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HomeMy WebLinkAbout2011 02-17 FCA AGENDA Brooklyn Center Financial Commission Thursday, February 17, 2011 — 6:30 PM All America Conference Room (Main Level of City Hall) I. Call to Order II. Approval of Agenda III. Approval of Minutes a. January 20, 2011 IV. Review of City Council Requests a. Budgeting and Use of State Aid Revenue V. Other Business VI. Adjournment Financial Commission Work Session Meeting Minutes 20 January 2011 1. Call to Order The meeting was called to order by Mr. Newman at 6:40 PM Members Present: Commissioners Newman, Landis, Schueller and Agbssou. Council Member Roche was present. Staff present were City Manager Boganey and Director of Fiscal & Support Services Jordet. 2. Adoption of the Agenda Without objections, the Agenda was declared adopted as presented. 3. Minutes Mr. Schueller proposed and Mr. Newman seconded a motion to adopt the minutes of the March 30, 2010, June 7, 2010, August 16, 2010 and September 20, 2010 meetings as presented. With all voting in favor, the motion was adopted. 4. Selection of Chair for 2011 By acclimation, Mr. Neweman was reappointed as Chair of the Financial Commission for calendar year 2011 5. 2011 Budget Status Mr. Jordet reported that the 2011 budget was adopted by the City Council on December 14, 2010 on a unanimous vote in the form last reviewed by the City Council and Financial Commission on November 15, 2010. He also explained the current budget situation for State Aid with the City having budgeted to receive all MVHC aid and $ 200,000 of LGA for 2011. As a reserve function, $ 200,000 wags set aside in the contingency account of the Central Supplies business unit. 6. Review of City Council Requests A Council request to address State Aid Revenues and their use when received by the City was discussed as a continuation of a conversation form the June 7, 2010 meeting. Two points were raised in discussion requiring additional information: 1 • A graph of state aid as a % of budget could be developed • A comparison of Brooklyn Center with other cities for reliance on LGA could be developed In addition, the following points were raised during discussion • Some recovery of state aid could be made through property tax with an identifiable correlation to the property tax. • Annual expenditures in the General Fund should not depend on the expected receipt of LGA • Other uses for LGA include street reconstruction, technology upgrades, building and structural maintenance and equipment replacement • In order to put such exclusion of LGA into effect a multiyear phase out of LGA could be instituted beginning in 2012 Staff will take these items and the discussion from June 7, 2010 into account and draft a response to the City Council for Commission consideration at the February 2011 meeting. Further discussion will take place on the Council's request to consider Utility Billing and Collection practices. The March 2011 meeting will be the target for that discussion. 7. Review of RFP Process and Procedures Two Requests for Proposals are scheduled for 2011. The first, for Insurance Agent and Risk Management Services will be developed and discussed at the March 2011 meeting. Following that discussion, the Council will be asked to adopt an RFP for the services that will be dispersed, collected, reviewed and sent back to the Council with a recommendation from the City Manager. The second RFP for Financial Advisor for Bond Sales will be considered by the Commission in April 2011. Following completion of that discussion the City Council will be asked to approve an RFP. Review of this RFP will be expanded to include a review committee of staff, Council and Commission members. Staff hopes to complete the process and have a recommendation for eh City Council through the review committee by June of 2011. 8. Other Business No Other Business was presented for Commission consideration. 9. Adjournment With no other business to transact, the meeting was adjourned at 7:55 PM. 2 Memorandum Date: March , 2011 To: Brooklyn Center City Council From: Brooklyn Center Financial Commission Re: Budgeting for and Use of State Aid for operations SUMMARY: State Aid allotted to the City of Brooklyn Center should not be used for regular, ongoing expenses but LGA should be used, if and when received, to supplement long term or one time funding needs of the community and MVHC should be kept in the General Fund as a supplement to annual operations. During the process of developing the 2011 Budget the City Council asked the Financial Commission to recommend a solution to the ongoing problem of