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12-06-10 CC Special Mtg MinCITY OF SHORE WOOD CITY COUNCIL SPECIAL MEETING MONDAY, DECEMBER 6, 2010 MINUTES 1. CONVENE CITY COUNCIL SPECIAL MEETING 5755 COUNTRY CLUB ROAD COUNCIL CHAMBERS 7:00 P.M. Mayor Liz&e called the meeting to order at 7:05 P.M. A. Roll Call Present. Mayor Liz6e; Couneihmembers Bailey, Turgeon, Woodruff and Zerby; City Administrator Heck; and, Finance Director DeJong Absent: None B. Review Agenda Turgeon moved, Zerby seconded, approving the agenda as presented. Motion passed 510. 2. TRUTH IN TAXATION PUBLIC HEARING A. Staff Presentation Mayor Liz& opened the Public Hearing at 7:06 P.M. and explained that after Staff makes its presentation on the 2011 General Fund Budget and the 2010 property tax levy payable in 201,1 Council will take public comment, Director DeJong stated the purpose of this Truth -in- Taxation Public Hearing is to present the City's 2011 Proposed Budget and 2011 Tax Levy and to take public comment:. He explained during Council's August 23, 2010, meeting Council set the proposed 2011 General Fund Budget and it approved the proposed 2010 property tax levy collectible in 2011. The proposed budget and levy were certified to Hennepin County by September 15"'. Hennepin County used that information to estimate the tax rate and determine how the property tax levies will be spread among various properties in a community and in jurisdictions that also levy property taxes. A residential property tax statement lists a city's property tax, a county's property tax, a school district's property tax, the Metropolitan Council's property tax, and the local watershed district's property tax. Hennepin County started to mail out proposed property tax statements payable in 2011 . on November 15` DeJong then stated property taxes pay for a number of services provided by the City. They include police protection, fire protection, snow plowing, street maintenance, parks and recreations, building inspection and other valuable City services. DeJong explained levy limits are again in place for 2011, noting they are scheduled to end for 2012. The City proposes no increase in the levy for 2011. The proposed 2011 General Fund Budget programs the use of $160,000 in General Fund balance reserves in order to make revenues and expenditures equal each other. There are transfers to capital funds planned, with the largest transfer, $700,000, to the Street Reconstruction Fund for roadway maintenance. DeJong noted for property taxes payable in 2011 the City's taxable property values decreased on average 7.9 percent. He clarified some taxable property SHOREWOOD CITY COUNCIL SPECIAL MEETING MINUTES December 6, 2010 Page 2 of 6 values decreased more than that, some properties maintained their value and some property values actually increased. DeJong explained the 2011 budgeted expenditures reflect a 1.8 percent decrease when compared to the adopted 2010 budgeted expenditures. The total outflows from the General Fund have been fairly consistent since 2008. DeJong then explained the total proposed 2011 revenues are $5,338,995. Of that, 89 percent comes from property taxes, 3 percent from transfers and miscellaneous, 2 percent from licenses and permits, 1 percent from intergovernmental, 1 percent from fines and forfeitures, I percent from charges for service, and the remaining 3 percent from the use of reserves. DeJong went on to explain the total proposed 2011 expenditures are $5,338,995. Of that, 35 percent is for public safety services, 26 percent is for general government, 17 percent is for capital transfers, 16 percent is for public works, and the remaining 5 percent is for parks and recreation. He noted the General Fund balance is not an ongoing revenue source. Once the General Fund balance drops below the minimum threshold set in Policy, other sources of revenue will have to be found to balance a budget. DeJong reviewed the tax assessment and levy timeline for residential property taxes payable in 2011. Hennepin County collected data on property sales from October 1, 2008 — September 30, 2009. The County then reviews the sales data to determine if a sales transaction should be used when making comparisons. The County then took properties with similar characteristics in the same neighborhood to determine the change in taxable property value. That change in value was applied to all properties to determine estimated taxable property values and that was sent out to property owners in the February( March 2010 timeframe. The Board of Review process took place from April 2010 — June 2010. That process equalized values among similar properties, and property owners were provided the opportunity to challenge the assessed value based on comparisons to other similar properties. The County