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VII.2. Review Options for 2021 Tax Levy; Bishop CITY OF HOPKINS Memorandum To: Honorable Mayor and Council Members Mike Mornson, City Manager From: Nick Bishop, Finance Director Date: November 4, 2020 Subject: Review Options for 2021 Tax Levy _____________________________________________________________________ PURPOSE No formal action is required at this meeting. Staff is requesting input on the proposed options for the 2021 Tax Levy. INFORMATION Summary A draft version of the 2021 Budget and Tax Levy was prepared by staff and presented to City Council on July 21st. The draft included both conservative revenue estimates and decreased expenditures. The City also hosted a virtual budget engagement session on August 17th that reviewed the same draft version of the budget and tax levy. City Council directed staff to reduce this initial draft. The 2021 Budget and Tax Levy was reduced and presented to City Council on September 1st and approved as the 2021 Preliminary Budget and Tax Levy on September 15th. The preliminary tax levy was set at $18,023,384, a $493,700 or 2.82% increase from 2020. Based on preliminary tax capacity information, City taxes on a median value home ($291,000) will be $1,877, a $49 or 2.68% increase from 2020. This levy will meet the needs of the Community in 2021, but it does so at a lower level of service than in years past. Finance Department The preliminary budget and tax levy includes the following reductions: • General Fund Reductions of $100,000 have been identified and removed from the budget. An open public works superintendent position was eliminated and the supervisory aspects combined with an existing position. Other reductions identified include reducing crack sealing on City streets by 25%, a 20% reduction in tree re-planting and delaying all pole painting. • COVID-19 Contingency of $150,000 has been removed from the budget. This contingency budget was included to address the financial uncertainty surrounding COVID-19 in 2021. It could have been transferred to any of the City’s funds experiencing financial difficulty. Staff believes funds from the Equipment Replacement Fund and Capital Improvement Fund could be used as one-time contingency for 2021. Any additional impacts from COVID-19 could cause the city to need to rely on existing reserves or further reductions. • Burnes Park debt service has previously been paid for with a portion of our debt levy. $150,000 of franchise fees that were previously dedicated to current park improvements will be used to pay debt service for the 2017 project. The tax levy was planned through 2032 and this decision could be one-time or continued. The five-year plan for the Park Dedication Fund would need updating based on this change. The fund would rely on park dedication fees from new development to fund current projects. This will likely leads to cancelled or delayed projects at Shady Oak Beach, Cottageville Park, Maetzold Field, Oakes Park and Downtown Park. The City’s Financial Management Plan was reviewed at the October 6th City Council meeting. The 2021-2025 Equipment Replacement and Capital Improvement Plans were reviewed at the October 13th Work Session. City Council has directed staff to continue to look for ways to reduce the tax levy. The Final 2021 Budget and Tax Levy is scheduled to be approved on December 15. The following two options are being presented for consideration. Option 1: 1.48% Levy Increase in 2021 In Option 1, the Final 2021 levy would be set at $17,788,384, a $258,700 or 1.48% increase from 2020. Based on preliminary tax capacity information, city taxes on a median value home ($291,000) will be $1,848, a $22 or 1.19% increase from 2020. Capital Levy: The capital levy would be eliminated for 2021. The Activity Center-Facility Improvement project would be delayed until 2022 or later. No other projects are scheduled in the Capital Improvement Fund during 2021. The Capital Improvement Fund would be projected to end 2021 with a fund balance of $202,908. Equipment Replacement Levy: The equipment replacement levy would be set at $200,000, which is a $50,000 reduction from the preliminary levy. This levy amount would still allow for the purchase of all equipment in the Equipment Replacement Fund or could be used as a contingency budget for unknown effects of COVID-19. The City