2019  

General Fund Budget  

and  

Property Tax Levy 

Public Hearing December 4, 2018 

Eagan Municipal Center

1

Introduction

Each year, as part of the budget preparation process, most Minnesota cities are required by law to hold a public hearing to receive comments on the types and levels of services proposed for the coming year and the anticipated costs of those services. We expect and welcome public comment as a constructive part of the budget process. Public input, together with the City Council's experience and City staff's expertise, help form the spending and cost management priorities for the City.

The City recently prepared a there first 2-year budget. This is the second year of the of the 2018-19 budget cycle. We are presenting both years in this document but are requesting the City Council only take action on 2019’s budget.

Prior to tonight’s formal budget hearing, staff outreached to the public by providing

more of a social media focus. A Facebook live event was held on November 21 with Administrator Osberg and Finance Director Pepper fielding budget related questions from the social media network. This event was seen by over 384 people as of November 29.

Background

In Minnesota, property taxes provide a significant portion of the total funding for K-12 schools and City and County services. The purpose of tonight’s hearing is to discuss only the portion of taxes that supports City services, which is about one-third of a homeowner’s total property taxes. The City Council does not control the amounts levied for K-12 schools or County services.

Nor does the City establish the market value of a property, another factor affecting

the change in total taxes; it is the responsibility of the Dakota County Assessor’s office to establish each property’s market value.

Under a State law enacted in 2011, the taxable market value reflected in the

Proposed Property Tax statements has been lowered for property owners that qualify for the Market Value Homestead Credit (MVHC), sometimes simply referred to as the homestead credit. This reduction in taxable value, which is called the market value exclusion, does not indicate an actual reduction of property value; rather, it is just a means for directly applying the tax benefit to a qualifying homesteaded property.

To get more information about the Assessor’s estimate of value, you may contact

the Dakota County Assessor’s office at 651-438-4200.

2

2019 Property Tax Levy Tonight, the Council is considering the following 2019 tax levy, which represents a 5.82% increase from last year:

Estimated property taxes (City portion only) on the average-value homestead

property in Eagan will go up 5.7% from $1,000 to $1,057: Average Value City Portion of Year Eagan homestead Property Taxes 2018 $276,699 $1,000 2019 $300,093 $1,057

Final

2017 $ change % $ change %

General Fund 26,427,500$ 27,995,600$ 1,568,100$ 5.9% 29,937,700$ 1,942,100$ 6.9%

Special Revenue - Parking Ramp 60,000 39,000 (21,000) -35.0% 41,000 2,000 5.1%

General Facilities R & R 345,881 230,000 (115,881) -33.5% 235,000 5,000 2.2%

Equipment Revolving Fund 1,260,055 1,500,000 239,945 19.0% 1,530,000 30,000 2.0%

Major Streets Fund - A 1,867,150 1,904,000 36,850 2.0% 1,942,000 38,000 2.0%

Major Streets Fund - B (Overpasses) 539,478 554,493 15,015 2.8% 394,723 (159,770) -28.8%

Fire Apparatus - Debt 211,437 205,887 (5,550) -2.6% 265,839 59,952 29.1%

- Revolving 148,563 154,113 5,550 3.7% 94,161 (59,952) -38.9%

Park Systems Development & R & R 478,403 488,000 9,597 2.0% 498,000 10,000 2.0%

DataBank Abatement 22,000 6,000 (16,000) -72.7% 11,000 5,000 83.3%

Debt Service - 2016 Bonds 534,894 519,879 (15,015) -2.8% 520,771 892 0.2%

Debt Service - 2018 Bonds - - - N/A 158,878 158,878 N/A

Fund Totals 31,895,361$ 33,596,972$ 1,701,611$ 5.3% 35,629,072$ 2,032,100$ 6.0%

Market Value Debt Service Levy 1,122,765$ 1,124,970$ 2,205 0.2% 1,113,210$ (11,760) -1.0%

Grand Total Levy 33,018,126$ 34,721,942$ 1,703,816$ 5.2% 36,742,282$ 2,020,340$ 5.82%

Proposed 20192018

Allocation of Property Tax Levy

3

General Fund Budget The proposed 2019 General Fund budget is $38,333,600, an increase of $1,951,200 or 5.4% over the 2018 expenditure budget. The 2019 budget contemplates the use of fund balance. The proposed 2019 increases for the General Fund expenditure budget are largely due to increases in Full-time staffing and compensation adjustments for current City employees. The following new full-time positions and position adjustments are proposed to be included in the 2019 budget:

In 2019, other Personal Services increases of $1,021,500 includes:

1. 3% wage adjustments as well as market rate adjustments for both union and non-union staff

2. 10.0% increase in health insurance premiums 3. Decrease in personnel for elections as 2019 is a non-election year 4. Decrease in volunteer firefighter’s compensation and Fire Relief Association due to

a decline in membership. The proposed 2019 budget includes a contingency account of $39,000 for unplanned expenses.

