NEW ULM - The New Ulm City Council on Tuesday certified a three percent maximum property tax levy increase for next year during its review of the preliminary 2014 City of New Ulm budget.
The certification sets the maximum amount the property tax levy can be raised, and the Council has the option to finalize a lower property tax increase during its December budget sessions.
The preliminary budget presented on Tuesday actually called for only a 1.15 percent increase in the property tax levy. The budgetary assumption was based on the Minnesota Legislature passing a three percent increase levy limit in its Local Government Aid funding bill. However, recently revealed complications in the language of the bill, which effectively count funds twice in one portion, would allow cities a higher increase limit. The Council decided to certify the three percent increase to allow more flexibility in its budget decisions if the need arises, even though the Council doesn't anticipate needing the full amount.
The presumption of the budget presented to the council is that the City could only raise its property tax levy by $68,406, or 1.15 percent, for a total revenue of $21,122,790. The increased levy was a combination of the general levy going up $114,219 and the debt service levy dropping $45,813 due to higher special assessments and reduced debt service payments.
The proposed budget increased expenditures by $526,177 to a total of $21,122,790.
Additionally, the budget would gain $110,949 in LGA funding over last year's allocation. The increased total is $500,000 more than the City was originally scheduled to receive this year.
The originally proposed budget cuts heavily in all departments, but anticipates dipping into reserve funds for a combined total of $773,202. The use of reserves was considered necessary due to several uncontrolled costs occurring in this budget that would exceed last year's small LGA boost and the small amount of taxes the City would be allowed to raise under the complex levy limit requirements. Most notably, the levy limit allowed tax increases in an amount equal to a the three percent levy minus the new LGA amounts gained this year.
The uncontrolled costs include a three percent increase in property, liability and automobile insurance, along with a 7 percent increase in workers comp insurance and a 35 percent increase, or around $400,000, in health insurance. The big jump in the City's health insurance results from a combination of several payouts occurring at the same time last year and an inevitable increase after the City enjoyed several years with an average of less than a one percent increase each year.
Other uncontrolled cost included its interest rate revenues dropping by 20.34 percent, or $22,000, and in lieu of tax funds from the PUC dropping by $9,716 this year.
In an interesting twist, nearly all city departments saw very flat budgets due to their ability to cut costs and hold the line on their budgets throughout this year.
However, the exact details in each department budget will likely change in the budget discussions to be held by the Council later this year. Since the City was able get a three percent maximum increase, it will no longer have to take disproportionately from its reserve funds. The City typically prefers to maintain a higher reserve balance since that factors into its borrowing ratings, which impact how much the City saves by having competitive interest rates with its bonds.
The Council anticipated bring the eventual levy increase down from the three percent maximum limit, likely in the two percent to 2.5 percent range.
Josh Moniz can be e-mailed at email@example.com