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Council takes challenge of cutting tax increases

December 7, 2011
By Josh Moniz - Staff Writer (jmoniz@nujournal.com) , The Journal

NEW ULM - The New Ulm City Council held a tense session Tuesday at the first public hearing for the 2012 City of New Ulm budget. After talks, the Council determined potential cuts that could reduce the preliminary property tax increase from 15 percent to nearly 2 percent.

Cause of levy, budget changes

New Ulm City Manager Brian Gramentz started with a presentation on the impact of changes in Minnesota's taxing methods.

He said Local Government Aid (LGA) has been reduced since 2003. He explained that LGA accounts for a quarter of the City of New Ulm's revenues, and that each reduction impacts the city budget. New Ulm will received $1.2 million less than the promised LGA level in 2012.

He also explained the Minnesota Legislature's decision to swap Homestead Market Value Credit, which reduces select property taxes while covering the loss with state funds, with Homestead Market Value Exclusion (HMVE), which reduces property values during tax calculations only.

After Gramentz, City Financial Director Reg Vorwerk outlined changes in New Ulm budget from 2011 to 2012. The biggest changes in the General Fund was $268,029 increase in the Police Department and $175,787 increase in the Fire Department. Part of both departments' increase is due to mandated purchase of ARMER communication systems. The Police Department also hired a new police officer this year.

Fact Box

Potential Budget Cuts

City officials offered several potential cuts the New Ulm City Council can enact to reduce the 2012 budget and levy.

Item / Budget Decrease / Levy Decrease / Levy Percentage Decrease

Tier 1

Less Health Care Increase $50,490 $50,490 0.9%

General Police Reduction

$35,000 $35,000 0.62%

Street Increase Transfers

$150,000 1$50,000 2.66%

Cut Facility Manager position

$70,000 $49,400 0.88$

5 290 51510

General Fund to Old Building Restoration

$230,000 $230,000 4.09%

Total of these cuts

$224,510 $491,229 8.73%

Tier 2

Eliminate Subsidies $122,262 $122,262 2.18%

Leave Assistant City Manager position open

$83,000 $83,000 1.47%

Leave 1 police officer position open $69,900 $69,900 1.24%

Total of these cuts $275,162 $275,162 4.89%

Tier 3

Street Sealcoating $5,500 $5,500 0.1%

Library Office Supplies $1,000 $1,000 0.02%

Library General Supplies 1,000 1,000 0.02 %

Library Miscellaneous $1,000 $1,000 0.02%

Library Special Events Prog $1500 $1,500 0.03%

Park & Rec Eliminate spring and summer ice

N/A $39,000 0.69%

Park & Rec Close one outdoor wading pool

$22,000 $22,000 0.39%

Park & Rec Cut funding for 1 year to disabled adult recration club

$9,630 $9,630 0.17%

Park & Rec Scholarships in administation

$2,700 $2,700 0.05%

Park & Rec - Supplies department wide $10,000 $10,000 0.18%

Park & Rec Other Temp

$20,000 $20,000 0.36%

Park & Rec Postpone tree replacements 8,000 8,000 0.14%

Total of these cuts $823,3000 $121,330 2.16%

Total Property Tax Cut from Preliminary Budget $132,982 $887,721 15.77%

Vorwerk said the biggest increase overall was a $557,890 increase to the Debt Service Fund, which was pushed up by four factors: One, the City incurred more debt for street improvements that it was making up for not doing in previous years. Two, street projects have primarily been improvements instead new projects, which are only allowed to be specially assessed for a small portion by the state to make up the cost. Third, several large developments in the area were in financial peril, which resulted in them failing to pay special assessments. The City is liable for unpaid special assessments until they are paid off by the property owner. Finally, the way the City layered its debt reduced payments in prior years but increased them this year.

Vorwerk said it was an unusual overlap of increased costs, and that the last two factors would not be repeated in the future.

Budget and reduction options

The result of all the factors was the proposed City budget for 2012 only increased 1.13 percent, or $238,506, while the needed maximum possible levy increased 15 percent, or $837,741.

The Council has until Dec. 20, the date the final levy and budget must be approved, to reduce or change either the levy or the budget. Because the 15 percent increase was the maximum approved, the Council cannot raise its levy higher than 15 percent.

To help the Council determine reductions to the proposed levy, City official compiled a list of potential cuts and their corresponding reductions in budget and levy.

Gramentz explained that the reductions were tiered into three groups by how easy or difficult they would be to cut.

Tier one consisted of the simplest or more direct cuts. The only non-cut in the category was the reduced health insurance increase the City will face next year. When the budget was drawn up, a 6 percent increase was anticipated. But, the City has since been able to wrangle the increase to 0.5 percent. The difference saves the City $50,490 in budget and levy, or a 0.9 percent reduction in levy increase.

The other tier one items were general Police Department reductions, increased Street Department transfers, transferring $460,000 from the General Fund to the Old Building Restoration fund and not creating a Facility Manager position. The combined reductions for tier one saves the City $224,510 in budget and $491,229 in levy, or a 8.73 percent reduction in levy increase.