budgeting for and using State Aid. State Aid, primarily in the form of Local Government Aid (LGA) has been allocated to the City of Brooklyn Center since the 1970's. The source for this funding has been receipts from the State imposed sales tax. In the 1990's, a proposal to raise the sales tax 1.00% and dedicate it to the permanent funding of LGA through a Local Government Trust Fund. While the sales tax was 3 increased by that 1.00%, the Local Government Trust Fund was not established. As a result, LGA remained as a source to be funded from the general pool of State revenues. In 2003 the first major reduction of LGA took place as the result of revenue constraints on the part of State government. As a result, LGA dropped significantly from 2003 to 2004 in the planning for budgeted revenues. From 2004 through 2007, the State paid the reduced amounts of LGA in full to cities. In 2008, though, the State found itself in another revenue crisis and reduced LGA on very short notice; within 20 days of the fiscal year end. As a result Brooklyn Center lost $ 459,465 in revenues it expected to receive as State Aid just prior to the end of the fiscal year. Given the expectation that the funds would be paid to the City, the funds had already been committed to operational spending and disbursed. For 209 and 2010, the situation became even more difficult with LGA amounts being reduced from allotted levels during the fiscal year for which they were received. Brooklyn Center took the position that the operating budgets must be reworked at mid-year in order to take those reductions into account. As a result, Brooklyn Center's budget plan remained balanced but mid-year reductions in expenditure authorizations created difficulties in operations. 4 For the 2011 budget year, the City Council declared that no more than 4.50% of the General Fund revenue should be budgeted from State Aid for operations. This was done in order to formulate a budget that would be as "cut proof' as possible should the State make further cutbacks in LGA. At the same time the City Council asked the Financial Commission to consider the situation and make recommendations for planning in future budget years. The Financial Commission took up this discussion at meetings on June 7, 2010 and January 20, 2011. The discussion at the Jun meeting produced two questions regarded as keys to a recommendation; • How much of the General Fund budget should be made up of State Aid dollars? • If the City receives more State Aid than budgeted, for what should it be used? Further discussion at the January 20, 2011 meeting resulted in a suggestion that reliance on LGA be reduced to zero for operations. Implementing this recommendation over a two, three or four year period could be considered. Market Value Homestead Credit (MVHC) is a more difficult payment to predict and adapt to. It is a discount to the property taxes of the City given to homeowners living in those owned homes based on the market value of those 5 homes. It is given on a sliding scale that rises to a maximum credit of $ 304.00 at a $ 76,000 market value. MVHC then declines using a formula of Credit = $ 304.00 - ((market value - $ 76,000)* .09) and making the credit zero at a market value of $ 413,778, The City splits responsibility for this credit with the other taxing jurisdictions based on its portion of the capacity based property tax extension rate. The difficulty with this State payment is that is is not an "aid" in the sense that it provides additional revenue. It is a replacement of dollars discounted from property taxes levied by the City. If the MVHC is not funded, the property tax revenues decrease by the amount of the credits given by the State but not paid to the City.. A final MVHC number for the City is not determined until mid-year each fiscal year. Proceeds are distributed to cities in October and December. As a result advance planning for and managing MVHC is difficult. Estimates can be derived using a formula of prior year MVHC adjusted generally by overall market value change. This estimate is included in the total 4.50% of General Fund revenues limitation used by the City Council in 2010. The Commission continues to recommend this course of estimate and planning but also recommends that the reliance on the reimbursement of the MVHC be reduced in the same manner as reliance on LGA. 6 If windfall amounts of LGA or MVHC are received during a fiscal year, LGA should be applied to costs or projects that are not a part of regular operations but require funding in or after that fiscal year. Examples would include building maintenance, street reconstruction, park maintenance, equipment replacement or technology improvements. Windfall amounts of MVHC should stay in the General Fund as they derive from levy of the property tax and result from planning for ongoing operations. 