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12-06-2022 CCM Truth in Taxation HearingMINUTES CITY COUNCIL TRUTH IN TAXATION HEARING DECEMBER 6, 2022 CALL TO ORDER — 6:00 P.M. Members Present: Mayor Gary Forcier, Pat May, Chad Czmowski, Mary Christensen and Dave Sebesta Others present: Matt Jaunich, City Administrator, Marc Sebora, City Attorney and Justin Juergensen, Assistant Finance Director TRUTH IN TAXATION HEARING Mayor Forcier opened the hearing at 6:00 p.m. Matt Jaunich, City Administrator, presented before the Council. Mr. Jaunich explained the budget process the City has used to date. Four work sessions have been held over the past seven months. The Council adopted the preliminary budget and tax levy in September and recently truth in taxation notices were mailed to all City property owners. Mr. Jaunich explained the purpose for tonight's hearing is to enhance public participation in the property tax system by allowing a public forum to discuss the budget discuss the proposed tax levy, explain the increases and hear public comments and questions on the budget and tax levy. If the hearing needs to be continued it will be continued at the next Council meeting on December 13, 2022, and the final budget and tax levy is expected to be adopted by the Council on December 27, 2022. Mr. Jaunich noted that at tonight's hearing the Council discusses the City's share of citizens' total 2023 proposed tax bill, not property valuations. Mr. Jaunich explained that property valuation open book meetings are held in May/June by McLeod County. Mr. Jaunich briefly explained valuations and noted that the market value of a property is determined by January 2 of the year prior to the year in which taxes on that property are due. Therefore, market values for taxes payable in 2023 were set in January 2022. Property values on statements recently received are based off of home sales from October of 2020 to September of 2021. Property owners will receive new notices of market values from the assessor in March/April of 2023. Questions on valuations should be addressed in May/June with the County Assessor/County Board. Mr. Jaunich explained that the preliminary tax levy set in September showed a tax increase of 5.9% and included a balanced budget. The revised budget has reduced the tax levy increase to 3.3% while maintaining a balanced budget. The City has adjusted its revenue projections and eliminated roughly $206,000 in expenses since its preliminary budget was adopted in September. Hutchinson's 2022 average City tax rate ranked the second lowest in McLeod County, however ranked the fifth highest amongst other outstate regional centers. The state-wide city average tax rate is 74.19% and Hutchinson is at 57.54%. Hutchinson is the third lowest of all outstate regional centers for the poverty level, 51h highest of all outstate regional centers for median household income, 61h highest of all outstate regional centers for median home value and is the third lowest of all outstate regional centers in LGA payments. The 2023 state-wide proposed property tax increase of cities is 9.1% and the 2023 state-wide proposed property tax increase for all taxing agencies is 6.0%. Mr. Jaunich provided data on tax levy comparison to tax base, price of government for the City of Hutchinson and a price of government comparison. Mr. Jaunich noted that there are 14 reasons property taxes vary from year to year. These include: the market value of property may change; the market value of other properties in the taxing district may change, shifting taxes from one property to another; the State general propert tax may change; the city budget and levy may change; the Township budget and levy may change; the County budget and levy may change; the School District's budget and levy may change; a Special District's budget and levy may change; special assessments may be added to a property tax bill; voters may have approved a school city/township county or special district referendum, federal and state mandates have changed; aid and revenue from the state and federal governments may have changed; the state legislature may have changed the portion of the tax base paid by different types of properties; other state law change may adjust the tax base. Mr. Jaunich also reviewed Minnesota's property tax system and how it is based off of five components, those being: local property tax levies (city, school district, county, etc.), property tax classification rates (ranges from 0.25% to 2.0% - set by the state) propert value (based off of property sales and is set by the county assessor), tax credits (on�y certain properties get this) and state general tax (set by the state and assigned to mainly commercial/industrial properties). Hutchinson's property tax rate is set by taking the city's tax levy and dividing it by its total tax capacity. Tax capacity is determined by multiplying a property's market value by its classification rate. Mr. Jaunich noted that with the proposed 3.3% levy increase that means a $14.00/year increase on a home valued at $230,000. Again, this is the City's portion of the tax statement. Mr. Jaunich then explained how the City's portion of a proposed tax bill is determined. Mr. Jaunich also explained the homestead exclusion and market value history. Mr. Jaunich reviewed the entities that share a Hutchinson tax bill those being the County, the School (operating), the School (debt), the City, the EDA, the HRA and Region 6E. Mr. Jaunich then reviewed the City's mission statement and six core areas of focus, which include public safety; health & recreation; transportation; economic development; environment and good government. Mr. Jaunich reviewed the proposed tax levies for 2023 which includes a 3.3% increase for the City's portion and an 18.2% increase for the EDA levy and a 23.1 % decrease for the HRA levy, for a total tax impact increase of 3.1%. Mr. Jaunich reviewed the 2023 debt levy and the tax levy comparison since 2013. The proposed 2023 tax levy includes the eighth straight year of an increase in the general fund portion of the levy since 2013. The proposed 2023 tax levy includes the second straight year of an increase to the debt fund portion of the levy. Compared to 2013, the City's total tax levy has increased by 27.9%. The average annual tax levy increase since 2013 has been 2.4%. The 2023 city tax levy accounts for a per capita tax of $559, which is up from $545 in 2022. Mr. Jaunich provided additional information on the City's tax rate such as: 1.) The City's growth in tax capacity (16.7%) continues to outpace the tax levy (3.3%), resulting in a decreasing city tax rate (the 2023 city tax rate is expected to be 6.92% lower than the 2022 tax rate and Hutchinson's tax rate has decreased each year since 