusion provides a tax reduction to homesteads
valued below $413,800 by shifting a portion of the tax burden that would
otherwise fall on the homestead. (The amount of the shift depends on the mix of
properties within the taxing district — percent of residential homestead properties)
The market value exclusion will shift the tax burden within the taxing district
rather than being paid through a state credit.
Why the Change
The main reason for replacement of the credit with the exclusion is the state
budget situation. By repealing the credit, the state has cut approximately $261
million per year from their appropriations (from house research Chapter 7 fiscal
notes for FY 2012 — 2013).
In seven of the last eight years the state did not pay a full reimbursement to all
local governments.
Calculation
The repealed market value homestead credit was calculated by multiplying the
first $76,000 of Estimated Market Value times .4%, and then subtracts any
Estimated Market Value over $76,000 times .09%, reducing the amount of credit
to zero when the Estimated Market Value reached $413,800.
The new law calculates market value homestead exclusion by multiplying the first
76,000 ofEstimated Market Value times 40%, and then subtracts any Estimated
Market Value over $76,000 times 9%, reducing the amount of the exclusion to
zero when the Estimated Market Value reaches $413,800.
Impact
The homestead market value exclusion may provide some property tax relief to
homesteads valued below $413,800 depending on the mix ofproperties within the
specific taxing district.
Shifts the funding for homestead property tax relief from the state to all local
property taxpayers in the amount of approximately $288 million state wide.
Report from Minnesota Department of Revenue average state wide tax rate of
110.92%).
This change results in a reduction to the property tax base and an increase in the
local tax rate.
If you have any questions, please call 612-348-3011 or email at
taxinfo(a,co.hennepin.mn.us Page 9
Name of City/TownQ
49,084
Percent Change in Tax Due to Horrmestead Credit Elimination and Value
Exclusion (see final page for explanatlon of property types)
2.5%
L
MEt -
L
n
1.2%
r.
2.9%
Amount In parentheses represents percent
2. Bloomington
y LAfu - r. Ui0 2 F-
2.6% 2.6% 2.7%
of city pop u latio n wlthi n the legislative
rorO
o €
irl M
Qj
in W5 rs
C - U
2.8%
district Lased o n 2CW Census
1.2%
o L
2
C
L2 2 '5 a- eL
1. Apple Valley C 49,084 2.5% 2.5% 2.8% 2.9% 3.0% 1.2% 3.5% 2.9% 2.2%
2. Bloomington C 82,893 1.5% 1.5% 2.6% 2.6% 2.7% 1.0% 1.9% 2.6% 1.3%
3. Burnsville C 60,306 2.6% 2.6% 2.7% 2.8% 2.7% 1.2% 2.8% 1.9%
4. Eagan C 64,206 3.2% 3.1% 2.7% 2.8% 2.8% 1.0% 3.7% 2.5% 2.1%
5. Eden Prairie C 60,797 2.0% 1.8% 2.0% 2.1% 2.0% 0.9% 2.2% 2.1% 1.5%
6. Edina C 47,941 2.2% 1.9% 2.0% 2.4% 2.1% 1.1% 1.8%
7. Inver Grove Heights C 33,880 2.9% 2.9% 3.0% 3.2% 3.2% 1.3% 3.8% 3.0% 2.3%
8. Lakeville C 55,954 2.5% 2.5% 2.8% 2.6% 2.6% 1.1% 3.5% 4.1% 2.1%
9. Maple Grove C 61,567 2.1% 2.0% 2.6% 2.7% 2.7% 1.2% 3.1% 1.8%
10. Maplewood C 38,018 1.9% 2.1% 3.9% 4.0% 4.1% 2.0% 4.5% 4.1% 2.1%
11. Minnetonka C 49,734 1.9% 1.8% 2.0% 2.1% 2.1% 0.9% 2.1% 2.3% 1.5%
12.Plymouth C 70,576 2.3% 2.1% 2.3% 2.6% 2.3% 1.0% 2.3% 2.0% 1.8%
13. Savage (6%) C 26,911 1.6% 1.6% 2.3% 2.4% 2.1% 1.1% 2.8% 1.5%
14. Shakopee C 37,076 2.4% 2.3% 2.8% 2.8% 2.8% 1.2% 3.1% 2.8% 1.8%
15.Shoreview C 25,043 2.8% 2.9% 3.6% 3.7% 3.7% 1.6% 3.8% 3.7% 2.5%
16. Woodbury C 61,961 2.8% 2.7% 2.8% 3.0% 3.1% 1.1% 3.3% 3.0% 2.2%
Page 10
0
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.
