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Overall, in 2009 the City's tax base is expected to grow approximately 4 -5 %, primarily due to new construction and commercial valuation increases. This does not mean that the City will collect 4 -5% more taxes next years. The City gets what it levies for and nothing more. The growth in the tax base simply means that the tax burden will be distributed differently. For 2009, the property tax burden will shift slightly from residential to commercial. In the event the Council determines that the 2009 maximum levy increase ought to be tied to the growth in the tax base, the City could effectively increase the levy by approximately $500,000 or 4 %, and keep the local tax rate the same. At that level, homeowners that experienced no property valuation increase would pay the same as they do now. Legislative Impacts The 2008 Legislative Session adjourned on May 19th. A number of bills were passed that will have an impact on the City, including: ❑ Transportation bill ❑ Levy limits ❑ PERA contribution increases Each of these items is addressed in greater detail below. Transportation Bill The Transportation Bill calls for an increase in the gas tax and metro sales tax, and will result in higher state -aid road funding. Based on preliminary estimates, the City can expect the following additional amounts over the next 10 years: Estimated New State Aid Road funding (thousands) $ 105 I 205 I 248 I 290 I 326 I 346 I 362 I 375 I 389 I $ 403 As is indicated in the above table, the City can expect to realize an additional $105,000 in 2009 above and beyond the $912,000 it currently receives. It will earn an additional $205,000 above its current amount in 2010, and so on. on average, the City's state -aid road funding will increase by approximately 4.4% per year from 2008-2018. However, it is reasonable to expect that the costs of street repairs (which are heavily tied to the price of oil) will also steadily increase and, in effect, offset the added funding. Levy Limits Levy limits were enacted for the 2009, 2010, 2011 fiscal years. As widely reported, the City would be restricted to limiting its property tax levy increase to 3.9% each year. However, a number of exceptions are allowed which should provide the City with additional flexibility. The MN Department of Revenue will be certifying each city's levy limits later this year. Unfortunately we don't expect to receive that certification until mid -to -late August, which is well into our budget decision - making process. Based on information known at this time it appears that the City will have the ability to increase the levy by as much as 5 or 6 %. Page 2 of 3