Lake Elmo working to avoid future tax spikes

City council plans for modest tax bump

In Lake Elmo, median-valued properties are worth $397,000 and are expected to see a $52.97 increase in their 2019 property taxes compared to this year. 

That’s according to Lake Elmo Finance Director Sue Iverson’s Sept. 18 presentation on the city’s preliminary 2019 property tax levy, which was set by the city council later that night.

Just less than $18 of that tax increase is caused by the levy increasing, while the remaining $35 would be caused by a 3.7 percent increase in market value.

The council set the city’s preliminary 2019 tax levy at roughly $4.19 million, which is an increase of about $593,000, or 2 percent, over the final 2018 levy.

According to city documents, the preliminary 2019 tax levy is made up of a $2.7 million general fund operating levy and a $1.2 million debt levy, both of which increased since 2018. 

However, the general fund budget for 2019 also includes about $610,000 transferred to a vehicle replacement fund. Iverson explained that if funding continues after 2019, the vehicle replacement fund will make it possible for Lake Elmo to make future equipment purchases without borrowing money.

The vehicle replacement fund is part of a financial management plan Iverson presented, which aims to ensure the city’s tax rate won’t exceed a 2 percent increase through 2022. 

According to city documents, the plan was created to stabilize the fluctuating tax rates seen in the original 10-year projections, especially in 2023 when the cost of the new City Hall/fire station would be added to the levy. With the presented financial management plan, tax rates through 2029 are expected to remain less than the city’s 2014 tax rate.

“The thing that I will say that I like about this is the long-term aspect of it,” said Mayor Mike Pearson. “I’m very intrigued by the notion ... that we wouldn’t have to borrow for purchases. I admit that I did not think that a million dollars of debt would cost us [$117,000].”

 

The price of flat tax rates

Although the preliminary 2019 tax levy with a 2 percent increase over last year passed with support from a majority of council members, council member Julie Fliflet first tried to pass an amendment to keep the tax rate flat.

“I just feel that we overtax, and I get the need for reserves but at some level it’s just too much overtaxing and it’s too conservative,” she said.

City Administrator Kristina Handt argued that the likely tradeoff for a flat tax is future tax spikes.

“You can do the zero [percent increase] for a couple years if you’d like, but then that means a couple years down the road you’re going to look at double digit increases again,” Handt said.

Iverson added that a need for 15 or 16 percent tax increases were projected in future years in the absence of increases now, due to the level of debt service coming on, partially because of construction of the new City Hall and fire hall.

Fliflet contended that flat taxes don’t have to mean increases down the line if the council “shows some financial discipline” and makes cuts to the budget.

Handt said that if a flat tax rate were chosen over the 2 percent increase, the city would not be able to put money into the new vehicle replacement fund and would have to borrow money in future years to pay for fire engines and dump trucks, which would likely contribute to large increases in taxes later on.

“It wasn’t like we’re adding in some extra frivolous services or anything in the out years,” Handt said. “It was about how we pay for those things we’ve already identified through our long-range plans that we need. ... If you want to support a zero [percent increase], that’s fine, but you’re also supporting more debt and borrowing in the future and higher rate increases in the future.”

While all members of the city council noted that they would also like to avoid raising taxes, only council member Jill Lundgren voted for Fliflet’s amendment.

“I’m all for the thoughtful conversation about where we cut expenses, but I don’t know why we would tie our hands here and now and set it at zero,” said council member Christine Nelson.

The preliminary 2019 levy can be reduced before the Dec. 4 Truth in Taxation hearing, but it cannot be increased.

Ultimately, the 2 percent increase for the levy was passed 4-1, with only Fliflet dissenting. 

 

—Aundrea Kinney

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