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Home My WebLink About8A, 2012 Operating Levy Payable 2013 'It EN HILLS Request for Council Action 8A i Prepared By: Sue Iverson, Director of Finance ! Council Meeting Date: September 10, 2012 and Administrative Services 2012 Operating Levy Payable 2013 Budgeted Amount: Actual Amount: Funding Source: N/A N/A N/A Recommendation: 1. A motion to adopt Resolution 2012-031, a resolution setting the preliminary levy for taxes payable in 2013 in the amount of$ Supporting Documents: 1. Memorandum dated September 10, 2012 from Patrick Klaers and Sue Iverson. 2. Resolution 2012-031. lt EN HILLS MEMORANDUM DATE: September 10, 2012 TO: Honorable Mayor and City Council, FROM: Patrick Klaers, City Administrato 4)14— Sue Iverson, Director of Finance and Administrative Services SUBJECT: 2013 Proposed Preliminary Budget and Tax Levy INTRODUCTION In preparation for adoption of the preliminary tax levy, this memo addresses the following information: preliminary tax levy as prepared by staff, residential property values, operating budget, salary and benefit changes, and preliminary fund balance projections. RESIDENTIAL PROPERTY VALUES According to information provided by Ramsey County in May of this year, the median home value in Arden Hills will decrease from $272,800 for 2012 taxes, to $257,400 for 2013 taxes which is a 5.6% drop in value compared to the county average decrease of 7.6%. According to Ramsey County, assessed value has now declined for five consecutive assessments; this has primarily been the result of the recession and loss of financing liquidity and has been fueled by pessimistic buyer expectation. The loss in value this period has been the largest loss in value of residential property. However, there are now encouraging signs that the markets have stabilized, or are stabilizing; we are now experiencing a flattening in the decline of residential values, rising apartment values, and the commercial markets are also showing promise of appreciation (from Ramsey County Assessor Stephen Baker). Foreclosures are at a lower percentage than they have been in many years. In order to evaluate the true impact to the residential property owner, you need to take into account the decrease in fiscal disparities (decrease of 8.2%) and the change in the taxable value (decrease of 4.4% after exclusions). To help illustrate this, the following table shows the impact to the residential property owner due to the reduction in fiscal disparity dollars and changes in the assessed market value. This results in a net Tax Rate increase of 5.4% before any levy changes are made.made. Memo - City Council 2013 Proposed Preliminary Budget and Tax Levy 2 �`. 41W _ ed kem Pay*012 kPay 2Q13 Charrg9 A : iBP " C 1. Levy before reduction for state aids $3,096,994 $3,096,994 0.0% 2. State Aids 0 0 0.0% 3. Certifed Property Tax Le = $3,096,994 $3,096,994 0.0% 4. Fiscal Disparity Portion of Le $262,344 $240,789 -8.2% 5. Local Portion of Le = $2,834,650 $2,856,205 0.8% 6. Local Taxable Value + 11,097,287 10,608,032 -4.4% 7. Local Tax Rate = 25.54416 26.925%, 5.4% 8. Market Value Referenda Le $0 $0 0.0% 9. Fiscal Disparity Portion of Le SDs only) $0 $0 0.0% 10. Local Le = 0 $0 0.0% 11. Referenda Market Value + 1 074744 200 1,033,972,000 -3.8% 12. Market Value Referenda Rate = 0.00000% 0.00000*/ 0.0% D E F G H I sTtitCable � �:_,t; " � Taxing,t Market Tliornestead Taxab� Cllstricl ' Vale Exelasfp Nfarket Tax [ Net Bi4Credit Credk":n VBtue CaDac1tv - •� iPro° P .