2002-08-26 CC Worksession - Laserfiche WebLink

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,. , I . Strategies for Cities For city officials who remember previous state budget shortfalls and subsequent city aid cuts, much of this situation and the strategies that follow may sound familiar. Below are several considerations that may help you weigh the pros and cons of revenue enhancements, expenditure reductions, and use of reserves as you consider setting a budget for 2003. Ultimately, you will have to make decisions that best reflect the needs of your community. 1. Consider increasing your property tax levy to cover or at least partially offset potential state aid reductions. If aid reductions do not materialize, you can adjust your 2004 property tax levy accordingly. A.) For cities over 2,500 population, levy limits are in place for taxes payable in 2003. Due to an extremely low inflation adjustment for this year's levy limits, cities affected by levy limits might not have sufficient levy authority to cover even normal budgetary pressures. Levy limits are due to expire, but they could certainly be extended by the 2003 legislature. E.) Increasing your property tax levy could potentially result in a larger state aid reduction. Last January, the Governor unveiled a new proposal that based a portion of each city's aid reduction on the size of each city's increase in property tax levy plus state aids. In other words, the larger the city's revenue, the greater the reduction in state aids. Although the Governor's concept was not adopted by the Legislature, this proposal could always resurface in the 2003 legislative session. C.) Although property tax increases could be implemented to offset potential budget cuts, the property tax increases of cities could be viewed as municipal preparation for state aid cuts and legislators could rationalize cuts because cities are financially "prepared" for the reducti on. D.) Increasing property taxes to cover a speculative state aid cut could be criticized or misunderstood by your citizens and business owners. You may want to consider enhanced discussions with your citizens, businesses, and legislators about the difficulties facing the city and setting a 2003 budget. E.) Consider the implications of tax reform on any tax increment financing (TIP) districts within your city. Past tax reform efforts, including the major changes enacted in 2001, may have severely impacted the revenue stream of TIP districts and the city may already be committed to property tax increases to cover TIP obligations. F.) Given the magnitude of the state budget deficit, other local units of government may also be considering increases in their property tax. With the new state property tax, legislators might be considering their own property tax increase to address the shortfall. You might want to consider the combined impact of these potential increases for your taxpayers. A