Proposed Additions FTE Cost

Police Officers 2.0 221,700 Fire Fighters 6.0 611,500 Park Maintenance Worker 1.0 86,500 Streets Foreman (Adjustment) - 10,000

9.0 929,700

2019

4

City Portion of Taxes

The City of Eagan tax figure in the Proposed Property Tax Statement has two components:

1) the amount based on tax capacity, net of the market value exclusion, if applicable (see explanation below); and

2) the amount based on market value, resulting from the Community Center referendum approved by voters in 2000; and

Tax Capacity-based Portion (Homestead Credit Exclusion Applies) The graphics on pages 7 through 10 help illustrate how the amount based on tax capacity is calculated. Effective 2012 and forward, the old “homestead credit” is applied by way of a market value exclusion. The market value exclusion is a reduction in the market value—and thus tax capacity—of a property from its actual market value to a taxable market value. The average Eagan homestead in 2019 is valued at $300,093. The amount excluded for a homestead of this value, per the State’s formula, is $10,232. Thus, the market value for calculating the tax-capacity based taxes is: $300,093 – $10,232 = $289,861 = taxable market value The market value exclusion applies only to homesteaded properties, not commercial/industrial or rental properties, and is phased out as the property value increases. The exclusion is fully phased out at a value of $413,800. Each property’s tax capacity (a function of taxable market value and property type) is multiplied by the City’s tax capacity rate, which is derived from the dollar levy approved by the Council. The City portion of taxes on a residential property with a market value of $300,093 and taxable market value of $289,861 is calculated as follows: First … Tax capacity of $300,093 home = $300,093 x 1% = $3,000.93 Then … Tax capacity-based taxes = $3,000.93 x .35197 (tax cap. rate) = $1,056.24 Market Value-based Portion (Homestead Credit Exclusion Does Not Apply) In 2000, Eagan voters approved a bond referendum to fund development and construction of the Community Center in the Central Park area. The 20-year serial bonds were sold in 2001, and refinanced over the remaining term in 2009. Each year, the amount of the debt service payments is levied as part of the property tax. The estimated market value tax rate for 2019 is .0001234. The market value used for the calculation is not reduced by the homestead credit exclusion as with the tax capacity-based portion. Here is the calculation for our average home: Market value-based taxes = $300,093 x .0001234 (MV rate) = $37.03.

Only the total City tax, or $1,057.26 ($1,020.23 + $37.03), appears on the Proposed Property Tax statement.

5

FREQUENTLY ASKED QUESTIONS When it comes to answering FAQs, sometimes pictures say it better than words. The charts and tables on the following pages serve to answer the questions we are commonly asked:

What share of my tax bill goes to the City? Page 6 – Pie chart illustrating where your property tax dollars go

How is the City share of my tax bill calculated? Page 7 – Summary of three components of tax calculation Page 8 – Graphic of tax capacity-based tax calculation Page 9 – Determining tax capacity of a property Page 10 – Determining the City’s tax capacity rate

How are my City tax dollars being spent? Page 11 – Pie chart reflecting allocation of 2019 property tax for a $300,093 house

What other revenue sources are used to pay for the proposed budget? Page 12 – Pie chart of total revenues by source

Page 13 – Comparative summary of revenues for 2018 and 2019 (as proposed) budget.

What amount of spending is proposed for 2019, and how does it compare to last year? Page 14 – Pie chart and table of major expenditure categories

Page 15 – Comparative summary of expenditures for 2018 and 2019 (as proposed) budget.

How do my City taxes compare with those of other Metro-area suburbs? Page 16 – Bar chart comparing Eagan with 17 other area cities: 9 neighboring

Dakota County cities and 8 comparably-sized Metro area cities.

6

7

Calculating the City Portion of Property Taxes There are three basic components to the City tax figure shown in your Proposed Property Tax Statement:

1) Tax capacity-based taxes

This is the more complicated part of the calculation. See graphics on pages 8-10.