2014) and 2.) The median home value would see a $14 city tax bill increase, based on an estimated 18.1% increase from $200,000 to $230,000 (a property possibly might not see a city tax increase if its value does not increase at the same rate as the median home value and a property valued at $200,000 in 2022 with the same value in 2023 would see a $125 decrease in its city tax bill). Mr. Jaunich also provided data on the 10-year tax rate trend. Mr. Jaunich reviewed the general fund revenues and expenses. Mr. Jaunich explained that the general fund revenues include property taxes, other taxes, licenses & permits, intergovernmental revenue, charges for service, fines & forfeitures, miscellaneous revenue, and transfers -in. He noted additional facts on general fund revenues which include: general fund revenues include a 3.6% tax levy increase ($30,000 of the levy is allocated to the Uponor tax abatement); property taxes account for approximately 41 % of the General Fund Revenues; the PILOT payment from HUC increased by $37,345; the City is in its last year of phasing out HSA funding from Self -Insurance; there are increases in LGA and the Fire & Police Pension Aid; there are increases in engineering fees to cover the shift of engineering costs to the general fund; The transfer -ins from the enterprise funds account for $2,724,536 which is the equivalent of a 48.5% tax levy increase; staff is expecting most of the other revenue sources to remain relatively fiat; and a 1 % tax levy increase to the general fund is equivalent to $56,056. Total general fund expenses are comprised of wages & benefits, supplies, services & charges, miscellaneous expenses, transfers -out and capital outlay. Public safety accounts for 34.1% of general fund, 25.4% is general government, 23.2% is culture and recreation, 15.2% is streets and highway and 2.1% is miscellaneous. Mr. Jaunich noted the following: wages & benefits increased 2.4% for 2023 which includes performance and other annual adjustments; includes savings of $77,576 for changing health insurance providers and includes separator the Public Works Director and City Engineer position (adding a full-time position; wages and benefits account for 68% of general fund expenses; increased costs for police body camera due to increased software costs; supply costs are going up due to higher costs associated with inflation; departments have held budgets flat other than wages & benefits and inflationary factors; Event Center services are changing for 2023 with a savings of approximately $64,000; and the 20232 budgeted expenses are balanced with revenues. Mr. Jaunich then reviewed the enterprise funds — consisting of the liquor, compost, refuse, water, wastewater and stormwater funds. Mr. Jaunich noted that the Liquor Hutch and Creekside continue to do well and will contribute $670,000 to the general fund in 2023. There will be no increase in garbage rates. There will be a shift in water and sewer rates that will take lace in 2023 — some users may see an increase, but overall it will likely be a push (fist since 2011). All enterprise funds continue to have healthy fund balances. There will be a slight rate increase to stormwater rates of 3%. Transfers to the general fund from the enterprise funds will be at $820,000 in 2023. Total enterprise money is $2,724,536 when HUC money is included. Mr. Jaunich noted that capital needs are due to the age of all of the facilities starting to increase. Mr. Jaunich reviewed the 2023-2027 capital improvement plan. The capital improvement plan is made up of infrastructure, enterprise funds, public safety, public works, Park & Recreation, and general government and is approximately $53 million. The approximate breakdown of distribution of the funds is as follows: $19.12 million to infrastructure; $1.68 million to public safety; $13.77 million to Enterprise Funds; $11.73 million to Public Works; $4.59 million to Park & Rec and $1.24 million to General Government. Funds for the CIP come from new debt, enterprise funds, taxes, special assessments, aids/grant and special funds/reserves. Major capital items included in the capital plan are: street improvement projects, Creekside facility/equipment, water/wastewater/stormwater improvements and equipment, new fire department parking lot, police vehicles, inspection vehicle, Park & Recreation vehicles playground apgrades airport cemetery, street vehicles, information technology upgrades and City Center parking lot. The debt management plan has a target debt levy at $2.6 million. The 2022 Debt Management Plan and plans moving forward will exceed the target limit of $2.6 million due to the financing needs of the new police station. 2022 was the first tax increase to the debt levy since 2016 and the debt levy will continue to increase until 2031. Other project limits continue to be at $1.9 million. Low interest rates in recent years have allowed for higher project limits, however that is changing. Council and staff should have a discussion on a new target debt levy. Mr. Jaunich reviewed that staff is recommending a 3.7% increase in general fund revenue/expenses which means a 3.6% increase in the general tax levy and a 2.6% increase in the debt tax levy with an overall tax levy increase of 3.3%. With the EDA tax levy proposed to increase 18.20% and the HRA tax levy proposed to decrease 23.1 % the total tax impact is 3.1 %. One of the biggest factors behind the levy increase is the general wage and benefit increases along with staff changes are expected to cost the City an additional $228,952 in 2023. General inflationary factors are impacting the budget as well. Mr. Jaunich noted that outside of cutting back on the services provided at the Event Center and splitting up the Public Works Director/City Engineer position, the budget includes no other significant increases or cuts in staffing or changes in service. Staffing costs and capital needs are the biggest driver of the City's budget. Fund balances continue to remain high and the fiscal condition of the City is healthy. The State's budget forecasts has a surplus and there are no anticipated shortfalls for the 2023-24 budget. Home values continue to increase and the City is continuing to see growth at all levels (residential including multi -family, commercial and industrial). Inflation and supply chain issues are impacting the City as well. Cory Gallagher, 1443 Southfork Drive, asked if the City has a problem with staffing turnover, which Mr. Jaunich addressed and noted that turnover is not an issue, but when there are positions to fill, the candidate pool is not as plentiful as it used to be. ADJOURN Motion by May, second by Czmowski, to adjourn at 7:00 p.m. Motion carried unanimously. ATTEST: Gary T. Forcier Mayor Matthew Jaunich City Administrator