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10-27-2020 Budget Workshop Presentation2021 Budget/Levy Discussion OCTOBER 27, 2020 Tonight’s Discussion will focus on: •Discussion of the 2021 Levy and Tax Rate (Included are 4 Options) •Review of any budget line-item concerns •Review of 2021 Capital Expenditures. •Anticipated Rate Increases for the Big Marine and Uptown Sewer will be discussed following a November meeting of the Sewer Committee likely in December. (The budget currently includes as 7% increase to Big Marine and 5% for Uptown.) What is city’s tax levy vs. the city’s tax rate? Tax rate is calculated by distributed the City’s total taxes needed over the City’s total taxable value. Different types of property have a different classification rate set by the state. What is the impact on property tax bills? •The changes to City’s tax rate are applied to local property tax bills along with other taxing jurisdictions which include: •The State of Minnesota •Washington County •Your Local School District •Your Local watershed district. •The Metropolitan Council •And others…like Washington County Community Development Authority and mosquito control •Your property tax bills will also be affected by: •The levies set by the other above jurisdictions •Changes in your property valuations made by the Council and City assessor •Changes in state property tax classifications •Homestead Market Value Exclusion The 4 Levy and Tax Rate Options for Consideration •Option A –Proceed with the Preliminary levy and allocate any excess funds that exceed the City’s fund balance policy towards Road Maintenance such as chip and crack sealing. This choice is a 7.6% increase in tax levy over 2020. It is estimated to increase the City’s tax rate by 1.1% to a total tax rate of 31.825%. Page 7 of your packet provides an estimated dollar impact on tax bills. (Please note this table will be adjusted based on changes made this evening.) •Option B –Attempts to make an approximate 0% change to tax rate. This approach would lower the levy by $29,000 to $2,584,824 for 6.4% increase in Tax Levy and an estimated 0% increase in tax rate at 31.455% (2020's rate is 31.466%). Again, any additional fund balance would be allocated to road maintenance. •Option C -Lower tax rate by an estimated 1.1% -this option would lower the tax levy by $55,000 to $2,558,824 for a tax levy for 5.3% levy increase over last year and an estimated tax rate decrease of 1.1% to 31.123%Again, any additional fund balance would be allocated to road maintenance. Current budget estimates suggest that the City will end the year around $50k. Based on this, the City can proceed with any of these options without having to make cuts. The 4 Levy and Tax Rate Options for Consideration •Option D -is to lower the tax rate by an estimated 3%. This option would lower the tax levy by $103,000 to $2,510,824 for a 3.3% tax levy increase over 2020 and an estimated tax rate decease of 3% to 30.509%. Proceeding with this option would require that the City remove approximately $50,000 from the budget to maintain fund balance and to keep the budget in balance in terms of revenues and expenditures. The 4 Levy and Tax Rate Options for Consideration •Option D -is to lower the tax rate by an estimated 3%. This option would lower the tax levy by $103,000 to $2,510,824 for a 3.3% tax levy increase over 2020 and an estimated tax rate decease of 3% to 30.509%. Proceeding with this option would require that the City remove approximately $50,000 from the budget to maintain fund balance and to keep the budget in balance in terms of revenues and expenditures. •If the City ends the 2021 fiscal year with funds in excess of the City’s fund balance policy, City Administration will bring forward a budget amendment proposal for allocating the fund towards road maintenance. The City Council will also have the opportunity to distribute the funds to another area of need, if it desires. How does the general fund balance fit in this discussion? •The City’s general fund balance or “reserves” serve a critical purpose of cash flowing the City’s financial activity. Since the City is revenue is mostly property tax dependent, the city only receives the necessary funding it needs to operate when taxes are settled in July and December. This means cash balances are necessary to “float” expenses during the lean months of June and November when the City’s cash balances are at their lowest. •The Fund Balance report found on page 8 of your packet represents the City’s attempt to comply with its policy of maintaining a fund balance of at least 50% of the year’s budgetary expense. (This report current reflex preliminary budget or Option A.) •When a budget is not balanced, meaning expenses do not match revenues, this can either draw upon the funds that we keep in the fund or build on them. •A strong fund balance can also help the City obtain lower cost debt. Having appropriate funds on reserve demonstrate to bond rating agencies, and ultimately potential bond holders, that the City exercises financial responsibility and has the means to pay its debt obligations of unexpected circumstances arise. How does the general fund balance fit in this discussion? •The City’s general fund balance or “reserves” serve a critical purpose of cash flowing the City’s financial activity. Since the City is revenue is mostly property tax dependent, the city only receives the necessary funding it needs to operate when taxes are settled in July and December. This means cash balances are necessary to “float” expenses during the lean months of June and November when the City’s cash balances are at their lowest. •The Fund Balance report found on page 8 of your packet represents the City’s attempt to comply with its policy of maintaining a fund balance of at least 50% of the year’s budgetary expense. (This report current reflex preliminary budget or Option A.) •When a budget is not balanced, meaning expenses do not match revenues, this can either draw upon the funds that we keep in the fund or build on them. •A strong fund balance can also help the City obtain lower cost debt. Having appropriate funds on reserve demonstrate to bond rating agencies, and ultimately potential bond holders, that the City exercises financial responsibility and has the means to pay its debt obligations of unexpected circumstances arise.