7 City of Brooklyn Center State Aid (LGA/HACA/MVHC) Database Original LGA Actual LGA Actual LGA Fiscal Original Original General Actual Actual General as a % of as a % of as a % of MVHC Year LGA Budget Fund Budget LGA Received Fund Revenues Original Budget Actual Revenues Original LGA Received 2000 2,122,635 14,030,030 2,122,635 14,648,366 15.13% 14.49% 100.00% 1,379,768 HACA 2001 2,179,744 14,423,638 2,179,744 14,952,171 15.11% 14.58% 100.00% 1,380,106 HACA 2002 2,260,267 15,173,726 2,265,267 16,091,236 14.90% 14.08% 100.22% - 2003 2,501,033 15,408,271 1,319,661 14,902,911 16.23% 8.86% 52.76% 753,820 MVHC 2004 877,555 12,982,258 877,555 13,235,729 6.76% 6.63% 100.00% 782,031 MVHC 2005 542,522 13,391,078 543,183 14,109,758 4.05% 3.85% 100.12% 715,715 MVHC 2006 667,665 13,841,838 667,665 14,415,082 4.82% 4.63% 100.00% 642,709 MVHC 2007 767,665 14,544,372 1,299,388 15,588,921 5.28% 8.34% 169.26% 573,464 MVHC 2008 1,113,243 15,498,836 572,708 15,027,144 7.18% 3.81% 51.45% 543,128 MVHC 2009 1,483,492 16,523,686 1,019,990 16,188,173 8.98% 6.30% 68.76% 583,308 MVHC 2010 411,544 16,003,578 411,378 16,112,845 2.57% 2.55% 99.96% 126,968 MVHC 2009 2010 Certified Certified Certified Certified Original Original Revised Final Revised Final Original Original Revised Final Revised Final LGA MVHC LGA MVHC LGA MVHC LGA MVHC Brooklyn Center 1,483,492 581,488 1,019,990 581,488 1,480,854 630,990 411,378 166,968 Richfield 2,640,727 636,481 2,079,370 636,481 2,513,609 748,487 1,218,346 138,123 Roseville - 422,077 - - - 468,225 - - Maplewood - 514,877 - - - 574,427 Fridley 1,332,853 416,660 974,898 416,660 1,585,353 426,240 759,414 24,893 White Bear Lake 2,035,324 209,279 1,816,952 209,279 2,041,462 232,274 1,537,595 2,295 Shoreview - 293,092 - 6,749 - 334,186 - - Crystal 1,898,952 467,928 1,566,922 467,928 2,221,185 549,431 1,455,066 162,194 New Hope 738,701 305,938 423,735 305,938 771,554 352,981 44,807 14,765 Golden Valley - 344,471 - - - 339,716 - - o © LEAGUE of CONNECTING & INNOVATING MINNESOTA SINCE 1913 CITIES Market Value Homestead Credit Reimbursement 101 Updated June 2010 This guide is intended to describe the basics of the Market Value Homestead Credit(MVHC) reimbursement program. The program was designed to provide state-paid property tax relief to owners of certain qualifying homestead property. The MVHC program is closely tied to the property tax system, a detailed description of which can be found in the "Property Taxation 101" guide. Background In the 2001 legislative session, state with market values over $76,000, the credit is lawmakers eliminated the Homestead and reduced by 0.09% of the excess market value. Agricultural Credit Aid (HACA) program, which had provided $200 million in state aid Credit=$304—((market value-$76000)x 0.09%) to cities for property tax relief. Of these funds, $140 million were folded into the Homesteads with market value of$413,778 Local Government Aid (LGA) program. The and higher do not receive any credit. The 2001 property tax reform bill eliminated the table below shows some sample market general education property tax levy, bringing values and corresponding credit amounts. tax relief to all property owners, including homeowners, and replaced it with a new state Homestead Market Value property tax on businesses. The Legislature Market Value Homestead Credit also created the Market Value Homestead $50,000 $200 Credit (MVHC)program, giving most $76,000 $304 homeowners additional tax relief. $100,000 $282 $200,000 $192 $350,000 $57 How it works for homeowners: $413,778 $0 "The credit" On each homeowner's property tax bill, the The MVHC program reduces the property tax market value homestead credit is allocated to the local taxin g districts (city, county, school owed on a homestead property by 0.4% of special districts) according t the share of the the homestead's market value, up to a total tax rate that each taxing district maximum per property of$304. represents. For example, if the city tax rate is Credit=market value x 0.4% 30% and the total tax rate is 120%, a fourth (30/120) of the market value credit is The maximum credit of$304 occurs at a allocated to the city portion of the market value of$76,000. For homesteads homestead's property tax bill. For taxes 145 UNIVERSITY AVE. WEST PHONE:(651) 281-1200 FAX:(651) 281-1299 ST. PAUL, MN 55103-2044 TOLL FREE: (800) 925-1122 WEB:WA,'4V.LMC.ORG 9 payable in 2010 