Metro cities hike tax levies post-recession

Cities across the metro are enacting or considering significant tax increases this year after laying low during the slow, uneven recovery from the recession that slashed real estate values.

Although wary of hitting homeowners with a tax increase, officials say the throttled-back levies of the past few years are no longer sustainable. They contend they're running out of funding options as the economy recovers and public demands for services increase.

Blaine, which held its levies mostly flat over the last several years, is considering a 13 percent jump next year. Prior Lake is looking at a 10 percent bump in 2015, compared to less than 1 percent last year.

"They were artificial," Prior Lake city administrator Frank Boyles said of the hold-the-line levies of recent years. "We're trying to grow a community here."

After the economy slumped in 2008, the average levy increase fell steadily across the metro to just a third of a percent in 2012, according to data from the Minnesota Department of Revenue. During the past two years, increases hovered around 2 percent, a number that's likely to double in 2015.

Myron Frans, Minnesota's Revenue commissioner, said that many cities hit pause on tax hikes after the economy faltered, after years of raising them.

"People were feeling the pinch of both a decadelong increase in property taxes, and the recession and lower property values," he said. "I think it was just a recognition that you just can't keep pulling all these levers at the same time."

"As the economy turned around and we saw property values increase, we bumped up the levy," said finance director Joe Huss.

In Prior Lake, by last year the city had already been dipping into its reserves in order to maintain low tax levies. On top of that, summertime floods, relentless winter storms and fewer new building permits than expected strained the city's budget.

It's common for cities to increase taxes for a year or two in order to fund projects or deal with specific problems, Frans said.

"It's kind of like our budgets, right?" he said. "We all sit around and do our little budgets and then we don't realize our car is going to go kaput."

That's the story in Edina. The city is looking at an 8.2 percent preliminary levy. Over the past four years it averaged less than 2 percent.

The bulk of that increase would be for one-time projects, including a new recreation facility and major park improvements.

In Mendota Heights, the City Council approved a 6 percent levy Dec. 2, after typically staying at 3 to 4 percent since the recession began. Contributions to ice arena renovations in West St. Paul, new debt related to street reconstruction projects and additions to the police department all contributed to the increase, said city administrator Justin Miller.

"I would imagine that we would return more to the historical average moving forward," he said.

Many cities will finalize their levies later this month, and the state will report final numbers in February.

Prior Lake's original preliminary levy was more than 13 percent, but staff pared it down to meet a council-determined 10 percent cap.

Mayor Ken Hedberg said he doesn't want to reduce services, even though he's not generally in favor of raising taxes. That sentiment has made him a minority on the council.