EXECUTIVE SUMMARY. VISION CONSIDERATION: All Vision areas are taken into consideration and are an important part of the City s budgeting process

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1 Meeting: City Council Meeting Date: December 1, 2014 Public Hearing Agenda Item: 6a EXECUTIVE SUMMARY TITLE: 2015 Proposed Budget, Tax Levies and Truth in Taxation Public Hearing RECOMMENDED ACTION: Information will be presented pertaining to the 2015 Budget, 2015 Preliminary Property Tax Levy, and other general tax and budgetary information. After the presentation, the Mayor is asked to open the public hearing, solicit comments and close the public hearing. There is no other formal action required at this meeting. POLICY CONSIDERATION: Does the City Council still desire to set the 2015 Final Property Tax Levy at $26,985,377 which is an increase of $1,407,469 or approximately 5.50% over the 2014 Final Property Tax Levy at the December 15, 2014 meeting? Or, does the City Council desire to certify less? Does the City Council still desire to levy the maximum HRA Levy allowed of $953,238 which is an increase of $3,879 or approximately 0.41% over the 2014 Final HRA Levy? Or, does the City Council desire to certify a lesser amount? SUMMARY: Included is information pertaining to the 2015 Budget and 2015 Preliminary General Property Tax and HRA levies. Information is also provided on the tax impacts to a residential property for Council to consider. In addition, there is a brief discussion on 2015 utility rates and franchise fees that were approved on October 20, 2014, and the overall impact to property owners. FINANCIAL OR BUDGET CONSIDERATION: The proposed tax levies and approved utility rates will help support necessary City services, capital improvements, and debt service obligations for Fiscal Year VISION CONSIDERATION: All Vision areas are taken into consideration and are an important part of the City s budgeting process SUPPORTING DOCUMENTS: Discussion Residential Estimated City Share of Property Taxes % 2015 Adopted Utility Rates - Impact for Residential Property Prepared by: Reviewed by: Approved by: Brian A. Swanson, Controller Nancy Deno, Deputy City Manager/HR Director Tom Harmening, City Manager

2 City Council Meeting of December 1, 2014 (Item No. 6a) Page 2 DISCUSSION BACKGROUND: On June 23, 2014, staff met with the City Council to discuss the 2015 Budget Process. Council indicated that staff should follow recommendations from the 2015 Budget Production Guidelines when preparing the 2015 Budget. Assumptions for the 2015 Budget included a pattern similar to past years; 1) a levy increase, 2) modest increase in other fees and charges where appropriate to fit with business costs, 3) maintain high quality and responsive service delivery, 4) hold expenditures flat where possible with adjustments for some modest growth based on essential business needs, 5) funding for a wage and benefit contribution increase, 6) utility rate increases, and 7) continued long range financial planning. At the August 25, 2014, City Council Study Session, the City Council reviewed information from the staff report and subsequently directed staff to prepare a 2015 Preliminary Property Tax Levy increase of 5.50% when compared to the 2014 Final Property Tax Levy. In addition, the City Council directed staff to proceed with preparing the 2015 Preliminary HRA Levy at the maximum allowed by state statute, due to the significant infrastructure projects currently in progress and scheduled per the Capital Improvement Plan. Council also directed staff to proceed with franchise fee and utility rate adjustments, which were brought back and approved by the City Council on October 20, 2014, and subsequently, will be in effect in On September 15 th, the City Council adopted the 2015 Preliminary Property Tax Levy of $26,985,377, which is approximately 5.50% or $1,407,469 over the 2014 Final Property Tax Levy. This levy is utilized to support the operations of the General Fund, Capital Replacement Fund, Park Improvement Fund, Sidewalk and Trails Fund, Employee Administration Fund and Housing Rehabilitation Fund. In addition, the levy will provide for the pay down of principal and interest payments for the Debt Service Funds. In addition that evening the EDA and City Council approved the 2015 Preliminary HRA Levy of $953,238, which is approximately 0.41% or $3,879 over the 2014 Final HRA Levy. By law, this levy can only be used for infrastructure, housing and redevelopment purposes. On October 13 th, the City Council reviewed and discussed the 2015 Proposed Budget, property tax levies, property tax implications, the Capital Improvement Program (CIP), Long Range Financial Management Plan (LRFMP), and utility rates. Based on this discussion, the City Council directed staff to proceed with presenting information at the budget hearing based on a 5.50% property tax levy increase when compared to 2014 Final Property Tax Levy. Formal adoption of the 2014 Final Amended Budget, 2015 Budget, 2015 Final Levy adoption for the City and HRA levies, and the Capital Improvement Plan are scheduled for December 15, Final Property Tax Levy Considerations For the 2015 Final Property Tax Levy for the City Council to consider, there are some important key items to keep in mind: Trends in Valuations and Possible Property Tax Implications For taxes payable in 2015, St. Louis Park s market value increased by 6.2% with all of the dominant property types increasing in value. Composition of the change is summarized as +5.6% for singlefamily homes, +7.5% for condos and townhomes, +20.2% for apartments (significant new construction coming on line) and a stable commercial-industrial sector at +0.4%.

