Tax limits impact Dakota County city budgets

Changes in local government funding laws set by the Legislature this year have affected some Dakota County cities more than others in putting together budgets and taxes for 2014.

For next year's budgets, the state capped city property tax levy increases for operating costs at 3 percent; offered one-time local government aid dollars to some cities; and eliminated sales tax for city expenses, causing cities to shuffle their budgets and, in some cases, make budget cuts.

All Minnesota cities approved a preliminary 2014 tax levy earlier this month. After public hearings in December, cities are expected to approve final levies. The final figures can be equal to or less than the proposed levies — cities use the proposed figures as a guideline for maximum tax increases.

Hastings is the only Dakota County city that lowered its proposed levy for 2014 — by 2.5 percent. Three cities kept their 2014 levy the same as in 2013 — South St. Paul, Sunfish Lake and Mendota. Burnsville had the largest increase at 5.6 percent, followed by Inver Grove Heights with a 4.78 percent increase.

In Burnsville, the increase seems larger than what it really boils down to: a shuffling of the tax rolls as a result of an expiring tax-increment financing (TIF) district along County Road 42. Four percent of the tax levy's increase will be dedicated to the capital improvement plan (CIP) for streets, instead of to the TIF. The remaining 1.6 percent is coming from new construction paid for by existing taxpayers. Excluding that, the levy increase is just below 1 percent for current taxpayers for the new year.

Farmington city leaders have been frustrated for the past few months shuffling budgets, fearing cuts and finding ways to recover from no levy increases for the past two years. One police officer will be laid off and the city will borrow more money than it expected and pay interest. The city needed a 6 percent increase to stay afloat for basic infrastructure needs after keeping its levy flat in 2012 and 2013.

The state not only capped local property tax levy increases at 3 percent for 2014, but said any local government aid (LGA) from the state counts against that 3 percent. After getting no LGA since 2004, the city is expecting a bump up to about $250,000 for 2014 — an amount equal to about 3 percent of its 2013 property tax levy. That means there is very little room to collect more levy dollars for 2014 operating costs. LGA funding will be used only for one-time expenses since it is not guaranteed every year.

City leaders say that in keeping levies flat during difficult economic times, the city is now being punished with the new cap. "It's been frustrating to watch the state government try and manage local government in the way that they have by setting levy limits," said Farmington City Council member Christy Jo Fogarty. "And frankly, I've said the governor can keep his local government aid and let us handle our budgets the way we handle our budgets. We would be in a much better position if that were the case."

The city had already laid off six employees in the past five years with no levy increases, Fogarty said. "So we've been very, very, very frugal in our budget, and I think that's part of why my frustration comes out so much. We've made hard decisions to try and really keep things lean, and to have to lose a police officer, obviously as a wife of a police officer, it really cuts deep. Public safety is one of our No. 1 charges, so to have to let an officer go is hard."

Eliminating the sales tax for cities in 2014 has helped Farmington slightly, Fogarty said, along with other cities.

"We still have to wait for a point in time where they decide not to mess with our local levies and not to mess with our local budgets so that we can get back on track with our CIP," Fogarty said. "Hopefully, 2015 will loosen some of those restraints and allow us to function the way we were intended."

Property values are starting to creep up in many Dakota County cities, which helps with city revenue. South St. Paul kept its levy the same as 2013 by using LGA in lieu of increasing the property tax levy, even though LGA is not an ongoing fund.