� .; Impact from Market Shifts Pay 2013 MV 76,000 @.40% 500,Doo@1.0% (137 x G)+ Total Change and Fiscal Disparities X0.988 mup.4n799Q.o9 (D-E) rem C 1.25% (812 x D) Annual Increase Monthly incr. Annual Increase Monthly incr. Estimated Tax District rate as%oftotal rate: WA 150,000 23,740 126,260 1,263 $340.06 $7.59 $ 0.63 $7.59 $ 0.63 257,400 14,074 243,326 2,433 $655.09 $9.31 $ 0.78 $9.31 $ 0.78 350,000 5,740 344,260 3,443 $927.03 ($10.43) $ (0.87) ($10.43) $ (0.87) 500,000 500,000 5,000 $1 346.25 ($26.48) $ (2.21) ($26.48) $ (2.21) 750.000 750,000 8,125 $2,187.66 ($30.84) $ (2.57) ($30.84) $ (2.57) You will see that the City's share of Fiscal Disparities has decreased, as well as the City's Tax Capacity (line 6), which results in a 5.4% increase in the tax rate. Fiscal Disparities runs on a one year lag and is based on the levy amounts that jurisdictions submitted for 2012 (or last year). Jurisdictions who increased their levies will receive more, while those that kept their levies flat or fairly small will see decreases. The effects of the Market Value Exclusion from last year are also seen in this year's Fiscal Disparities numbers for the first time. RECAP OF RAMSEY COUNTY FINANCE DIRECTORS MEETING On August 15, 2012, Ramsey County held a meeting with its Finance Directors from all taxing districts. At this meeting it was noted that rising levy rates helped to offset some of the decreased fiscal disparities for various districts. In our case this will helps the county, school district, and city portions of your tax payer's bill. The Assessor is optimistic that Pay 2012 values can hold steady this next year. As previously stated, while this year's loss has been the largest loss in residential values, the markets are now stabilizing and foreclosures are lower in percent than they have been in many years. There has been a significant recovery in the commercial markets since the 2009 low. The biggest value loss county-wide was seen in Apartments which is why Arden Hills has not been affected as much as other cities. Memo - City Council 2013 Proposed Preliminary Budget and Tax Levy 3 PRELIMINARY TAX LEVY The table below provides a comparison of the 2012 adopted levy and the 4.1% levy increase the City Council directed staff to prepare for the preliminary worksession discussion on September 4, 2012. It also shows a comparison of the tax rate at this levy amount. Actual Proposed % Item Pay 2012 Pay 2013 Change. A B C 1. Levy before reduction for state aids $3,096,994 $3,225,510 4.1% 2. State Aids $0 $0 0.0% 3. Certifed Property Tax Le = $3,096,994 $3,225,510 4.1% 4. Fiscal Disparity Portion of Le $262,344 $240,789 -8.2°i% 5. Local Portion of Le = $2,834,650 $2,984,721 5.3% 6. Local Taxable Value - 11,097,287 10,608,032 44% 7. Local Tax Rate = 25.544% 28.136% 10.1% 8. Market Value Referenda Le $0 $0 0.0% 9. Fiscal Disparity Portion of Le SDs on $0 $0 0.0% 10. Local Le - $0 $0 0.0% 11. Referenda Market Value - 1,074 744,200 1,033,972,000 -3.8 io 12. Market Value Referenda Rate - 0.00000% 0.00000% 0.0% You will see that the levy has been increased per Council directive, which combined with the City's share of the Fiscal Disparities decrease (line 4), as well as the City's Tax Capacity decrease (line 6), results in a 10.1% increase in the tax rate. The result to the median valued ($257,400) taxpayer's tax bill is shown below: D E F G H I Taxable Taxing 'Market Homestead Taxable District Value Exclusion Market Tax Net B/4 Credit Credit Value Capacity Tax' Pro s Pav 2013 Impact from Market Shifts Pay 2013 MV 76,000@.40% 500,000@1.0% (87 x G)+ and Fiscal Disparities Impact from Levy Incr Total Change X0.988 (D-E) rem @ 1.25% (812 x D) Annual Increase Monthly incr.,nnual Increas Monthly incr. Annual Increase Monthly incr. Estimated Tax District rate as%of total rate: N/A 150,000 23,740 126,260 1,263 $355.36 $7.59 $ 0.63 $15.30 $ 1.28 $7.71 $ 0.64 257,400 14,074 243,326 2,433 $684.55 $9.31 $ 0.78 $29.46 $ 2.45 $20.15 350,000 5,740 344,260 3,443 $968.72 ($10.43) $ (0.87) $41.69 $ 3.47 $31.26 $ 2.61 500,000 500,000 5,000 $1 406.80 ($26.48) $ (2.21) $60.55 $ 5.05 $34.07 $ 2.84 750,000 750 000 8 125 $2 286.05 ($30.84) $ (2.57) $98.39 $ 8.20 $67.55 $ 5.63 Memo - City Council 2013 Proposed Preliminary Budget and Tax Levy 4 TAKING A LOOK AT ARDEN HILLS LEVY HISTORY The State of Minnesota has granted local municipalities the authority to levy taxes to fund operations and debt payments. The City's entire tax levy goes for General Fund expenditures. For the City of Arden Hills, the property tax levy accounts for approximately 78% of the General Fund revenues. Historically, the City does not use reserves to