In 2002, the State Legislature instituted a credit for homestead property taxpayers. Until 2011, the credit was in the form of a separate tax reduction after the property tax was calculated. The credit was 0.4% of the property value to a maximum of $304 for a $76,000 homestead, and phased out from that point, on a straight-line basis, to zero for a home valued at $414,000.

Beginning in 2012, the credit remains, but is granted by way of reducing the

market value. The exclusion is 40% of market value, to a maximum credit of $30,400 for a $76,000 homestead. The exclusion is reduced by $900 for every $10,000 in value over $76,000, again phased out to zero at a homestead value of $414,000. Because the State no longer pays the credit to the cities, the credit in effect is “paid” by the taxpayers. All taxpayers, including the qualifying homestead property owners, contribute to funding for this credit through an increased tax rate.

2) Market value-based taxes

In a 2000 referendum election, voters authorized the City to issue bonds to develop the Central Park area and construct a Community Center there. Bonds in the amount of $13,970,000 were issued in 2001 and refinanced at a lower rate in 2009. Bond payments are made from a tax levy that is based on a property’s market value, calculated like this:

X =

MV of property

MV tax rate

MV-based taxes

8

Tax Capacity Portion of Property Taxes

Influencing factors: General Fd expenditures Debt service Allocation to capital proj. State aids Other non -tax revenues

X Influencing factors: Development/gro wth Tax class rate changes Fiscal disparities TIF

Market value exclusion

II II

X =

Property value

Dakota Cty Assessor

Class rate %

State Legislature

Tax capacity of your property

City tax capacity rate

for all properties

Tax capacity- based taxes

Total tax capacity available to

generate taxes

Total taxes to be generated by

levy

9

Determining Your Property’s Tax Capacity

X

Example 1: Residential homestead valued at $300,093 has a taxable market value of $289,861 after the homestead credit exclusion:

2019 tax capacity = $289,861 x 1.00% = $2,898 Example 2: Residential homestead valued at $600,000 does not qualify for the homestead credit exclusion: $500,000 x 1.00% = $5,000 $100,000 x 1.25% = 1,250

2019 tax capacity = $6,250

Taxable Property Value

Class rate %

Property Class Rates 2018 2019 Residential (both homestead and non-homestead) First $500,000 in value 1.00% 1.00% Over $500,000 1.25% 1.25% Commercial/Industrial First $150,000 in value 1.50% 1.50% Over $150,000 2.00% 2.00%

10

Determining the City’s Tax Capacity Rate

Total taxes to be generated by

levy

Total tax capacity available to

generate taxes

2018 2019 % change Property tax levy Operating $32,871,206 $ 34,683,584 5.5% Debt service 725,766 945,488 30.3% Subtotal 33,596,972 35,629,072 6.0% Less: Fiscal Disparities Distribution (3,090,301) (3,170,688) 9.4%

Net local levy $30,506,671 $ 32,458,384 3.8%

2018 2019 % change Total tax capacity $100,776,788 $110,365,725 7.0% Less: Fiscal Disparities Contribution (13,541,666) (14,345,095) 2.9% Tax increment (3,365,262) (3,801,099) 13.2% Net local tax capacity $83,869,860 $92,219,531 7.5%

2018 tax capacity rate = 30,506,671 / 83,869,860 = .36378

2019 tax capacity rate = 32,458,384 / 92,219,531 = .35197

11

12

Property Tax78.1%

Licenses & Permits

4.4%

Transfers5.6%

Program Revenues

0.9%

Intergov't Revenue

3.1%

Charges for Services

3.7%

Recreation Charges

2.1%

Other2.2%

2019 General Fund Revenues$ 38,333,600

13

2018 2019

Budget Budget $ % General Property Taxes 27,995,600 29,937,700 1,942,100 6.9%

Licenses 323,400 323,400 - 0.0%

Permits 1,274,700 1,365,700 91,000 7.1%

Intergovernmental Rev 1,174,400 1,172,700 (1,700) -0.1%

Charges for Services 1,294,800 1,401,400 106,600 8.2%

Recreation Charges 772,000 797,100 25,100 3.3%

Fines & Forfeits 251,500 253,500 2,000 0.8%

Other Revenues 366,300 391,900 25,600 7.0%

Program Revenues 267,900 333,800 65,900 24.6%

Fund Balance 552,900 210,000 (342,900) -62.0%

Transfers 2,108,900 2,146,400 37,500 1.8%

TOTAL GENERAL FUND 36,382,400$ 38,333,600$ 1,951,200 5.4%

∆ 2018 vs. 2019

General Fund2019 Budget

COMPARATIVE SUMMARY OF REVENUES

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