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HomeMy WebLinkAboutHansen memo to Thomas Budget Issues Ala./‘.1.2.-2t0-5 NJ,. Memorandum • To: Jonathan Thomas, Charter Commission Chair Charter Commission Members From: Charles Hansen, Finance Director Item Title/Subject: Budget Provisions in the City Charter Date of Report: June 9, 2003 The League of Minnesota Cities produces an annual "Guidelines for Preparing City Budgets." The most recent one was published in June 2002 for the preparation of the 2003 budget. Most of its information is still relevant. A new one should be out in the near future. The Guidelines are 128 pages long and actually contain information on a range of topics beyond budgeting. I have made a copy of the full Guidelines for the use of the Charter Commission. Within the Guidelines is a twelve-page section that specifically deals with the budget requirements specified in Minnesota State Statutes and a timeline of these events and requirements. A copy of this section is attached. The City Council and staff have strived to have an open and informative budget 0 process. For instance, for the last two budget cycles, the City of Mounds View was exempted from the statutory requirement to hold a "Truth in Taxation Public Hearing." The City Council chose to hold the public hearing anyway. Presenting the budget in an easily understandable fashion is a daunting task. The City has so many operations, including police, fire, streets, parks, recreation, administration, cable TV, community center, water, sanitary sewer, storm sewer, street lights, golf course, debt service, capital projects, economic development and tax increment financing, that it is impossible to give a quick or simple summary of them in a budget. The 2003 operating budget is 137 pages long. There are several enhancements that I want to incorporate in the 2004 budget that will make it even longer. The Mayor wants to look at alternate formats that may make the budget more understandable. Even when these improvements are made, presenting the budget will be challenging because people won't sit still long enough to hear all of it. None of this should deter the Charter Commission from addressing the budget. I have two suggestions. First is: don't duplicate state statutes. When the statutes change, there is a conflict with the charter and we have to follow the statutes. Second is to avoid mandating more detail. What is needed is a more effective way of conveying the big picture. There already is and will always be too much detail. 0 I provided a memo to the Charter Commission dated November 13, 2002 that suggested a change to the Charter. That change regarded the level of budgetary 4110 Part III. Tax hearing and notification law (truth-in-taxation) Minn.Stat.§ In 1988,the Legislature adopted a program of mailed notice and advertising 275.065. requirements for proposed property taxes.The start of these requirements was coordinated with the elimination of levy limits.This is technically called the"taxation hearing and notification law,"but is more commonly referred to as"truth-in-taxation." With some limited exceptions for smaller communities,the law requires local governments to: See the Dept.of • Make early estimates of proposed levies and budgets; Revenue web site • Prepare and mail special notices containing proposed levy amounts and hearing s.state.mn.us/pro(htw.taxe t : n. information to all property owners; l� P y ptax/propinfo/tnt • Advertise the hearing and publish summary budget information; • Ant_main.html). • • Hold at least two special public hearings on the proposed levy and budget so taxpayers can comment on the spending and taxing decisions of local governments. Generally, all cities,counties, school districts,and most metropolitan area special taxing districts must follow the truth-in-taxation(TNT)guidelines,although some of the requirements are waived for smaller cities and larger cities proposing nominal tax increases(see section D below). A. LGA certification See Inter- The Dept. of Revenue will certify the local government aid(LGA)distribution by governmental Revenue section Aug. 1. For budget planning purposes,the League publishes estimates of LGA in the of Part V. Cities Bulletin in early summer. The combination of this aid with locally raised property taxes and fees will make up most of the revenues available to fund the city's budget. Guidelines for Preparing City Budgets 2003 19 • • Minn.Stat.§ Under the 2001 law change,the advertisement published by cities of at least 2,500 5a. population subd. population must now show three tax rates: 1)the current local tax rate,2)the proposed rate if no levy increase is adopted and 3)the tax rate under the proposed budget. D. Public hearing and publication exemption Minn.Stat.