balance the City's budget, however, due to the current economic environment $41,201 was used to balance the budget for 2010 and $20,000 was used in 2011. No reserves were used in 2012. The following table provides a historical view of the City's property tax levies and tax rates: Year Tax Lew Change Tax Rate Change 2002 $2,201,002 - 25.092% - 2003 $2,265,712 2.94% 23.930% -4.63% 2004 $2,333,337 2.98% 23.367% -2.35% 2005 $2,440,453 4.59% 21.299% -8.85% 2006 $2,537,520 3.98% 20.191% -5.20% 2007 $2,688,944 5.97% 20.206% 0.07% 2008 $2,797,348 4.03% 19.585% -3.07% 2009 $2,948,646 5.41% 20.520% 4.77% 2010 $3,016,465 2.30% 22.647% 10.37% 2011 $3,040,964 0.81% 24.180% 6.77% 2012 $3,096,994 1.84% 25.544% 5.64% 2009 saw the start of the LJFD duty crew implementation, while 2010 and 2011 saw the unallotment of the MVHC to cities. We have been very conservative in our budgeting and have reduced department budgets or used reserves to deal with the increased costs of our contracted services while still maintaining services the last few years. OPERATING BUDGET Salary and Benefits The 2013 preliminary budget was prepared assuming a 2% wage adjustment for non-union staff and a 0% wage adjustment for union staff as it is unknown what our costs will be as our union contract is up on December 31, 2012 (Monies have been set aside in contingency for this purpose). As previously discussed with the City Council, in surveying surrounding communities most have included a 1.5% - 3.0% COLA increase in their preliminary estimates. Each 1% of wage increase has an $8,557 impact on the General Fund. The budget also assumes a $32 per month increase in the City's contribution to health and dental insurance. The increase for 2013 is 5% for medical; however 6% is included in the budget as we did not receive this data until after the preliminary budget was prepared. In 2008, the City added Memo - City Council 2013 Proposed Preliminary Budget and Tax Levy 5 a high-deductible HSA plan which has been helping to keep our costs low; in 2011 we saw a decrease of 13.1%, so there was no increase in the City contribution in 2011; 2012 was a 3.6% increase (the lowest rate they could give us by law) and this year's increase is also the lowest increase they could give us by law. Dental has been estimated at 10% as we have not yet received the actual rates from the insurance carrier. Short-term Disability, Long-term Disability, and Life Insurance rates will remain the same as 2012. We are exploring options to convert to a second high-deductible plan with an embedded deductible and eliminating the Co-Pay Plan, but more analysis needs to be done. General Fund Revenues and expenditures are shown in the table below. We have highlighted items that impact the tax levy and proposed budget on the next page to give you a brief overview. More detailed commentary is found in the department and fund pages of the budget document. City of Arden Hills General Fund Actual Actual Budget Amended YTD Proposed %Change FY 2010 FY 2011 FY 2012 FY2012 08/2312012 FY 2013 12 vs 13 Revenues Taxes Ta)es 2,867,028 2,913,248 3,126,555 3,126,555 1,569,193 3,255,071 4.11% Licenses and Permits 255,265 429,279 256,850 256,850 304,195 257,562 0.28% Other Intergovernmental 118,981 126,691 115,582 115,582 78,955 115,867 0.25% Charges for Services 388,687 491,548 425,546 425,546 246,367 416,209 -2.19% Fines&Forfeits 27,013 29,151 45,462 45,462 11,027 40,301 -11.35% Special Assessments - 442 210 210 1,030 2,769 1218.61% Miscellaneous 52,879 216,803 73,922 73,922 69,646 72,673 -1.69% Transfers 0.00% Total Revenues $ 3,709,854 $ 4,207,161 $ 4 044 127 $ 4,044,127 $ 2,280,413 $ 4,160,452 2.88% Expenditures by Category Personal Services $ 1,358,507 $ 1,326,431 $ 1,336,195 $ 1,336,195 $ 817,386 $ 1,380,365 3.31% Materials and Supplies 226,136 206,303 125,850 125,850 80,823 140,150 11.36% Other Services and Charges 1,931,963 2,033,269 2,342,081 2,342,081 1,417,300 2,416,036 3.16% Capital Outlay - - - - - - 0.00% Transfers 252,600 252,600 240,000 364,955 364,955 240,000 -34.24% Contingency/Reserves - - 4,354 0.00% Total