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Home My WebLink About2B, 2013 Proposed Final Budget & Tax Levy I't ,—ARZEN HILLS Request for Council Action 2B ...................... Prepared By: Patrick Klaers, City Administrator and Sue Iverson, Director of Work Session Date: November 19, 2012 Finance and Administrative Services 2013 Proposed Final Budget & Tax Levy Budgeted Amount: Actual Amount: Funding Source: Discussion Topic: Discussion regarding 2013 Proposed Final Budget and Tax Levy. Supporting Documents: 1. Memorandum from Patrick Klaers and Sue Iverson, dated November 19, 2012. i I'i { i EN HILLS i MEMORANDUM I DATE: November 19, 2012 ' TO: Honorable Mayor and City Council FROM: Patrick Klaers, City Administrator Sue Iverson, Director of Finance and Administrative Services 1 SUBJECT: 2013 Proposed Final Budget and Tax Levy INTRODUCTION In preparation for adoption of the final tax levy at the first meeting in December, this memo addresses the following information: preliminary tax levy, residential property values, operating budget, salary and benefit changes, and preliminary fund balance projections. PRELIMINARY TAX LEVY The table below provides a comparison of the 2012 adopted levy and the levy amount the City Council directed staff to prepare for the preliminary levy certification. It also shows a ' comparison of the tax rate at this levy amount. " Aduat , Proposed to ftem Pay 2012, Pay 3U 13 Change B �C 1. Levy before reduction for state aids $3,096,994 $3,191,230 3.0% 2. State Aids - $0 $0 0.0% 3. Certffed Property Tax Le = $3,096,994 $3,191,230 3.0% 4. Fiscal Disparity Portion of Le - $262,344 $240,789 -8.2% 5. Local Porbon of Le = $2,834,650 $2,950,441 4.1% 6. Local Taxable Value - 11,097,287 10,597,521 -4.5% 7. Local Tax Rate = 25.544% 27.841% 9.0% 8. Market Value Referenda Le $0 $0 0.0% 9. Fiscal Disparity Portion of Le SDs only) - $0 $0 0.0% 10. Locall-evy $0 $0 0.0% 11. Referenda Market Value - 1,074,744,200 1,033,491,700 -3.8% 12. Market Value Referenda Rate = 0.00000% 0.00000% 0.0% You will see that the levy has been increased per Council directive, while the City's share of Fiscal Disparities has decreased, as well as the City's Tax Capacity (line 6), which results in a 9.0% increase in the tax rate. -3 - Memo - City Council 2013 Proposed Final Budget and Tax Levy 2 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. 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 4.5%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 5.5%before any levy changes are made. With a 0% increase to the levy,the impacts look like this: -4- I � Memo - City Council 2013 Proposed Final Budget and Tax Levy 3 Actual Proposed % Item Pay 2012 Pay 2013 Change A B 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% l 6. Local Taxable Value - 11,097,287 10,597,521 -4.5% 7. Local Tax Rate = 25.544% 26.952% 5.5% 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 - 1,074,744,200 1,033,491,700 -3.8% 12. Market Value Referenda Rate = 0.00000%1 0.00000% 0.0% D E F G H I Taxable Taxing Market Homestead Taxable District Value Exclusion Market Tax Net B/4 Credit Credit Value CaEacity Tax Proposed Pay 2013 Impact from Market Shifts Pay 2013 MV 76,000 @.40% 500,000 @t0% !B7 x G)+ Total Change and Fiscal Disparities X0.988 �uproaS-I..ee (D-E) rem @1.25% 11 (812x D) Annual Increase Monthly incr. Annual Increase Monthly incr. Estimated Tax District rate as%of total rate: N/A - 150,000 23,740 126,260 1,263 $340.40 IE.25 $ 0.60 $7.25 $ 0.60 257,400 14,074 243,326 2,433 $655.74 $8.66 $ 0.72 $8.66 $ 0.72 350,000 5,740 344,260 3,443 $927.96 ($9.50) $ (0.79) ($9.50) $ (0.79) 500,000 500,000 5,000 $1 347.60 ($25.13) $ (2.09) ($25.13) $ (2.09) 750,000 750,000 8,125 $2 189.85 ($28.65) $ (2.39) ($28.65) $ (2.39) With a 3.0% increase to the levy, the impacts look like this: Actual