§ Beginning this fall, a county, a city over 500 population, a school district,or a s,subd.6 (b). metropolitan s ecial taxing district is exempt from the TNT public hearing requirement if its total proposed property tax levy does not exceed its previous year final property tax levy by more than the percentage increase in the implicit price deflator(IPD).A taxing authority exempt from the TNT public hearing requirement is also exempt from the requirement to publish(or post) a notice of TNT public hearing. The levy amounts compared to determine this exemption must be the taxing authority's total levy,both net tax capacity and market value based, as well as debt and non-debt. The IPD is the one for government consumption expenditures and gross investment for state and local governments prepared by the Bureau of Economic Analysis of the U.S. Dept. of Commerce for the 12-month period ending March 31 of the levy year. For levy year 2002,taxes payable 2003,this percentage increase in the IPD is 0.7618 percent. A taxing authority's exempt status under this provision is to be • determined annually. For the purpose of the TNT parcel specific notices,the county auditor will need to verify the exempt status of the county, each school district within the county, each city over 500 population within the county,and the metropolitan special taxing districts (if applicable). The Dept. of Revenue will provide the county auditors, school districts, cities over 500 population, and the metropolitan special taxing districts with the information needed to make this determination in early June of this year. It will include the payable 2002 final total property tax levy of these taxing authorities,as well as the maximum proposed property tax levy they may have for payable 2003 and still qualify for the exemption. See the Dept.of If a taxing authority's actual proposed property tax levy for payable 2003 is less than Revenue web site: or equal to the maximum allowable for exemption,the taxing authority is exempt from (www.taxes.state the public hearing requirement. If a taxing authority's actual proposed property tax .mn.us/proptax/p levy for payable 2003 is greater than the maximum allowable for exemption,the ropinfo/tnt/tnt m ain.html) taxing authority is not exempt from the public hearing requirement. Note:A taxing authority that is exempt from the TNT public hearing requirement for a year may still choose to hold this hearing. • Guidelines for Preparing City Budgets 2003 21 • Until Sept. 15 (effectively Sept. 16 in 2002), the first and second Mondays of December are reserved for the use of cities. If a city does not select one of these two dates for its initial hearing or its continuation hearing,the unselected date becomes available for the school district in which the city is located,provided that no other city within the school district has selected that date. Minn.Stat.§ Joint truth-in-taxation hearings with county and school officials are authorized for 6bs.065 subd. cities with populations over 10,000. If a city with a population over 10,000 elects to hold a joint hearing,it may invite a member of the county board,the school board,and the Metropolitan Council(if applicable)to its hearing. A subsequent hearing is required for the official adoption of the final levy and budget, but the city is not required to schedule the date of this hearing through the county auditor. F. Parcel-specific notices Minn.Stat.§ Between Nov. 10 and Nov. 24,counties will prepare and send,by first class mail, 275.065,subd.3: notices of proposed property taxes to each property owner listed on the current assessment rolls. These notices show the impact of the proposed property tax levies of the city,county, school district and special taxing districts as well as the impact of legislative changes • to the property tax system and changes in the local tax base on individual parcels of property. These notices also include parcel-specific listings of the net taxes for tax increment financing districts(TIF)and for the fiscal disparities levy(for commercial and industrial parcels in the Twin Cities seven county metropolitan area and the taconite tax relief area). Specific metropolitan taxing jurisdictions' levies are listed separately.Levies for all other special taxing districts(such as watershed districts, housing and redevelopment authorities,transit commissions,etc.)are aggregated as a total "special taxing district"proposed levy amount. Minn.Stat.§ The notices must clearly state the time and place of each taxing authority's hearing,a 275.065,subd. 3(c). telephone number for the taxing authoritythat taxpayers may call if they have questions related to the notice, and an address where comments will be received by mail. Minn.stat.§ A city within the metropolitan area that is levying a property tax under Minn. Stat. 275.065,subd,3 G)• 473.388, subd. 7 to pay obligations issued by the city for capital expenditures for transit and other related activities may request that the city's parcel specific notices show a breakdown of the city's property tax between"regular city tax"and"transit tax,"along with an explanatory statement. Minn.Stat.§ For the fall of 2002,the parcel-specific tax notice will return to the layout used from 275.065. 1997 to 2000, which shows the current year's taxes payable and the proposed taxes payable for the following year for each taxing jurisdiction. In addition,the form shows the following: Guidelines for Preparing City Budgets 2003 23 • 2. Cities with populations of over 500 but not more than 2,500 Minn.Stat.§ Cities with populations of over 500, but not more than 2,500,that are required to hold 275.065,subd. 5a(e). hearings must post a notice of their proposed tax levy hearing in the three most public See Appendix H places in the city.No newspaper advertisement is required for these cities.The for sample form. prescribed form of the posted notice differs from the published notice required of larger cities in that it does not require listing specific budget,tax and rate information. H. The TNT hearing process Minn.Stat.