3 City Council Meeting of December 1, 2014 (Item No. 6a) Page 3 Fiscal Disparities The City s net tax capacity contribution increased by $208,991 or approximately 5.7% for The City is a net contributor to the pool of $3,879,478, or approximately 5.9% of the City s total tax capacity for Funding challenges in several funds impacting long-term sustainability As in past years, the 2015 Preliminary Property Tax Levy adopted by the City Council on September 15, 2014, can be decreased, but cannot be increased City Final Levy and 2015 Preliminary Adopted Levy A synopsis of prior year levy information and the 2015 Preliminary Adopted Levy is shown below: 1. The 2014 Final Levy was $25,577,908, which was 3.50% or $864,967 more than The 2015 Preliminary Property Tax Levy adopted on September 15, 2014 was $26,985,377, which is approximately 5.50% or $1,407,469 more than the 2014 Final Levy. 3. The Proposed 2015 General Fund Budget is $32,624,438, which is an increase of approximately 7.22% or $2,196,816 compared to the 2014 Adopted Budget. 4. The 2015 Preliminary HRA Levy adopted on September 15, 2014, is $953,238, which is an increase of approximately 0.41% or $3,879 compared to the 2014 Final HRA Levy. The proposed breakdown of the Preliminary Property Tax Levy by fund is shown below: Dollar Change Percent Change Final Preliminary From 2014 From 2014 TAX CAPACITY BASED TAX LEVY General Fund $21,157,724 $22,364,509 $ 1,206, % Debt Service 1,422,477 1,423, % Capital Replacement Fund 1,342,700 1,442, , % Park Improvement Fund 810, , % Sidewalk and Trails Fund 645, , % Employee Administration Fund 200, , % Housing Rehabilitation Fund - 100, ,000 N/A TOTAL TAX LEVIES $25,577,908 $26,985,377 $1,407, % Fiscal Disparities The City received its final figures regarding fiscal disparities, and as stated earlier, for 2015 the City will be a net tax capacity contributor of $3,879,478, which is $208,991, or approximately 5.7% more than 2014 s net contribution of $3,670,487. Being a net contributor to the fiscal disparities pool reduces the City s overall net tax capacity, thereby resulting in a higher tax rate for property owners in St. Louis Park. The City has seen significant increases in its net contribution to the fiscal disparities pool over the last 5 years related to the development and redevelopment of its commercial sector of property. This significant activity resulted in nearly steady or slight increases in the overall valuation of the commercial sector of property in St. Louis Park. As many other participants in the fiscal disparities program saw declines in the valuation of their commercial property sector, St. Louis Park then held a larger share of the commercial sector market related to the fiscal disparities pool, and as such, was required to

