3C, 2012 Proposed Final Budget and Tax Levy

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Memo City Council 2012 Proposed Final Budget and Tax Levy 2 You will see that the levy has increased by 3% over 2011 but the tax rate has increased by 7%, this is due in part to the change in legislation regarding the Market Value Homestead Credit (MVHC) program, a reduction in our share of fiscal disparity dollars, and the increase in the levy. RESIDENTIAL PROPERTY VALUES According to information provided by Ramsey County in March of this year, the median home value in Arden Hills will decrease from $276,000 for 2011 taxes, to $272,800 for 2012 taxes which is a 1.16% drop in value compared to the county average decrease of 4.01 %. The MVHC program was replaced with the new Market Value Exclusion (MVE) program, which reduces the local taxable value of homestead properties that are valued under $413,800 at which point the credit is phased out. This affects the City's tax rate as it reduces the overall taxable value of the City. All jurisdictions will see an increase in tax rates in 2012 as a result of this change. • Old MVHC Pro�ram Under the old MVHC program, home property taxes were reduced by a State credit. The program was designed to hold local governments harmless by a reimbursement from the State of Minnesota for the sum of all credits provided. As the City Council is aware, this credit has been reduced or eliminated altogether in most years due to State budget cuts. (It was only fully funded one year out of the nine that it was in effect.) Another complicating component of the old MVHC program was that the estimated amount of credits needed to be included in the City's levy, even though no reimbursement from the State would occur. This caused a mismatch between the adopted levy and the actual levy collections. • New MVE Pro�ram Under the new MVE program, a portion of the home's market value is excluded for tax purposes. This creates a new Taxable Market Value (which is lower than the estimated Market Value), as well as a reduced value for tax computations (taxable value). One big advantage of this program is that the state credits are eliminated, which means there is no need to add estimated MVHC credits to the overall levy amount. The following table provides an example of how the new program will work for five different home values. Homes valued at $76,000 receive the maximum value reduction, and homes valued at $413,800 (value at which the exclusion is phased out) and above receive no value reduction.