then added the property values, the values established in September 2009, for every property in a taxing jurisdiction to determine what the property tax rate needs to be in order to collect the needed revenue for the next year. The tax rate was then applied to each property value and Truth -in- Taxation notices were then mailed to property owners in November 2010. In 2011 final property tax bills will be mailed to property owners. DeJong then reviewed the 2011 City tax impact, in general, based on the average decline in taxable property value of 79 percent. He noted that property values are not static. The change in taxes payable in part depends on the tax rate and tax capacity for a property. He explained Minnesota approximately 20 property classes and each category has a different class tax rate. For residential properties, the class rate is 1 percent for the first $500,000 of homesteaded residential property. The tax capacity for a property valued at $500,000 would be $5,000. For and amount above or below $500,000 the amount goes up or down by 1.25 percent. Properties with a lower value are paying a larger share of the needed tax revenues because the values of the higher valued properties have declined. DeJong went on to review the 2011 property tax distribution for a property in the City located within Minnetonka School District 276. The distribution is: 36.6 percent to Hennepin County, 34 percent to the school district, 22 percent to the City, and 7.4 percent to other. The distribution is quite different for properties in the City located in the Mound - Westonka School District, noting that District has a lower tax rate and therefore the City tax distribution will look higher, DeJong highlighted the 2011 total property tax percent change compared to the 2010 total tax for residential homestead properties in the City based on statistics from the Hennepin County Assessor's SHOREWOOD CITY COUNCIL SPECIAL MEETING MINUTES December 6, 2010 Page 3 of 6 Office. Approximately 29 percent of residential property owners in the City will see a decrease in their total property tax. Approximately 64 percent will see an increase of 0.0 — 4.9 percent. Approximately 7 percent will see an increase of more than 5 percent. He then highlighted some statistics for various dollar amount increases. The total tax amount will decrease for approximately 30 percent of the property owners. The tax will increase less than $200 for approximately 55 of them. For 4.4 percent their tax will increase $600 or more. B. Public Hearing Mayor Liz6c opened the Public Testimony portion of the Public Hearing at 7:25 P.M Chris Poison 5720 Echo Road asked if there is a per capita figure for taxation for the City. He stated he finds that type of information meaningful. He then stated he did a rough calculation and he comes up with approximately $700. He suggested that information be provided in future presentations. Mayor Liz& stated in 2011 there will be new census figures and it would be appropriate to calculate that then. Mr. Poison stated as a conservative he is quite concerned about the Metropolitan (Met) Council and its outreach. He asked Council to provide him with some sense of what relationship is between the Council and City and the Met Council. He also asked what Council's attitude is about the Met Council's influence and leverage on the City. Rob Care 28036 Woodside Road stated he thought the presentation was beneficial. He noted his property tax increase was about in the middle. He stated because of the tough economy residents are being forced to make changes and in some cases take very drastic actions. From a government perspective, lie asked what Council does to help keep the City's property taxes in check. Bill Manning, 25740 Birch Bluff Road asked if there is any correlation between property market values and property taxes, noting based on information in the presentation property values in the City have declined an average of 7.9 percent. He stated even though there has been a substantial decline in values total property taxes are going up. He questioned if there is any correlation. He explained he owns property in the State of Wisconsin and in Wisconsin there is a direct correlation between the value of property and property tax. He expressed concern that market values are going down yet property taxes are going up. He stated it would help property owners understand how property taxes are determined if a formula were used. Director DeJong stated the State of Minnesota and the State of Wisconsin have very different approaches to determining property taxes. Minnesota has a proportional system. For example, if there is a tax levy of $1,000 and $100,000 worth of property in the community the tax rate would be I percent. If the value doubles to $200,000 and