and thereafter the property reimbursement cuts for 103 cities for 2005 tax statement must not state or imply that this and 2006. The funding for the city portion credit is paid by the state. of the MVHC reimbursement was reduced from approximately $82 million to $65 How it works for cities: million for these years. While property owners continued to receive the benefit of the "The reimbursement" full credit, cities were not reimbursed for the The MVHC reimbursement is not an aid; it full amount of those credits. These cities does not represent dollars in addition to what therefore did not collect their total certified the city has levied. The reimbursement levy amount. In other words, for these cities, makes up part of a city's levy. Cities do not the gap between the certified levy and what budget for it. The credit to homeowners the taxpayers pay was not filled completely reduces a city's property tax receipts by the (or at all). The MVHC reimbursements were amount of the credit allocated to the city. restored for taxes payable in 2007. However, This means the city will receive less than its the 2008 payment of MVHC reimbursement certified tax levy from taxpayers. The state to cities was reduced in December through makes up the difference by reimbursing the unallotment', a process used to balance the city for the city portion of the credit received state budget. Unallotment was again used to by property owners. The combination of reduce reimbursement payments to cities in after-credit tax receipts and the MVHC 2009 and 2010 by $19.6 million and $25 reimbursement should equal the city's million, respectively. The 2010 legislature certified levy. For most cities, between five extended the unallotment cuts to MVHC and fifteen percent of the city's levy is paid reimbursements ($25m) for 2011. by the state through the MVHC reimbursement. Original Final Year Amount Amount An example helps to illustrate how the 2002 87,512,765 87,512,765 program works. Assume a city certifies a 2003 85,539,919 65,425,091 levy of$100. Taxpayers receive a $10 credit 2004 85,290,722 66,279,257 on property tax bills. After taxpayers pay 2005 82,636,505 65,087,094 their tax bills, $90 is generated for the city. 2006 78,921,393 62,809,103 The difference between what is generated 2007 75,935,548 75,935,548 from taxpayers ($90) and what the city 2008 75,810,435 63,310,311 certified ($100) is made up by the MVHC 2009 76,770,261 57,204,103* reimbursement($10). The city must still 2010 est. 81,835,790 11,626,460** certify $100 for its levy in order to realize the 2011 est. 81,835,790 56,374,068* full $100 from the combination of taxpayer *post ratified unallotment payments and the reimbursement. **post ratified unallotment&supplemental cuts Cuts to Reimbursement Cities receive their market value credit The 2003 legislature balanced a major state reimbursement in two installments from the deficit by cutting state aids and credit state, in October and in December. reimbursements to cities. Under the cuts, Information on the amount of each city's some cities that received little or no Local Government Aid experienced a reduction in the MVHC reimbursement. The 2005 ' The Governor's unallottnents were ratified by the legislature extended the MVHC 2010 legislature. Revised April 2010 10 credit reimbursement is usually available in market value credit reimbursement the late summer each year. districts will receive by consulting the Department of Revenue. MVHC and Tax Increment Financing(TIF) Agricultural Market Value Credit districts The 2001 legislature also created the TIF districts are eligible for the market value Agricultural Market Value Credit program, credit reimbursement when a property which reduces the property tax of agricultural receiving the credit is located within the TIF homestead property up to $345, based upon a district. The portion of the credit allocated to percentage of market value. This credit the TIF district is based on the percentage of program, like the MVHC, results in a portion the parcel's value that is captured in the TIF of the city's certified levy paid by the state district. The market value credit instead of local taxpayers. Most cities receive reimbursements for a TIF district are sent to very little, if any, of this credit the city in each December. Cities with TIF reimbursement. districts can determine the amount of the Resources League of Minnesota Cities http://www.Im c.org/page/1./property-tax-state-funding-f i scal-i SS Lies.is L) • 2009/2010 LGA and MVHC Unallotment FAQ (pdf) • Property Tax 101 (pdf) • Property Tax Statement 101 (pdf) Revised April 2010 I1