Year
Original
Amount
Final
Amount
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 1 12,1069217
2011 est. 60,246,987 1 12,148,508
145 UNIVERSITY AVE. WEST PHONE: (651) 281-1200 FAY- (651) 281-1299
ST. PAUL, MN 55103-2044 TOLL FREE: (800) 925-1122 rS1CF§1N"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%
ofmarket 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 at zero 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 $76,000 $150,000 $300,00-0—F $450,000
Previous Law: MVHC
Net Tax Capacity (market value x 1% class
rate)
760 1,500 3,000 4,500
Gross Tax at rate of 105.81% (rate x tax
capacity)
804.16 1,587.15 3,174.30 4,761.45
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
class rate)
2,898 4,500
MVHC Credit $0 $0 0 0
Net Tax at rate of110.92% (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.
Page 12
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 ofproperty 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.Imc. org//page/ 1 /property -tax -state -funding -fiscal -issues. jM
Page 13
2012 Budget Impacts
Preliminary Tax Levy
City Council adopted a preliminary levy increase of one percent for 2012.
The preliminary levy can be raised, but not lowered before the council adopts the final
budget in December.
Council will meet on November 8 for a final budget study session. At that meeting, they
plan to make further reductions to the 2012 budget in an effort to shrink the one percent
increase in the preliminary levy to zero percent.
The past two years, the council has kept the levy flat or decreased the city levy.
In 2011, the city levy increase was kept flat (i.e., zero percent increase).
In 2010, the city levy decreased by 0.6 percent.
Proposed Budget
The past several years, the City Council has sought to strike a balance between providing quality
core services and minimizing the tax impact on property owners. Like past years, the 2012
budget does not include new initiatives.
Of the proposed one percent increase in the 2012 preliminary levy, only about'/2 percent (.55
percent) is for funding general operations. The reminder of the one percent increase covers
special levies for infrastructure improvements, bond debt and the levy for the HRA.
The proposed 2012 budget eliminates five positions.
With the 2012 cuts, the city will have eliminated more than 30 positions since 2009. This
translates into a decrease in the city's full-time equivalent (FTE) workforce by more than
10 percent.
Effect on Property Owner
Calculating the effect on the median value home cannot be done reliably this year because too
many factors are at play. Each home is a special case. Before we can generalize, we need to see
how the state legislative changes play out. Among the factors at play are:
Changes in state -mandated property tax relief program, i.e., elimination of market value
homestead tax credit and new homestead market value exclusion.
The wide variance in changing residential property values;
Commercial -industrial (CI) values are still decreasing faster than some homes, which
shifts more of the tax burden from Cl to residential properties;
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The effect fiscal disparities, the metro -wide sharing pool of CI tax capacity, will have on
Plymouth's tax base; and
The shift of the Hennepin County and school district tax burden among suburbs as
property in some communities hold value better than others.
Where Your Property Taxes Go
City receives about 27% of the property taxes paid by homeowners.
Of the portion the city receives, it is distributed as follows:
Police 35%
Public Works 18%
Parks & Recreation 17%
Support Services 13%
Fire 9%
Planning & Inspections 8%
Budget Hearing
Budget Hearing set for 7 p.m. on Tuesday, December 13 at City Hall.
Televised on cable channel 16 in Plymouth and streamed via the city website, plymouthmn.gov.
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