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Mr. Jeff Karlson July 25, 2012 Page 4 measured? Second is the vagueness of the terms "special district" and "utility," and the lack of guidance as to when those items are considered to be "new." These terms are not defined in State law or elsewhere in the Charter. More importantly, if the City finances a new water or sewer project, is that project a new "utility?" Possibly. If the City finances that improvement through general obligation bonds under Minnesota Statutes, Chapter 444, the City will pledge the City's full faith and credit in case revenues are insufficient. But if these improvements are considered to be a "utility" under this charter provision, any tax levy to pay the bonds would not be a "special levy" and would instead be subject to the Charter's levy limit. In effect, this provision directly contradicts Minnesota Statutes, Chapter 444 and 475, contravening the State public policy that cities may finance utility infrastructure through issuance of general obligation bonds without voter approval, where the bonds are secured in the first instance with utility revenues. Further, the amendment provides a condition that levies for a special district or utility are "special levies" if the voters approved creation of the district or utility. But State law does not generally provide for voter approval of any such utility district, so the amendment seems to be attempting, indirectly, to call for voter approval of something (an undefined utility district) where State law does not authorize voter approval. This further contravenes State law and policy, as it is well-settled law in Minnesota that local governments are not authorized to hold referenda unless expressly authorized to do so. 1 The last paragraph of the amendment is the most problematic of all. It indicates that for the purpose of determining the "maximum levy," the original net tax capacity (a tax increment term) shall be used for all property that is both placed in a tax increment financing district after 2011, and being taxed on the basis of its original tax capacity. However, the original net tax capacity of any property is irrelevant to calculation of levy limits under Minnesota Statutes, Section 275.70 to 275.74. The only meaning of this paragraph that I can discern is that the amendment is attempting to dictate how the levy will be spread. But if so, that effort is clearly preempted by State law; a city charter may not alter the fundamental property tax system. Even taken at face value, the paragraph is incomprehensible, as no property is taxed "on the basis of its original net tax capacity." The tax increment statute has nothing to do with how the property in a tax increment district is taxed—it only affects how the tax dollars are distributed. 1 The existing City Charter requires an election for certain improvements financed in part with special assessments, which is permissible because Minnesota Statutes, Chapter 429 expressly recognizes that a city charter may establish procedures for assessed improvements, and those provisions prevail over state law with limited exceptions. Nothing in Chapter /111 similarly suggests that a charter may impose a referendum requirement in order to establish a sewer, water, or storm sewer utility. 408003v1 LN140-86