would not need to fund purchases through the issuance of equipment certificates or other types of debt. The Equipment Replacement Fund would be projected to end 2021 with a fund balance of $559,915. Debt Levy: The debt levy would be set at $4,108,650, which is a $10,000 reduction from the preliminary levy. The further reduction is based on estimated interest savings from the 2020B GO Refunding Bonds that are being sold on November 17th. Actual Option 1 % Increase Purpose FY2020 FY2021 (Decrease) General Operations General Fund 12,479,305 12,808,552 2.64% Capital Levy 75,000 - -100.00% Arts Center 325,225 331,182 1.83% Pavilion Fund 290,000 340,000 17.24% Equipment Replacement 110,000 200,000 81.82% Total General Operations 13,279,530 13,679,734 3.01% Debt Levy 4,250,154 4,108,650 -3.33% Total Levy 17,529,684 17,788,384 1.48% Option 1: 1.48% Increase in 2021 Option 2: No Levy Increase in 2021 In Option 2, the Final 2021 levy would have no increases compared to 2020. Based on preliminary tax capacity information, city taxes on a median value home ($291,000) would be $1,818, a $9 or 0.49% decrease from 2020. Capital Levy: The capital levy would be eliminated for 2021. The Activity Center-Facility Improvement project would be delayed until 2022 or later. No other projects are scheduled in the Capital Improvement Fund during 2021. The Capital Improvement Fund would be projected to end 2021 with a fund balance of $202,908. Equipment Replacement: The equipment replacement levy would be eliminated for 2021. Equipment charges would be held flat, resulting in a general fund levy reduction of $51,808. This levy and equipment charge amount would still allow for the purchase of all equipment in the Equipment Replacement Fund. The City would not need to fund purchases through the issuance of equipment certificates or other types of debt. The Equipment Replacement Fund would be projected to end 2021 with a fund balance of $308,107. Debt Levy: The debt levy would be set at $4,108,650, which is a $10,000 reduction from the preliminary levy. The further reduction is based on estimated debt service from the 2020B GO Refunding Bonds that are being sold on November 17th. General Fund Levy: The general fund levy would be set at $12,749,852, which is a $58,700 reduction from the preliminary levy. General fund equipment charges would be held flat, resulting in a $51,808 reduction to the general fund levy (impacts are described above). The Activity Center Director position will also be held vacant during January, resulting in additional savings of $6,892. Actual Option 1 % Increase Purpose FY2020 FY2021 (Decrease) General Operations General Fund 12,479,305 12,749,852 2.17% Capital Levy 75,000 - -100.00% Arts Center 325,225 331,182 1.83% Pavilion Fund 290,000 340,000 17.24% Equipment Replacement 110,000 - -100.00% Total General Operations 13,279,530 13,421,034 1.07% Debt Levy 4,250,154 4,108,650 -3.33% Total Levy 17,529,684 17,529,684 0.00% Option 2: No Increase in 2021 FUTURE ACTION: 2021 Budget Preparation Schedule The following table outlines the tentative schedule for discussions on important aspects of the City’s Budget. Meeting Date Meeting Type Subject Details October 6 Regular Meeting Financial Management Plan (FMP) Update -Overview of the FMP, prior tax increases and debt October 13 Work Session Review Capital Improvement Plan (CIP) and Equipment Replacement Plan (ERP) -Park Dedication Fund -Capital Improvement Levy (City Buildings) -Permanent Improvement Revolving Fund (Street Projects) -Equipment Replacement Levy October 20 Regular Meeting Quarterly Financial Report November 4 (Wednesday) Regular Meeting Review Options for 2021 Tax Levy -Review reduced levy options for 2021 November 10 Work Session Review Special Revenue Budgets, Activity Center Budget, Enterprise Fund Budgets and Utility Rates -Chemical Assessment -Activity Center -Economic Development -Sewer -Parking -Storm Sewer -Communications -Refuse -Depot -Pavilion -Arts Center -Water November 17 Regular Meeting Approve CIP, ERP & Utility Rates November 30 (Monday) Regular Meeting Truth in Taxation Hearing -Overview of 2021 Budget and Tax Levy -Public Comment December 1 Regular Meeting Approve Final Budget & Tax Levy -Final Comments from Council on Budget -Could be approved if appropriate December 15 Regular Meeting Approve Final Budget & Tax Levy -Last scheduled meeting