HomeMy WebLinkAbout3.D. Preliminary Property Tax Levy for FY 2012 3D.
City of Shakopee
MEMORANDUM
TO: Mayor and City Council
FROM: Mark McNeill, City Administrator
SUBJECT: Preliminary Property Tax Levy for FY 2012
DATE: August 26, 2011
Introduction
At the conclusion of the August 30 workshop, the Council is asked to direct the preparation of a
resolution setting the preliminary levy for fiscal year 2012.
Background
Following discussion of and decisions on the Building IS Fund, Capital Improvement Levy and Debt
Service Levies, the Council will need to come to a decision on the preliminary tax levy for 2012.
Attachment A is a table laying out three options for 2012 — a flat tax levy, a flat tax rate and a 1 pt. rate
increase, as requested at your last meeting.
As the attached chart indicates, the City's net tax capacity has declined notably from 2011 to 2012 (from
$37.7 million to $35.5 million). The primary reason for this is the state's implementation of the new
Market Value Exclusion Program. Attachment B is a description of this new program provided to us by
the League of Minnesota Cities. The end result for cities and counties around the state is that a flat tax
levy will result in a higher tax rate.
Lastly, it should be noted that once the Council establishes the preliminary levy amount, it can reduce
this amount prior to final adoption in December but it may not increase it.
Requested Action
The Council is asked to provide direction to staff regarding the desired preliminary levy for 2012, so that
the appropriate resolution may be prepared for formal action at your September 6, 2011 City Council
meeting.
City of Shakopee, MN
Y p
2012 Budget Preparation
(Levy Amount/ Net Tax Capacity = Tax Rate)
A B C
Year Levy Levy Amount Net Tax Capacity Tax Rate $ Impact
Information (City Controls) (determined by (outcome of A &
state /county) B)
2011 Final Levy $14,717,438 $37,680,587 34.731%
1 pt. Rate o
2012 $15,072,000 $35,512,994 37.540% $354,562 *
Increase*
2012 Flat Levy ** $14,717,438 $35,512,994 36.542% 0 **
2012 Flat Rate * ** $14,075,000 $35,512,994 34.733% ($642,438) * **
*
2012 1 point rate increase provides for additional property tax revenue per Council discussion of 8/16/2011
Provides for additional property tax revenue of $354,562, allowing establishment of Capital Levy program above the current levy, and also add funding sources
** Flat Levy, same levy amount as 2011, results in a tax rate increase, due to state legislative changes in the special session, while providing no additional property tax revenue
This is the calculation used for 2012 preliminary tax and budget resolutions. This levy amount provides for:
Funding for 47th Patrol position in Police Department $68,000
Funding for Fire department requests Duty Crew $25,000
Funding for Performance Pay $10,000
Funding for professional services - Township Agreement update $2,500
Classification Study $20,000
Reduction of Telecom check out equipment ($8,500)
Funding to bring Finance position back to FT from PT $8,500
Allowance for 1 % COLA for existing personel
Does not include any funds for establishment of a Capital Levy for Road Improvements
* ** Reduced Levy due to maintaining flat tax rate, consistent with 2011 tax rate
Reduction of tax revenue of approximately $642,438 would require reduction services, programs and City staff, at a level not previously discussed during the 2012 budget process
H: \BUDGET \Budgetl2 \Levy Options - 8 -30 -2011 WS Page 1
A j' ,1- a
How Changes to MVHC Program Will Affect Cities
The Legislature repealed the market value homestead credit program, effective in 2012, and created a
new market value exclusion for qualifying homes.
(Excerpt from an article published Jul 27, 2011 in the League of MN Cities Cities Bulletin)
The recently enacted special session omnibus tax bill includes a number of changes to property tax aid
and credit programs, but perhaps the one change that has generated the most questions from city
officials is the repeal of the existing market value homestead credit (MVHC) system beginning in 2012
and the new market value exclusion for qualifying homes.
2012 and beyond
As indicated above, the entire MVHC credit and reimbursement program will be eliminated beginning
with taxes payable in 2012. In place of the current MVHC program, homeowners will receive an
exclusion of a portion of the market value of their house from property taxes. The exclusion is computed
in a manner similar to the current market value homestead credit. However, the impact of the repeal of
the existing MVHC program and the new exclusion will vary from community to community, depending
on a number of factors, including tax base of the community and the local tax rate.
For cities and other local units of government, the elimination of the MVHC program will to a degree
simplify and clarify the property tax process. No longer will a city's (or a county's or a school district's)
certified property tax levy be reduced by the allocation of the MVHC credit with a "promised"
reimbursement by the state for the loss of property tax receipts. In addition, the elimination of the
program will also provide cities and counties with a small cash flow advantage. Currently, the first one -
half of the MVHC reimbursement is not paid until Oct. 31 each year. Under the new system with no
MVHC credit and reimbursement, each city will receive those revenues as property tax payments that
will occur with the normal property tax distribution process, which will accelerate the first half of the
payment by as much as three or four months.
For homes valued at less than $76,000, the exclusion is equal to 40 percent of the home's market value.
For homes valued between $76,000 and $413,800, the exclusion is $30,400 minus 9 percent of the value
over $76,000. The table below illustrates how the new market value exclusion compares to the existing
MVHC program.
New Market Value Exclusion Compared to Existing MVHC Program
Home Market Value $76,000 $150,000 $300,000 $450,000
Current MVHC $304.00 $237.40 $102.40 $0
MV Exclusion $30,400 $23,740 $10,240 $0
MV After Exclusion $45,600 $126,260 $289,760 $450,000
The new market value exclusion for homes will mean that beginning in 2012, each city's tax base will be
reduced and the city's tax rate will rise to obtain the same property tax levy. Although the homestead
exclusion is computed in a mathematically similar manner to the repealed MVHC, the new system will
shift taxes among properties within each community, especially to commercial, industrial, apartment,
and other properties that will not receive the benefit of the homestead market value exclusion. Keep in
mind that the current MVHC program, if it was fully funded, would provide $261 million per year in
state -paid homeowner tax reductions. That $261 million is being eliminated to balance the state's
deficit, and the tax relief provided to homeowners under the new market value exclusion is in part due
to shifts in property taxes that will occur.
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