A split Prior Lake City Council has failed to approve a preliminary property tax levy, leaving it up to the Scott County auditor to use 2011’s final proposed tax levy as the preliminary 2012 city levy.

An hour-long discussion at its Sept. 6 meeting didn’t bring the council any closer to agreeing on a proposed levy amount.

Last year’s proposed levy of $10.1 million was “artificial,” according to Mayor Mike Myser, because of the complex set of rules under the state’s previous Market Value Homestead Credit process.

Under the new state law, homestead credit is revamped into a market-value exclusion for local governments. In the past, cities and counties never got the full reimbursement anticipated from the state, leaving them with some uncertainty as they proposed their budgets. Prior Lake has not seen a total of about $700,000 worth of state reimbursements since 2008, Finance Director Jerilyn Erickson estimated.

The new law aims to hold local governments more accountable for spending and give homeowners more direct tax relief.

But Myser believes the new market-value exclusion is “phenomenally complex.” Even though the city proposed a $10.1 million levy last year, the city collected a total of $9.85 million.

“We never do collect at 100 percent – it’s always at about 98 or 99 percent each year,” Myser said. “Our levy last year really was $9.85 million. We aren’t playing the accounting games that were required by the Market Value Homestead Credit.”

Myser added: “St. Paul [legislators] put in these artificial levy levels in the first place. If we really wanted a zero levy for what we levied and charged our residents last year, our levy should be $9.8 million. Otherwise, it’s really a 21/2-percent increase. That’s what the law change did to us.”

Jerilyn Erickson confirmed that previously, cities had to establish a higher levy because they knew they wouldn’t get that amount from the state. The Market Value Homestead Credit in 2011 for Prior Lake was $259,000. This year, that credit is the same, but in future years, the credit will go away.

Myser and Councilman Richard Keeney warned that if they set the levy at last year’s rate, “we are accepting a levy increase. In effect we’re not increasing the levy, but we are collecting more money because of this.”

Councilwoman Vanessa Soukup and Councilman Warren Erickson hold a different opinion. They cautioned that the proposed levy is the maximum the city can levy – state law allows cities to lower, but not raise, the levy between the time it’s proposed and the time the final levy is adopted.

This year’s credit “is a one-time adjustment, but it’s not a credit that is artificially reducing our tax levy,” Soukup said. “This is a one-time deal for this budget, and people won’t be seeing this anymore. This program is gone, so we don’t have the reliance on the state, either.”

Councilman Ken Hedberg was absent from the Sept. 6 meeting due to his job. Hedberg has typically sided with Soukup and Warren Erickson on city budget and tax levy issues.

Scott County Auditor Cindy Geis said the council’s failure to adopt a preliminary levy means her office will have to set the proposed levy at last year’s final adopted levy of $10.1 million.

“I will need to increase your market value levy. By statute, you cannot levy less than what your debt is, unless you have money in that reserve fund to cover that particular bond,” Geis told the council.

Geis said the county would reduce the city’s general fund levy by the same amount it increases the market value levy.

“The overall levy will remain consistent with last year,” Geis said, adding that she would need a general statement from the council that the city has enough funds in reserve to manage its debt.

NEW POSITIONS

The city’s proposed 2012 budget of $25.7 million – about 1.65 percent higher than in 2011 – includes a personnel increase totaling $241,000, or a nearly 2-percent increase over 2011. A police supervisor position and an accountant in the finance department are proposed.

Council members agreed those positions are needed, but Myser and Keeney cautioned against increasing staffing too quickly in a still-wavering economy.

“I would propose either holding off on these additional positions or delaying them,” Keeney said. “I’m really concerned about a 3.6-percent increase in spending.”

As proposed, the 2012 budget would increase the city portion of the tax bill by $26 on the average-valued home.

Keeney also recommended removing a proposed 4-percent increase in budgeting for mayor and council members.

“I think we should take the 4 percent off the City Council budget as a symbolic gesture,” he said.

Myser said he’s “still nervous” about the economy.

“I support the need for some additional staff, but adding back 3.2 [full-time equivalent positions] – I still don’t support that at this stage,” Myser said.

Soukup and Warren Erickson maintained that if residents expect a strong and healthy police department, the police supervisor position is needed. They also supported an accountant position to ease what they say are increasing responsibilities in the finance department.

SURPLUS

Myser surprised his colleagues on the council – and many residents – in February, when he pointed out the city’s nearly $1 million surplus from 2010 and proposed returning some of the money to residents.

In budget workshops this summer, council members continued to debate the use of that surplus.

Warren Erickson now says he agrees the city should give some of the money back to residents, but he disagrees with Myser on the method. He pressed for gradual tax relief for homeowners, while Myser would prefer to give residents a larger, one-time rebate.

“While I would be open to giving some of that money back gradually over a period of a few years, I don’t think that’s as good, because then people will get conditioned to it,” Myser argued. “I say give it to them in one fell swoop so they won’t get used to it and they know it’s not something that’s going to happen over a period of time.”

Soukup warned that the state’s ongoing deficit is going to continue to affect local governments.

“There are a lot of programs for mutual aid that are going away. The state is going to keep cutting back,” Soukup said. “Yes, we are in a surplus situation … but we need to do our due diligence, because we don’t want to end up in a deficit in a few years. We are in a great position right now, and we need to be aware of what’s going on.”

What’s next

Nov. 7: Council workshop on final budget and tax levy

Dec. 5: Truth-in-taxation hearing at City Hall at 7 p.m.

Dec. 19: Adoption of final budget and tax levy for 2012

Impact

As proposed, the 2012 budget would increase the city portion of the tax bill by $26 on the average-valued home.