to approve Review Options for 2021 Tax Levy November 4, 2020 2021 Budget & Tax Levy Reviewed Financial Management Plan at January 10, 2020 Goal Setting Budget Engagement Session held on January 21, 2020 Budget Survey conducted in March/April 2021 Budget & Tax Levy 1st Draft Budget & Tax Levy Presented to City Council on July 21, 2020 Budget Engagement Session held on August 17, 2020 City Council directed staff to make reductions to 1st Draft of Budget & Tax Levy 2021 Budget & Tax Levy 2nd Draft Budget & Tax Levy Presented to City Council on September 1st, 2020 Preliminary Budget and Tax Levy approved on September 15th, 2020 2021 Budget and Tax Levy Reviewed Financial Management Plan on October 6th, 2020 Reviewed Capital Improvement and Equipment Replacement Plans on October 13th,2020 City Council provided guidance and directed staff to propose further reductions to Preliminary Levy Preliminary 2021 Tax Levy Additional Reductions Included General Fund Reductions of $100,000 COVID-19 Contingency of $150,000 Burnes Park Debt Service paid with franchise fees, tax levy is reduced by $150,000 Preliminary 2021 Tax Levy Actual Preliminary % Increase Purpose FY2020 FY2021 (Decrease) General Operations General Fund 12,479,305 12,808,552 2.64% Capital Levy 75,000 175,000 133.33% Arts Center 325,225 331,182 1.83% Pavilion Fund 290,000 340,000 17.24% Equipment Replacement 110,000 250,000 127.27% Total General Operations 13,279,530 13,904,734 4.71% Debt Levy 4,250,154 4,118,650 -3.09% Total Levy 17,529,684 18,023,384 2.82% Preliminary Taxes on Median Value Home 2020 Actual Estimated Market Value as of 1/2/19 = $276,000 City Taxes -$1,827 Increase of $92 or 5.31% 2021 Preliminary Levy Estimated Market Value as of 1/2/20 = $291,000 City Taxes -$1,877* Increase of $49 or 2.68% *estimated based on preliminary tax capacity information *based on preliminary levy adopted on September 15, 2020 Option 1: 1.48% Levy Increase Capital Levy of $175,000 is eliminated in 2021 Activity Center-Facility Improvement project is delayed until 2022 or later Equipment Replacement Levy is reduced by $50,000 Still allows purchase of all scheduled equipment Ending fund balance is reduced compared to preliminary levy Option 1: 1.48% Levy Increase Debt Levy is reduced by $10,000 Based on estimated interest savings for the 2020B GO Refunding Bonds being offered for sale on November 17, 2020 Option 1: 1.48% Increase Taxes set at $17,788,384 Increase of $258,700 or 1.48% Taxes on median value home are $1,848, a $22 or 1.19% increase from 2020 Option 2: No Increase All Reductions in Option 1 Capital Levy is eliminated Equipment Replacement Levy is reduced Debt levy is reduced by interest savings Equipment Replacement Levy is reduced by a further $200,000 Option 2: No Increase Equipment Replacement Levy is reduced by a further $200,000 Equipment Charges in the General Fund are held flat reducing the levy by $51,808 Still allows purchase of all scheduled equipment Ending fund balance is reduced compared to preliminary levy and option 1 Option 2: No Increase General Fund Levy is reduced by a further $6,892 Delay in hiring of 1 position at Activity Center Option 2: No Increase Taxes set at $17,529,684 No Increase Taxes on median value home are $1,818, a $9 or 0.49% decrease from 2020 2021 City Taxes -Projected Option 1 Taxes Increase 1.48% Taxes on Median Value Home -$1,848 Increase of $22 or 1.19% Option 2 Taxes Do Not Increase Taxes on Median Value Home -$1,818 Decrease of $9 or 0.49% Next Steps Meeting Date Meeting Type Subject Details November 4 (Wednesday) Regular Meeting Review Options for 2021 Tax Levy -Review reduced levy options for 2021 November 10 Work Session Review Special Revenue Budgets,Activity Center Budget, Enterprise Fund Budgets and Utility Rates -Chemical Assessment -Economic Development -Parking -Communications -Depot -Arts Center -Activity Center -Water -Sewer -Storm Sewer -Refuse -Pavilion November 17 Regular Meeting Approve CIP, ERP & Utility Rates November 30 (Monday) Regular Meeting Truth in Taxation Hearing -Overview of 2021 Budget & Tax Levy -Public Comment Next Steps Meeting Date Meeting Type Subject Details December 1 Regular Meeting Approve Final Budget & Tax Levy -Final Comments from Council on Budget -Could be approved if appropriate December 15 Regular Meeting Approve Final Budget & Tax Levy -Last scheduled meeting to approve