Expenditures $ 3,769,207 $ 3,818,602 $ 4,044,126 $ 4,169 081 $ 2,680,464 $ 4,180,905 0.28% Fund Balance-January 1 1,822,260 1,762,907 2,151,335 2,151,335 2,151,335 2,026,381 Excess Revenue Over Expenditure (59,353) 388,558 1 (124,954) (400,052) (20,453) Fund Balance-December 31 $ 1,762,907 $ 2,151,335 $ 2,151,336 $ 2,026,381 $ 1,751,283 $ 2,005,928 Revenues General Fund Revenues All revenue items were evaluated based on current Property Tax Levy $128,516 economic conditions and past trends. The most Admin Charges From Other Funds (18,269) notable item is the Council directed levy increase Adult Programs 8,000 of 4.1% which equates to $128,516 in revenue. Highway Patrol Fines (2,000) One item to note is that while the tax levy is increased and the department budgets are Forfeits (3,462) decreased, the internal overhead charges to the Other Misc Adjustments 3, $116,325 325 Memo - City Council 2013 Proposed Preliminary Budget and Tax Levy 6 other funds are also decreased and show a revenue loss to the General Fund as they are based on the budgeted costs for those departments. Adult Program revenues have been increased as a result of past historical trends amounting to a 34.8% increase. Highway Patrol Fines have been decreased 50%, and Forfeits have been decreased by 63.4%. One item to note is that we received conduit debt fees from the Presbyterian Homes project in 2011 and transferred them to the EDA in 2012, however, there is no funding source identified for the EDA or for funding reserves in the capital funds at this time. Expenditures In 2008, EDA expenditures were moved from the EDA Fund to the General Fund under the Planning & Zoning department as there was a negative fund balance, and transfers to replenish the fund were budgeted from the General Fund. In 2012 the EDA expenditures were moved from the General Fund back to the EDA Fund and the conduit debt fees from the Presbyterian Homes project were transferred to this fund as seed money. The expenditures in this fund consist of primarily salary and benefit costs, however auditing, accounting, IT, and insurance have also been allocated. There is no transfer from the General Fund to the EDA Fund in the 2013 budget. General Fund Expenditures Public Safety is increased by $57,228 for Salary& Benefits $ 36,050 increases in the Fire Contract ($21,672, 5.52%), Public Safety Contract Incr. 57,228 Sheriffs Contract which includes animal Council training&tablets 4,640 control except for Hill°crest Animal Hospital charges ($32,708, 3.34/°), and 911 Dispatch National League of Cities Dues 710 Services ($2,848, 5.79%). Auditing&Actuarial services 1,006 Application Support 3,814 The $15,000 in park maintenance materials was PC Network Support 2,526 mistakenly omitted in the 2012 budget, but has Maintenance and Supplies-Streets 4,404 always been an ongoing expense. Park maintenance materials 15,000 Other Misc Adjustments 11,401 Increases to the Council budget include training, $136,779 tablets and National League of Cities dues. Finance and Administrative Services and Protective Inspections have increases due to technology related items such as, Springbrook support and maintenance; IT related services, Permit Works, and software licensing. Auditing and Actuarial services are also an increase to Finance and Administrative budget. There is a Reserve/Contingency budgeted in the 2013 budget for negotiations, but not for any other purposes. Other Funds We have previously noted the changes to the EDA Fund. Staff recommends that a funding source be found for this fund in the future as the current funding source from the Round Lake TIF District and the Presbyterian Homes conduit debt fees will not be ongoing. Staff also Memo - City Council 2013 Proposed Preliminary Budget and Tax Levy 7 recommends a transfer of $50,000 from the PIR Fund in 2013 for the Gateway signs. There were no significant changes to the other Special Revenue Funds. There are no significant changes to the Debt Service Fund. Capital Funds were discussed at our June meeting during the Capital Improvement Plan (CIP) review. They