4 City Council Meeting of December 1, 2014 (Item No. 6a) Page 4 contribute a larger share to the program. This means that St. Louis Park fared much better during this economic turndown than many of the other participants in the fiscal disparities program, which is why the City s net contribution has increased significantly over the last 5 years. HRA Levy This levy was originally implemented in St. Louis Park due to legislative changes in 2001 which significantly reduced future tax increment revenues. The City Council elected at that time to use the levy proceeds for future infrastructure improvements in redevelopment areas. Thus far, some of the HRA Levy proceeds have been used to fund infrastructure studies, analyses for future improvement projects and are currently beginning to pay for the City s share of Highway 7 and Louisiana. By law these funds could also be used for other housing and redevelopment purposes, but they are committed to funding Highway 7 and Louisiana until 2021 based on the current Long Range Financial Management Plan. Given the significant infrastructure needs facing the City in the future, particularly transportation infrastructure needs, staff recommends the HRA Levy continue at the maximum allowed by law for the 2015 budget year. The HRA Levy cannot exceed % of the estimated market value of the City. Therefore, staff has calculated the maximum HRA Levy for 2015 to be $953,238 based on data from Hennepin County which is a $3,879 increase or approximately 0.41% from the 2014 HRA Levy of $949,359. Utility Funds The changes in utility rates for 2015 were formally adopted by the City Council on October 20, 2014 for consumption or services provided beginning on January 1, These rates are consistent with the goal of achieving long-term sustainability in the funds. Detailed information is included in the attachment 2015 Proposed Rates Impact on a Residential Property. For 2015, the approximate cumulative effect on a typical residential property for all the utility rate adjustments would be an increase of $45 per year, or approximately $3.75 per month. This equates to an approximate 4.59% overall increase in utility rates for 2015 when compared to This calculation is based on a family of four using 30 units of water per quarter (22,500 gallons), and 60 gallon solid waste service which is consistent with prior scenarios presented. Franchise Fees In the past, Council has directed staff to consider franchise fee adjustments every other year. Based on the City s schedule, those occur in odd numbered years. Therefore, in 2015, based on analysis within the Pavement Management Fund, Council directed staff to move forward with a franchise fee increase for customers of CenterPoint Energy and Xcel Energy. For a residential customer, staff is recommending an increase of $0.75 per utility, or $18 per year. The total fee for a residential customer would be $3.25 per utility per month. Based on this increase and increases in other customer classes, revenues would increase by approximately $700,000 within the Pavement Management Fund. These increases were approved by the City Council on October 20, 2014, effective in Estimated City Impact for 2015 on Taxes, Utilities and Franchise Fees Based on a 5.50% levy increase and realizing there are many variables in estimating the City impact on a residential homestead property, a typical property in St. Louis Park valued at approximately $217,600 for taxes payable in 2015, having typical utilities and franchise fee increases as discussed earlier in the report, would experience an overall increase of approximately $9.67 per month or approximately $116 for the entire year. Of this estimated $115 increase, approximately $53 would be attributed to the City s share of property taxes, $45 to utility rate adjustments, and $18 to franchise fees.

5 City Council Meeting of December 1, 2014 (Item No. 6a) Page 5 NEXT STEPS: As the 2015 Budget process nears completion, the following steps remain: December 1 December 8 December 15 Truth in Taxation Public Hearing and budget presentation (If necessary) Continuation of Public Hearing and any budget discussion. Council adopts 2014 Revised Budget, 2015 Budgets, final tax levies (City and HRA), and CIP. On December 15, 2014, the City Council has the option of decreasing the 2015 Preliminary Property Tax Levies that were certified for the City and HRA on September 15, 2014; however they cannot be increased. OTHER: As of November 25 th, there were no letters or formal requests received in Administrative Services addressing the proposed increase in the City s portion of property taxes to consider.

6 City Council Meeting of December 1, 2014 (Item No. 6a) Page 6 CITY OF ST. LOUIS PARK RESIDENTIAL ESTIMATED CITY SHARE OF PROPERTY TAXES 2015 PRELIMINARY PROPERTY TAX LEVY 5.50% INCREASE As of * These are estimated figures at particular price points. Homes at the price points will not experience these exact changes. Assessed Market Val. Taxable Taxable Estimated City Tax Dollar Percent 2013 For 2014 For Market Market Change Change Pay 2014 Pay 2015 Value 2014 Value , , , , % 175, , , , % 204, , , , % 250, , , , , , % 350, , , , , , % 450, , , , , , % 500, , , , , , % 600, , , , , , % 700, , , , , , % Assumptions: 2014 and 2015 tax capacity rate based on Hennepin County information. Tax capacity rates increase from 1% to 1.25% for values over $500,000. = Median Value Home in St. Louis Park

7 City Council Meeting of December 1, 2014 (Item No. 6a) Page 7 Household Size 4 Units per quarter 30 Solid Waste Service 60-gallon Meter size 3/4 inch CITY OF ST. LOUIS PARK ESTIMATED QUARTERLY UTILITY BILL ACTUAL 2014 AND ADOPTED 2015 Actual Proposed Dollar Percent Service Type Change Change Notes Water Per unit rate - Tier 1 $ 1.49 $ 1.55 $ % Service charge $ $ $ % State testing fee $ 1.59 $ 1.59 $ % Consumption $ $ $ % Sewer Service charge $ $ $ % Per unit $ 2.69 $ 2.84 $ % Consumption $ $ $ % Storm Drainage Service charge $ $ $ % Bassett Creek Fee* $ 1.93 $ 1.93 $ % Bassett Creek fee Solid Waste (includes tax) $ $ $ % Total Bill without Bassett* $ $ $ % Not including BCWMC Increase per quarter (dollars) $ Increase per year (dollars) $ * Since not all property owners would be charged this fee, it is not included in the dollar or percentage change in total bill.