Proposed % Item Pay 2012 Pay 2013 Change A B (C 1. Levv before reduction for state aids $3,096.994 $3,191,230 3.0% 2. State Aids $0 $0 0.0% 3. Certifed Property Tax Le = $3,096,994 $3,191,230 3.0% 4. Fiscal Disparity Portion of Le $262,344 $240,789 -8.2% 5. Local Portion of Le = $2,834,650 $2,950,441 4.1% 6. Local Taxable Value - 11,097,287 10,597,521 -4.5% 7. Local Tax Rate = 25.544% 27.841% 9.0% 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 1,033,491,700 -3.8% 12. Market Value Referenda Rate = 0.00000%1 0.00000% 0.0e/u D E F G H I Taxable Taxing Market Homestead Taxable District Value Exclusion Market Tax Net 24 Credit Credit I Value capacity Tax Impact from Market shifts Pay 2013 MV 776.000@.40%1. (B7 x G)+ and Fiscal Disparities Impact from Ley Incr Ttal Charge X0.988 (1312 x D) gnnual Increase MOr1IhIV Incr. Annual Increase Monthly incr.Annual Increase MonMiv incr. Estimated Tax District rate as%of total rate: WA 150,000 23,740 126,260 1,263 $351.63 $7.25 $ 0.60 $11.23 $ 0.94 1 $3.98 $ 0.33 257,400 14,074 243,326 2,433 $677.37 $8.66 $ 0.72 $21.63 $ 1.80 1 512.97 $ 1.08 350,000 5.740 344,260 3,443 $958.57 1 ($9.50) $ (0.79) $30.61 $ 2.551 $21.11 $ 1.76 500,000 - 500.000 5,000 $1 392.05 ($25.13) $ (2.09) $44.45 $ 3.70 $19.32 $ 1.61 750 000 750.000 8,125 $2 262.08 ($28.65) $ (2.39) $72.23 $ 6.02 $43.58 $ 3.63 -5 - Memo - City Council 2013 Proposed Final Budget and Tax Levy 4 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. 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: 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. -6- i IMemo- Ci ty Council 2013 Proposed Final Budget and Tax Levy I5 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 (the majority using 2.0%). Each 1% of COLA wage increase has approximately a $8,557 impact on the General Fund. The budget also assumes no increase in the City's contribution to health and dental insurance contribution from last year. In 2008,the City added 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. Due to this success and per Council direction we have discontinued the Co-Pay Plan for 2013 and added a second HSA plan with an embedded deductible which is allowing us to keep costs down further so we will not need to increase the City's contribution. Dental has increased by 3.5%. Short- term Disability, Long-term Disability, and Life Insurance rates will remain the same as 2012. 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 Year To Date Proposed %Change FY 2010 FY 2011 FY 2012 FY2012 10/31/2012 FY 2013 12 vs 13 Revenues Taxes Taxes 2,867,028 2,913,248 3,126,555 3,126,555 1,5 ,184 3,220,791 3.0% 69 Licenses and Permits 255,265 429,279 256,850 256,850 367,412 260,525 1.40/6 Other Intergovernmental 118,981 126,691 115,582 115,582 78,955 115,867 0.29/6 Charges for Services 388,687 491,548 425,546 425,546 286,644 417,482- -1.9% Fines&Forfeits 27,013 29,151 45,462 45,462 11,881 40,301 -11.4% Special Assessments 442 210 210 1,030 2,769 1218.6% 1.7% Miscellaneous 52,879 216,803 73,922 73,922 89,704 72,673 0.0% Transfers Total Revenues $ 3,709,854 $ 4,207,161 $ 4,044,127 $ 4,044,127 $ 2,404,810 $ 4,130,408 2.1% Expenditures by Cateoory Personal Services $ 1,358,507 $ 1,326,431 $ 1,336,195 $ 1,336,195 $ 1,055,068 $ 1,381,493 3.4% Materials and Supplies 226,136 206,303 125,850 125,850 172,469 140,150 11.44% Other Services and Charges 1,931,963 2,033,269 2,342,081 2,342,081 1,771,705 2,384,864 0.0% Capital Outlay Transfers 252,600 252,600 240,000 364,955 364,955 240,000 -34.2% 4,354 0.0% Contingency/Reserves $ 3,769,207 $ 3,818602 $ 4,044,126 $ 4,169,081 $ 3,364,197 $ 4,150,861 0.4% Total Expenditures FundBalance-January/ 1,822,260 1,762,907 2,151,335 2,151,335r 2,151,335 2,026,381 Excess Revenue Over Expenditure 59,353 388,558 1 (124,954) (959,387) (20,453 Fund Balance-December 31 $ 1,762,907 $ 2,151,335 $ 2,151,336 $ 2,026,381 $ 1,191,948 $ 2,005,928 -7- Memo - City Council 2013 Proposed Final Budget and Tax Levy 6 Revenues All revenue items were evaluated based on current economic conditions and past trends, the changes to the fee schedule have also been incorporated into the budget. The most notable item is the Council directed a levy increase of 3.0% which equates to $94,236 in revenue. One item to note is that while the tax levy is increased General Fund Revenues and the department budgets are decreased, the Property Tax Levy $ 94,236 internal overhead charges to the other funds are Admin Charges From Other Funds (18,269) also decreased and show a revenue loss to the Adult Programs 8,000 General Fund as they are based on the budgeted Highway Patrol Fines (2,000) costs for those departments. Adult Program Forfeits (3,462) revenues have been increased as a result of past Other Misc Adjustments 7,776 historical trends amounting to a 34.8% $ 86,281 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 $ 37,178 increases in the Fire Contract ($21,672, 5.52%), Public Safety Contract Incr. 57,228 Sheriff's Contract which includes animal Council training&tablets 4,640 control except for Hillcrest Animal Hospital National League of Cities Dues 710 charges ($32,708, 3.34%), and 911 Dispatch Auditing&Actuarial services 1,006 Services ($2,848, 5.79%). Application Support 3,814 PC Network Support 2,526 The $15,000 in park maintenance materials was Maintenance and Supplies-Streets 4,404 mistakenly omitted in the 2012 budget, but has Park maintenance materials 15,000 always been an ongoing expense. Professional Services (30,000) Training and Conferences (1,172) Increases to the Council budget include training, Other Misc Adjustments 11,401 tablets and National League of Cities dues. $106,735 Finance and Administrative Services and Protective Inspections have increases due to -8- Memo - City Council 2013 Proposed Final Budget and Tax Levy 7 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. Per Council direction in September, reductions have been made to Professional Services in Administration, Planning & Zoning, and the TCAAP departments totaling $30,000. $1,172 has been removed from various departments for training. 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 TIF District and the conduit debt fees will not be ongoing. There were no significant changes to the other Special Revenue Funds except that there is no transfer from the PIR Fund to the EDA fund budgeted in 2013. There are no significant changes to the Debt Service Fund. Capital Funds were discussed at in October and the changes requested during those discussions have been incorporated into this budget. The Fee Schedule was also discussed in October and those changes, as previously stated have been incorporated into the budget. 2013 Rate Increases Enterprise Funds have been evaluated and changes made to accurately reflect economic conditions and historical trends. An Water 7% updated rate study will be done and presented to the City Council at Sanitary Sewer 2% the worksession. The rates included in the proposed budget are Surface Water 3% from the 2008 Rate Study. GENERAL INFORMATION A final levy is established and certified in December. 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 3.0% levy increase provides no opportunity to build fund balances in capital funds (Park Fund, PIR/Capital, and Public Safety). The final budget includes the use of $20,453 in reserves to balance the budget. In order to finalize the budget, it would be helpful to have additional Council input. This would include reaffirming the final levy amount and indicating any other concerns or priorities. DIRECTION REQUESTED: 1. Direction to staff regarding the 2013 final levy. 2. Further direction to staff regarding 2013 budget. -9-