the levy remains $1,000 then the tax rate would be 0.5 percent. If the value decreases to $50,000 and the levy remains $1,000 then the tax rate would be 2 percent. The residential property values in the City haven't declined as much as in other jurisdictions. In shared jurisdictions where property values are declining at a faster rate than in the City, the City's property owners are paying a larger share of the tax. Mayor Liz6e stated she understood Mr. Manning wants to know when the decline in property values is going to be reflected in property taxes. Director DeJong explained reductions in taxable values do not reduce the amount of property tax. It changes the tax rate applied to the taxable portion of the property value. If all taxable property values went down but the levy remains the same there will not be a reduction in property tax. If the levy goes up, some property taxes will go up even if values go down. In the Minnesota system local taxing jurisdictions can only control the levy. SHOREWOOD CITY COUNCIL SPECIAL MEETING MINUTES December 6, 2010 Page 4 of 6 In response to a comment from Mayor Lizee, Director DeJong explained Ire just did a rough calculation and the cost per capita for the City portion is approximately $670. Mayor Lizee responded to Mr. Poison's questions about the Met Council. She explained the Met Council establishes sewer rates for processing the City's sewage. It reviews, and hopefully approves, the City's Comprehensive Plan, which has to be updated every ten years. The City makes a concerted effort to work cooperatively with the Met Council. Mr. Poison asked if there is any political momentum going on about the role of the Met Council. Councilmember Woodruff commented that he serves on the Association of Metro Cities Revenue and Taxation Committee. He stated as part of the Committee's policy discussions there was discussion about the affect the Met Council has on the cities in the metropolitan area. There has been discussion at the State Legislature about the Met Council's role and it's likely there will further discussion. There has been some recognition that the role of the Met Council has evolved since its inception. He indicated he thought the definition of the metro area needs to be reviewed. He stated the sewage processing rates the Met Council charges have increased. Director DeJong noted the rates went up 8.9 percent. Administrator Heck stated the Met Council manages mass transit for the metro area. He explained the Met Council controls how far out to extend the municipal sanitary sewer system. In anticipation of development in the outlying areas it issued bonds to fund the systems extension. Because housing development has dropped off dramatically, municipalities currently on the system are subsidizing that expansion until new development picks up and then these municipalities will theoretically be reimbursed for the subsidies. The Met Council's Inflow & Infiltration (I&I) program requires cities to reduce their I &I into the sewer system. The goal is to mitigate the flow of "clean" water into the system so it doesn't place any additional burden on the system. Heck then stated the topic of restructuring the Met Council is discussed regularly at the legislature. Both the League of Minnesota Cities and the Metro Cities have policy stances about the Met Council. There is some thought that if a greater council of government is going to exist it should be run either by an elected body or by representatives of the member communities elected officials. Mr. Poison asked what would happen if the City did not adhere to the Met Council's mandates. Administrator Heck explained it would impose sanctions that would prohibit the City from getting certain State aid. Councilmember Woodruff stated if municipalities don't take steps to mitigate I &I into the sewer system the Met Council has the authority to fine them. Mayor Lizee stated because the City is located in a relatively wet area and because its infrastructure is aging it's imperative that the City continually monitor any I &I and maintain the infrastructure. Mayor Lizee responded to a question Mr. Carr had asked regarding changes Council anticipates regarding the budget process. She stated the proposed 2011 General Fund budget reflects a zero percent increase in its base levy. She noted that Council is very aware of the need to keep City property taxes in check. She noted the 2011 budget process started in June. She asked Councilmembers to comment on the process. Councilmember Bailey stated from his vantage point Council he thought Council has been quite effective over the last few years in keeping City expenses down. For illustration purposes, he stated if the only thing the City spent money on was a snow plow the City would have to spend money on