The second tier consisted of leaving the Assistant City Manager position and the vacant police officer position unfilled, as well as eliminating subsidies to: the Economic Development program, the Fairgrounds Association, the Concord Singers, festivals, the Lind House Association, the municipal band, the New Ulm Battery, Healthy Communities/Healthy Youth, the Retail Economic Development Corporation, SEMIF Endowment fund and the Small Business Development Center. The total reductions would save the City $275,162 in budget and levy, or 4.89 percent reduction in levy increase.

Finally, the third tier consisted of possible but painful or problematic cuts for various departments. Street Department proposed reducing seal-coating. Library proposed cutting supplies budgets and the special events programs.

Park and Recreations proposed the most dramatic options, ranging from not provide spring and summer ice skating to closing one outdoor wading pool to cutting funding for one year to the disabled adults recreation club. It's smallest proposal suggested postponing tree replacements.

The combined total reductions for tier three saves the City $82,330 in budget and $121,330 in levy, or 2.16 percent reduction in levy increase.

If all the cuts were implemented, the City would save $132,982 in budget and $887,721 in levy, or 15.77 percent in levy increases.

Citizen comments and Council preferences

Several New Ulm residents spoke at the hearing about their concerns with the budget or the possible cuts. The majority of the speakers were local businesses owners facing a significant increase next year due to the state's change in taxation methods.

Several of the speakers were members of the New Ulm's economic or retail develop organizations and they each requested that the City not consider the organizations for potential cuts.

The rest were people asking for any cuts possible to reduce taxes on businesses and rental properties.

Rick Jensen, of Jensen Motors, Inc., said he faced a sizable tax increase.

"[The Minnesota Legislators] didn't realize what they were doing when they changed the taxation. But, the tax increase is still stinging. If there was a time to look into using our reserves, this may be the time," said Jensen, "We need to do it so we're not the town that is known for a big tax increase or as not business friendly."

The other business owners that spoke echoed Jensen's sentiment, strongly encouraging the Council to take any steps necessary to prevent New Ulm from appearing unfriendly to business. Jim Thomas, owner of Upper Midwest Management, warned that right now he could see as much as a 40 percent increase on one of his properties.

The Council's consensus at the end of the meeting was that the first and second tier of cuts were generally acceptable. The combined reductions of the tiers, if implemented, would reduce levy increase by approximately 13 percent. The reductions alone would mean only an approximately 2 percent levy increase instead of a 15 percent increase.

However, several individual items received more discussion or disagreement.

The majority of the Council members opposed cutting the City's subsidies, particularly the retail and economic development organizations.

Councilors Ken RockVam and Les Schultz were both interested in still hiring an additional police officer, while the rest, especially Councilor Ruth Ann Webster, opposed the hiring this year.

Council members stipulated they supported postponing the hiring of a new Assistant City Manager only if a detailed plan of how the responsibilities would be spread out was presented to them. Each expressed concern that the postponement would cause undue burden on City officials.

Future budget discussions

The Council agree to have another budget meeting on Dec. 13 at 6 p.m. at City Hall to consider more details about the budget.

One important item that will be discussed at the meeting is a tabled discussion on a 3 percent raise in non-union City workers' wages. The increase is currently budgeted for in the 2012 City budget.

The final Council meeting on the budget will be Dec. 20. The final levy and City budget will be passed at the meeting.

Info Box

Proposed areas the City of New Ulm could potential cut the budget

City officials offered several potential cuts the New Ulm City Council can enact to reduce the 2012 budget and levy.

Item / Budget Decrease / Levy Decrease / Levy Percentage Decrease

Tier 1

Less Health Care Increase $50,490 $50,490 0.9%

General Police Reduction

$35,000 $35,000 0.62%

Street Increase Transfers

$150,000 1$50,000 2.66%

Cut Facility Manager position

$70,000 $49,400 0.88$

5 290 51510

General Fund to Old Building Restoration

$230,000 $230,000 4.09%

Total of these cuts

$224,510 $491,229 8.73%

Tier 2

Eliminate Subsidies $122,262 $122,262 2.18%

Leave Assistant City Manager position open

$83,000 $83,000 1.47%

Leave 1 police officer position open $69,900 $69,900 1.24%

Total of these cuts $275,162 $275,162 4.89%

Tier 3

Street Sealcoating $5,500 $5,500 0.1%

Library Office Supplies $1,000 $1,000 0.02%

Library General Supplies 1,000 1,000 0.02 %

Library Miscellaneous $1,000 $1,000 0.02%

Library Special Events Prog $1500 $1,500 0.03%

Park & Rec Eliminate spring and summer ice

N/A $39,000 0.69%

Park & Rec Close one outdoor wading pool

$22,000 $22,000 0.39%

Park & Rec Cut funding for 1 year to disabled adult recration club

$9,630 $9,630 0.17%

Park & Rec Scholarships in administation

$2,700 $2,700 0.05%

Park & Rec - Supplies department wide $10,000 $10,000 0.18%

Park & Rec Other Temp

$20,000 $20,000 0.36%

Park & Rec Postpone tree replacements 8,000 8,000 0.14%

Total of these cuts $823,3000 $121,330 2.16%

Total Property Tax Cut from Preliminary Budget $132,982 $887,721 15.77%

 
 

 

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