01-12-2012 Charter Packet - Laserfiche WebLink

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City of Lino Lakes, Minnesota Page 2 3) In paragraph 3, restricting new special levies to a vote reduces flexibility. While a referendum may seem like a cost saving measure today, the repercussions, such as added costs of delays or eliminating the ability to correct financial issues early, are not usually understood by voters. They may actually be limiting the City to a more expensive option later if they vote no. Special levies are allowed under state law. The implicit price deflator increases were considered punitive by some legislators for communities who did not have growth (historically, a fixed 3% increase or similar amount was a stated levy limit). As a compromise, the legislators softened this cap by allowing local government to special levy for specific purposes. 4) The last paragraph is not understandable. In Minnesota, cities levy a dollar levy and the tax rate is a function of dividing the levy by the tax capacity. In other states where a mill rate system is used, the tax rate (mill rate) is first set and then applied to land values to determine the amount of taxes generated. This language may make more sense for the mill rate system. Since tax capacity is not used to calculate the maximum levy, it is confusing. 5) Tax increment is an economic development tool that allows the City to incent development where it may not otherwise occur. If the intent of the last paragraph is to limit the use of this tool, the City may be tying its hands when competing with other cities for development. Ultimately, this could result in missed opportunities to lower taxes for each taxpayer by increasing the overall tax base to which levies are spread. The tax increment market value becomes part of the City's tax base when the tax increment district expires. The proposers of this amendment are presumably trying to protect the citizens from higher taxes than necessary. In the end, these provisions may have the opposite effect. Why is that? • Credit ratings are based on an issuer's ability to repay bonds. The higher the credit rating, the lower the interest costs will be on debt. For future debt issues, if the rating agencies perceive that the added restrictions imposed make Lino Lakes a greater credit risk, they may lower the credit rating. On a $2 million bond issue with a 15 -year term and assuming the new rating falls from the City's current Aa2 rating to the single "A" category rating (50 basis point differential); this may translate into an extra cost of $70,000 over the life of this bond issue. Each bond issue going forward would have a similar penalty until the rating was improved. Financial flexibility is the key to maintaining and improving credit ratings. The City of Lino Lakes would be impairing their financial flexibility with this amendment. • Maintenance of infrastructure and facilities are a "pay today or 'pay more tomorrow" proposition. Restrictions on the City Council's ability to levy and special assess for projects means that voters have to choose to increase their taxes today instead of tomorrow. It is easy for them to vote no—especially if they plan to move out of Lino Lakes or do not see the citywide benefit of maintaining transportation systems that a City Council may see. As a result, the repairs are delayed and the needed repairs become more severe (i.e. reconstruction rather than sealcoat) while the cost of pothole repair, car damage, and safety issues continue to be incurred. Overall, this is much more expensive than a systematic plan to maintain capital at the most cost-effective time rather than when a referendum passes.