§ Cities over 500 in population,except those cities receiving an exemption described in 275.065,subd.6. Section D above are required to hold a set of TNT hearings to present the proposed levy and budget, and provide an opportunity for the public to comment and make recommendations.Cities can use the hearing process as an opportunity to educate and inform their voters.Beginning in 2002,the hearing requirement that applies to cities over 500 population is modified to provide an exemption if the proposed levy increase is less than inflation as defined by the implicit price deflator(IPD)for government consumption expenditures.The IPD is estimated to be 0.76 percent for 2003 taxes. Any city that proposes an increase less than that amount would have otherwise been • exempt from the hearing requirement. See Dept.of The Dept. of Revenue's web site includes a table that provides the levy increase Revenue: city. Any proposedlevy � http://www.taxes threshold for each increase above this threshold would require .state.mn.us/prop a public hearing. tax/propinfo/tnt/t nt main.html Cities should consider the following ideas for the hearing: • Include an executive summary of the budget,highlighting services or budget goals. • Review last year's major accomplishments by explaining objectives and results. • Explain how much of each property tax dollar goes to the city versus the county and school. Use a graph to show the portion of tax dollars going to the city. • Explain proposed levy and property tax rates. • Help citizens understand what the city tax proposal means for them, and clearly show the difference between last year's and the proposed budget. • Apply the budget to future goals of the city. • Identify the tough decisions made to balance the budget, and discuss the future implications. • Leave time for questions and answers. Guidelines for Preparing City Budgets 2003 25 0 To officially adopt the fmal levy and budget,the city council must pass a resolution at a time that is specifically convened for the purpose of the official adoption TNT hearing(subsequent hearing).Again,time should be allowed for public comment and questions.Failure to follow these steps may result in the city being out of compliance with the TNT laws. I. Certification of officially adopted levy to the county auditor Minn.Stat.§ After official adoption of the fmal levy and budget,cities must certify their fmal 275.07,subd.1. property tax levies to their county auditors on or before Dec. 30(five working days after Dec. 20). As previously discussed,while this amount of the proposed levy, only under a limited set of circumstances may the fmal levy be higher than the proposed levy. J. Compliance requirements and enforcement Minn.Stat.§ State law authorizes the Dept. of Revenue to document compliance with the TNT 275.62.• requirements. Cities required to hold public TNT hearings must complete Form TNT- 2002 and return it when the final levy is certified to the county. Cities whose final levy exceeds their proposed levy due to an allowable exception(add-on levy)must also complete"Supplement to PT Form TNT-2002"with detailed information about their additional levy. The deadline for submitting this compliance information to the Dept. of Revenue is Dec. 30.The commissioner of revenue is responsible for determining whether local governments have fully complied with the TNT laws. If a city is found to be "substantially out of compliance"the city's property tax levy is limited to the amount levied in the previous year.In other words,no increase in the levy is allowed. K. Shared costs to administer the TNT process mandate All costs incurred in the TNT process must be paid by the participating local governments. State funding was provided only during the first full year of the TNT program in 1989--a$1.84 million general fund appropriation. 0 Guidelines for Preparing City Budgets 2003 27 • 0 Truth-in-Taxation and Levy Limit Schedule For taxes levied in 2002, Payable in 2003 On or before Aug. 1,2002. Dept. of Revenue notifies cities of LGA amounts. On or before Aug.20,2002. The county auditor notifies the clerk of each city over 500 population within the county of the dates selected by the school district for holding its initial public hearing and continuation hearing. On or before Sept. 1 (effectively on Dept. of Revenue certifies the payable 2003 overall levy or before Sept.2,2002). limitation to each city over 2,500 population. On or before Sept. 13,2002. Each city over 500 population certifies to the county auditor the dates that it has selected for its public hearing and for the continuation of its hearing, if a continuation of its hearing becomes necessary. If not certified by this date,the county auditor will assign the hearing dates. On or before Sept.30,2002. Cities over 2,500 population(levy limit cities)notify the III Dept. of Revenue of their"special levy"claims for payable 2003 on PT Form 280. On or before Sept. 13,2002. Each city adopts a proposed budget for payable 2003 and certifies it's proposed property tax levy for payable 2003 to the county auditor. No cities are exempt from this requirement. Note: a city of 500 population or less may notify the county auditor at the time that it certifies its proposed property tax levy for taxes payable in 2003 that its proposed levy is also its final levy,in which case no further certification to the county auditor is required. After Nov.10,2002 and on or before The county auditor prepares and the county treasurer delivers Nov.22,2002. a parcel specific notice of proposed property taxes by first class mail to each property owner at the address listed on the county's assessment roll for the taxes payable year 2003. lbGuidelines for Preparing City Budgets 2003 29