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. Executive Summar) 5 <br /> Recommendations for Consideration <br /> • Operations <br /> Three key elements are impacting the City's operations. The tax levy limit, limited growth and <br /> the tax levy compression. <br /> In legislature impassed a levy limit which limits the amount of taxes the City can levy for <br /> operations, with adjustments for growth. City's with limited growth characteristic of more mature <br /> communities, along with the levy limits, create a challenging environment for cities to raise <br /> revenues. One method some city's use is to finance their capital equipment purchases through <br /> debt issuance. This allows the City to place the debt service on the debt levy rather than <br /> through the operational levy which is subject to the limit. This allows the City to redirect those <br /> funds towards other governmental needs. <br /> The City has been impacted by the tax levy compression. Over time the legislature has <br /> changed the class rates of taxable property particularly for commercial and industrial property, <br /> thereby shifting more of the tax burden to homeowners and others. The result has been that <br /> some communities have seen a decrease in their total taxable net tax capacity, or in other <br /> words the total amount they may levy. The exact fiscal impact of the compression and a <br /> strategy to deal with the compression would require further study. <br /> Fund Balance <br /> More communities have begun turning their past practices into formal policies. Currently, the <br /> City's practice has been to maintain the fund balance at around 25% of revenues. Springsted <br /> . recommends that the City increase this amount to 50% of revenues. <br /> Capital Improvement Funding <br /> The City should consider formalizing the City's past practices into a set of policies governing the <br /> use of debt financing. Some examples of items included in a debt management policy from <br /> other cities include: <br /> a. Direct debt shall not exceed 80% of statutory debt limit as a means to preserve <br /> statutory debt capacity for unforeseen catastrophic events. <br /> b. debt will be retired over no more than 20 years. <br /> C. An internal feasibility analysis shall be prepared for each long-term financing which <br /> analyzes the impact on current and future budgets for debt service and operations. <br /> The analysis shall also address the reliability of revenues to support debt service. <br /> ® SPRINGSTED Page 4 <br />