the plow independent of whether or not taxable property values went up or down. Council worked hard to keep the cost of the snow plow from going higher. In a perfect world, it would be nice to be able to reduce SHOREWOOD CITY COUNCIL SPECIAL MEETING MINUTES December 6, 2010 Page 5 of 6 property taxes when taxable values declined. However, the City still has to pay for the snow plow and plow the streets. Mr. Carr asked if Mr. Bailey was stating that the City's expenditures are nondiscretionary. Councilmember Bailey responded he thought the majority of the expenditures were nondiscretionary and he thought the City staff was pretty lean. He stated Tabor costs are a large part of the total expenditures. He then stated Council has kept a lid on public safety costs. Councilmember Woodruff reiterated Director DeJong's earlier explanation of where the City spends its money. He noted public safety expenditures include police and fire services as well as building inspections. He explained the public safety organizations have been experiencing a reduction in the State aid they receive so it has been necessary for those organizations to scrutinize their expenditures. He explained the costs for operating the Southshore Community Center are included in the parks and recreation costs. I-Ie stated there are 13 people in the Public Works Department. Administrator Heck clarified there are 9 people. Woodruff stated Staff has been very creative in finding ways to use the City's revenues more effectively. By doing that and by using General Fund reserves the City has been able to maintain a zero percent levy increase for the last few years. He noted the City can't rely on the use of reserves forever. Councilmember Zerby stated Council does have some discretion in how the City's funds are spent. He noted Council recently lowered the roadway rating for triggering when a roadway should be reconstructed. Council could allow roadways to deteriorate to a lower rating before reconstructing them, but that would impact property values in the City. Parks and recreation also affects the community and property values as do public works services, public safety services and other City services. He stated Council is continually hying to maintain a balance between services provided and quality of life City residents expect. Mayor Liz& stated the City's bond rating is very high and that's of benefit to the City. She then stated the City has to continue to work with its South Lake sister cities to identify ways to achieve savings by sharing more services. She noted the City currently shares police and fire services, and the City could not afford to go back to providing police services on its own. She expressed her confidence that there are other areas where services can be shared and savings achieved. She noted she thought that would be even more important in 2011. Mayor Lizde stated she thought the cities and city staffs talk to each other. She noted that the South Lake cities were all part of Excelsior Township until 1956, and people in the community share the desire for Excelsior to be successful because Excelsior's downtown is everyone's downtown. She stated she thought the Excelsior City Council is open to hearing other peoples thoughts, and it's important for residents to covey there perspective during other cities' meetings on topics such as redevelopment. Administrator Beck stated City staff is always looking at ways to achieve efficiencies in City operations. Savings in staff time in one area are often reallocated to another area in need of more resources. For example, because of the downturn in building projects some of the Building Inspector's time has been reallocated to Building Maintenance activities. This means the City did not have to hire a contractor to manage the improvements made to the shelter in Manor Park. He then stated capital transfers are discretionary. But, if transfers are not made there won't be funds for improvements to the roadways or parks unless another financing alternative is identified. Mayor Liz& closed the Public Testimony portion of the Public Hearing at 7:59 P.M SHOREWOOD CITY COUNCIL SPECIAL MEETING MINUTES December 6, 2010 Page 6 of 6 C. Council Deliberation /Decision to Reconvene Woodruff moved, Turgeon seconded, accepting the 2011 General Fund Budget and the 2010 Property Tax Levy collectible in 2011 as presented and to provide that information to Hennepin County as required. Motion passed 5/0. Mayor Lizee closed the Public Hearing at 8:00 P.M. 3. ADJOURN Zerby moved, Turgeon seconded, Adjourning the City Council Special Meeting of December 6, 2010, at 8:01 P.M. Motion passed 510. RESPECTFULLY SUBMITTED Christine Freeman, Recorder ATTEST L ` 'v/ Kristine Lizee, Mayor -- Br a�' Administrator /Clerk L ` 'v/ Kristine Lizee, Mayor