will again be brought back for discussion at our October worksession, as will the Fee Schedule. Enterprise Funds have been evaluated and changes made to 2013 Rate Increases accurately reflect economic conditions and historical trends. An updated rate study will be done and presented to the City Council at water % 2 the November worksession. The rates included in the proposed Sanitary Sewer 2% budget are from the 2008 Rate Study. Surface water 3% COUNCIL DIRECTED OPTIONS At the September 4, 2012 worksession, Council directed staff to bring back various options for Council discussion at the September 10, 2012 meeting before setting the preliminary levy. This consists of various options to reduce the levy which in turn could result in reductions of services and/or an increased uses of reserves. These include: Possible Cuts and Impact to Levy Impact Department Description Amount to Levy Administration Professional Services/Consultants $ 10,000 -0.32% Finance and Administrative Services Training&Conferences 1,000 -0.03% Planning&Zoning CD Director National Conference 1,200 -0.04% Planning&Zoning Professional Services/Consultants 20,000 -0.65% TCAAP Professional Services/Consultants 10,000 -0.32% Emergency Management Professional Services/Consultants 2,000 -0.06% Park Maintenance Training&Conferences 500 -0.02% Street Maintenance Training&Conferences 500 -0.02% All Departments Employee Benefits 4,444 -0.14% $49,644 -1.60% Possible Increases and Impact to Levy Impact Department Description Amount to Levy Recreation Youth Programs $ 1,000 0.03% Recreation After School Programs 500 0.02% $ 1,500 0.05% Memo - City Council 2013 Proposed Preliminary Budget and Tax Levy 8 Items Still Included in the 2013 Budget are: Impact Department Description Amount to Levy Celebrating Arden Hills Community Event(net cost to budget) $ 10,000 0.32% City Council National Training Costs 2,400 0.08% Administration City Administration National Conference 1,200 0.04% All Departments-General Fund Wages at 2%COLA 17,000 0.55% Transfers Transfer to Equipment Fund 40,000 1.29% Transfers Transfer to PI Fund 200,000 6.46% Possible Administration reductions are related to staff development activities and financing services, like Ehlers, to work on the TIF guidelines, etc. If these reductions are made $18,000 would still remain in the Administration budget for unspecified projects and $40,000 would remain in Planning & Zoning for work on such projects as the B2 Plan and a Grey Fox Area Study. After the reduction in TCAAP, $50,000 would remain, if this is not enough to cover expenses, the General Fund reserves or the PIR Fund reserves will have to be used to cover the expenditures. GENERAL INFORMATION A preliminary levy needs to be established and certified by September 15th each year, while the final levy needs to be established and certified by December 201h of each year. As Council knows, once a preliminary levy is established, the amount can be reduced, but it cannot be increased. It should be noted that the 4.1% levy increase provides no opportunity to build fund balances in capital funds (Park Fund, PIR/Capital, and Public Safety). The preliminary budget includes the use of$20,453 in reserves to balance the budget. DIRECTION REQUESTED: Council discussion and direction on where to set the preliminary levy for taxes payable in 2013 knowing that the levy may be reduced before final adoption in December but not increased. (Adoption of Resolution 2012-031 following discussion and preliminary levy decision) ,ARZEN HILLS CITY OF ARDEN HILLS COUNTY OF RAMSEY STATE OF MINNESOTA RESOLUTION NO. 2012-031 A RESOLUTION SETTING THE PRELIMINARY LEVY FOR TAXES PAYABLE IN 2013 BE IT RESOLVED by the Arden Hills City Council that the following proposed sums of money be levied for levy year 2012 payable in 2013 upon taxable property in said City of Arden Hills for the following purposes: CERTIFIED LEVY AMOUNT General Fund $ PASSED AND ADOPTED BY THE CITY COUNCIL OF THE CITY OF ARDEN HILLS THIS 10" DAY OF SEPTEMBER, 2012. DAVID GRANT, MAYOR ATTEST: PATRICK KLAERS, CITY ADMINISTRATOR