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12-5-23 Truth in Taxation HearingMINUTES CITY COUNCIL TRUTH IN TAXATION HEARING DECEMBER 5, 2023 CALL TO ORDER — 6:00 P.M. Members Present: Mayor Gary Forcier, Pat May, Tim Burley and Chad Czmowski. Member absent was Dave Sebesta. Others present: Matt Jaunich, City Administrator, Marc Sebora, City Attorney, Andy Reid, Finance Director, 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 12, 2023, and the final budget and tax levy is expected to be adopted by the Council on December 19, 2023. Mr. Jaunich noted that at tonight's hearing the Council discusses the City's share of citizens' total 2024 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 2024 were set in January 2023. Property values on statements recently received are based off of home sales from October of 2021 to September of 2022. Property owners will receive new notices of market values from the assessor in March/April of 2024. 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 9.3% and included a balanced budget. The revised budget has reduced the tax levy increase to 7.2% while maintaining a balanced budget. The City has adjusted its revenue and expense projections and eliminated roughly $178,500 in taxes since its preliminary budget was adopted in September. Hutchinson's 2023 average City tax rate ranked the second lowest in McLeod County, however ranked in the average range amongst other outstate regional centers. The state-wide city average tax rate is 74.65% and Hutchinson is at 60.41%. Hutchinson is the fourth lowest of all outstate regional centers for the poverty level, 5'h highest of all outstate regional centers for median household income, 71' highest of all outstate regional centers for median home value and is the fourth lowest of all outstate regional centers in LGA payments. The 2024 state-wide proposed property tax increase of cities is 8.4% and the 2024 state-wide proposed property tax increase for all taxing agencies is 7.3%. 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. Each property rate is assigned a classification rate depending on its use by the State Legislature. Properties associated with income production (commercial & industrial) have a higher classification weight than other properties. The City's total tax capacity is an accumulation of all parcels within the city, minus adjustments. Mr. Jaunich then explained how the City's portion of a proposed tax bill is determined. Mr. Jaunich shared four options that the Council is considering for the tax levy that range from a 0% increase to a 9.3% increase. Mr. Jaunich noted that with the proposed 7.2% levy increase that means a $131.00/year increase on a home valued at $250,000. Mr. Jaunich also noted that even with a 0% levy increase, a property owner's taxes would increase $46 due to the increase in valuation. Again, this is the City's portion of the tax statement. Mr. Jaunich also explained the homestead exclusion and market value history. He noted that apartment complexes have seen the lamest market value growth over the last couple of years. 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 seven core areas of focus, which include public safety; health & recreation; transportation; economic development; environment, good government and housing. Mr. Jaunich reviewed the proposed tax levies for 2024 which includes a 7.2% increase for the City's portion and a 5.7% increase for the EDA levy and a 2.8% increase for the HRA levy, for a total tax impact increase of 7.1%. Mr. Jaunich reviewed the 2024 debt levy and the tax levy comparison since 2016. The proposed 2024 tax levy includes the ninth straight year of an increase in the general fund portion of the levy. The proposed 2024 tax levy includes the third straight year of an increase to the debt fund portion of the levy (2.6%). Compared to 2014, the City's total tax levy has increased by 35.2%. The average annual tax levy increase since 2014 has been 3.1%. The 2024 total tax levy accounts for a per capita tax of $617, which is up from $589 in 2023. Mr. Jaunich provided additional information on the City's tax rate such as: 1.) The City's growth in tax capacity (6.1%) continues to do well; 2.) This will be the first time that the tax levy ((7.2%) outpaces the tax capacity in 10 years, resulting in a likely increased city tax rate; 3.) The median home value would see a $46 city tax bill increase, based on an estimated 8.7% increase from $230,000 to $250,000 (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 $230,000 in 2023 with the same value in 2024 would see a $12 increase 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 &ppermits, 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 9% tax levy increase ($523,685) - $25,000 of the levy is allocated to the Uponor tax abatement; property taxes account for approximately 43% of the General Fund Revenues; the PILOT payment from HUC increased by $38,092; there are increases in LGA and the Fire & Police Pension Aid; includes a reduction in building permit fees ($50,000) and the loss of hospital security revenue ($347,834); transfer -ins from the enterprise funds account for $2,812,628 which is the equivalent of a 48% tax levy increase; there is increased revenue from higher interest rates; and a 1% tax levy increase to the general fund is equivalent to $58,350. Total general fund expenses are comprised of wages & benefits, supplies, services & charges, miscellaneous expenses, transfers -out and capital outlay. Public safety accounts for 34.0% of general fund, 26.2% is general government, 22.6% is culture and recreation, 15.2% is streets and highway and 2.0% is miscellaneous. Mr. Jaunich noted the following: wages & benefits increased 3.7% for 2024 which includes performance and other annual adjustments, a 25% increase in health insurance costs, elimination of the hospital security and the removal of a full-time Public Works position from the preliminary budget; wages and benefits account for 67% of general fund expenses; supply costs are going up due to higher costs associated with inflation; departments have held budgets flat other than wages & benefits and inflationary factors; and the 2024 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 2024. There will be a 5% increase in garbage rates which is the first increase since 2008. 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 $870,000 in 2024. Total enterprise money is $2,812,628 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 2024-2028 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 $69 million. The approximate breakdown of distribution of the funds is as follows: $23.35 million to infrastructure; $3.28 million to public safety; $19.99 million to Enterprise Funds; $15.02 million to Public Works; $6.36 million to Park & Rec and $1.18 million to General Government. Funds for the CIP come from new debt, enterprise funds, taxes, special assessments, aids/grant, special funds/reserves and unfunded (no current funding sources). Major capital items included in the capital plan are: Creekside facility/equipment, water and wastewater improvements/equipment, water meters, lakes/river improvements, street improvement projects, Uptown Grand project, Fire Department parking lot, airport cemetery, Public Works vehicles/equipment, civic arena improvements, library, playgrounds, VMF Stadium, Park & Rec vehicles/equipment, fire facilities/equipment, police vehicle and City Center improvements. Mr. Jaunich reviewed the debt management plan. The big impact was the new police station. 2022 was the first increase in the debt levy since 2016. The 2024 increase is at a 2.8% increase. Increased interest rates have/will impact future debt decisions. Rising project costs have put pressure on increasing the debt tax levy. Debt levy has not kept up with inflation. Special assessment rates need to be reviewed. The City still has future debt needs for heavy equipment and fire trucks. Mr. Jaunich reviewed that staff is recommending a 9.1 % increase in general fund revenue/expenses which means a 9.0% increase in the total general fund and a 2.8% increase in the debt tax levy with an overall tax levy increase of 7.2%. With the EDA tax levy proposed to increase 5.7% and the HRA tax levy proposed to increase 3.1 % the total tax impact is 7.1 %. One of the biggest factors behind the levy increase is the general wage and benefit increases along with a significant increase in health insurance costs are expected to cost the City an additional $357,812 in 2024. General inflationary factors are impacting the budget as well. Mr. Jaunich noted that outside of eliminating the hospital security and not adding an additional public works employee, 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 are projecting a slight surplus meaning the City shouldn't see any State budget issues impacting the City. While things are slowing down, home values continue to increase and the City is continuing to see growth at all levels. Inflation and supply chain issues are impacting the City as well. Bill Ask, owner of River Ridge Apartments/Carolina Avenue Apartments, presented before the Council. Mr. Ask noted that his taxes in 2019 were $23,000 and now they're over $50,000 so more than doubled in four years. Mr. Ask also commented about the increase in water/sewer rates. Mr. Ask noted that the culmination of all of the increases rea% effects his tenants, which are work -force tenants and work -force rates. Mr. Jaunich noted that the increase in value of Mr. Ask's property is a big factor in his taxes along with some other factors. Mr. Ask was encouraged to speak with McLeod County about the valuation of his property as well as the portion of his taxes that are McLeod County's. Jim Lauer, 775 Laura Avenue SW, presented before the Council. Mr. Lauer asked about the enterprise fund transfer -ins. He noted that it appears that revenues are less than expenses in the enterprise funds so he asked where the money is coming from for the transfers -in. Mr. Reid explained that this is mainly due to depreciation which is expensed and shows a negative net revenue but is not a cash item. When depreciation is pulled out the cash flow is positive which allows for the transfers to the general fund. Mr. Jaunich explained that all the enterprise funds are all self- sustaining and no general fund dollars go into the enterprise funds. Mr. Lauer asked that more detailed information on the enterprise funds be presented at this hearing in the future. Mr. Jaunich noted that an update on the budget will be held at the December 12, 2023, City Council meeting and will be formally adopted at the December 19, 2023, City Council meeting. ADJOURN Motion by May, second by Czmowski, to adjourn at 7:15 p.m. Motion carried unanimously. ATTEST: Gary T. Forcier Matthew Jaunich Mayor City Administrator