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12-01-14 CC Spec Mtg Min CITY OF SHOREWOOD 5755 COUNTRY CLUB ROAD CITY COUNCIL SPECIAL MEETING COUNCIL CHAMBERS MONDAY, DECEMBER 1, 2014 7:00 P.M. MINUTES 1. CONVENE CITY COUNCIL SPECIAL MEETING Mayor Zerby called the meeting to order at 7:06 P.M. A. Roll Call Present. Mayor Zerby; Councilmembers Siakel, Sundberg, and Woodruff; Administrator Joynes; and Finance Director DeJong Absent: Councilmember Hotvet B. Review Agenda Woodruff moved, Siakel seconded, approving the agenda as presented. Motion passed 4/0. 2. TRUTH-IN-TAXATION PUBLIC HEARING A. Staff Presentation Administrator Joynes explained there is a legal requirement for the City to hold a Truth-in-Taxation public hearing. It is scheduled for tonight December 1, 2014. The hearing can be continued to December 8 if Council deems that is necessary. He noted that that the presentation he walked through during Council’s November 24, 2014, work session about the 2015 General Fund Operating Budget has been modified slightly. Joynes walked through the presentation for this hearing. The Truth-in-Taxation requirements are to present the City’s 2015 General Operating Budget, discuss the budget and 2015 tax levy changes, to take public comment and to adopt a balanced budget either this evening or on December 8. He noted Council will consider the Capital Improvement Program (CIP) and the Enterprise Fund Budgets during its meeting on December 8. The City’s portion of the property taxes pay for a number of services funded out of the General Fund. They include police and fire protection; street and park maintenance; recreation programs; building inspections; transfers to the Southshore Community Center (SSCC) and the capital funds; and, administration, finance, planning and zoning, elections, and other miscellaneous services. The assumptions used in preparing the 2015 General Fund Operating Budget are as follows. It reflects a 2.5 percent tax levy increase over 2014 (the second increase since 2009) for general  operations (primarily personnel costs). CITY OF SHOREWOOD SPECIAL MEETING MINUTES December 1, 2014 Page 2 of 5 A 0.75 full time equivalency forestry, stormwater analyst and Public Works assistant position has  been added. The funding for the position is a placeholder. Council will discuss the position more during the January 29, 2015, Council and staff retreat. Other staffing levels remain the same as in 2014.  A 2.5 percent salary increase is budgeted for to fund salary increases and benefit changes. That is  also a placeholder until negotiations with the Public Works employees union represented by AFSCME (American Federation of State, County and Municipal Employees) Local 224 are concluded. There is a second meeting with the union scheduled for later this week. Transfers to the Street Improvement Fund and the Equipment Replacement Fund were increased by  3.75 percent (or $30,000) collectively. The use of $93,192 in General Fund balance reserves is included to balance the Budget. That is  down $9,656 from 2014. The reserves are the balance in the Fund at the end of the year. General Fund reserves can be used for multiple things. The City does not receive its first property tax revenues until June or July. Until they come the reserves are used to fund operating expenses. Reserves are also there for emergencies that might occur during the year. They also may be used for one-time projects, acquisitions or transfers to any City capital fund. The level of reserves a city has influences its bond ratings. The major bond rating agencies view a healthy reserve level as the primary indicator of what a city’s bond rating is going to be. The City has a General Fund Balance Policy which stipulates the City maintain a reserve level of 55 – 60 percent. That is calculated by multiplying the upcoming year’s budgeted operating expenditures by the percentage. Staff projects the 2014 year-end reserve level to be at 69.5 percent. That means there will be $533,534 in excess reserves at the end of 2014 based on the requirement of maintaining a 60 percent maximum reserve level. The City’s General Fund budgeted expenditures total $5,643,263. Of those expenditures 38 percent is for public safety services (police and fire), 22 percent is for general government services, 18 percent is for public works, 17 percent is for capital transfers and 4 percent is for parks and recreation. Expenditures and transfers have been fairly consistent with some ups and downs between 2007 and 2015. The City’s General Fund budgeted revenues total is $5,549,671. Of those revenues 89 percent is from property taxes, 4 percent is from transfers and miscellaneous revenues, 2 percent is from licenses and permits, 2 percent is from General Fund balance reserves, 1 percent is from charges for services, 1 percent is from fines and forfeitures, and 1 percent is from intergovernmental. The tax levy was flat from 2010 through 2013. The tax assessment and levy timeline for residential property taxes payable in 2015 has been as follows. Hennepin County collected data on property sales in the Shorewood area from October 1, 2012 – September 30, 2013. The market value was established on January 2, 2014. The Board of Review process to hear appeals on property values took place from April 2014 – June 2014. The County conducts that process at City Hall. The City certified its maximum tax levy increase of 2.5 percent for 2015 to Hennepin County in September 2014. The levy cannot be increased after that; it can be decreased. The County mailed out Truth-in-Taxation notices to property owners in November 2014. The Truth-in-Taxation hearing is being held this evening. The City certifies its tax levy to the County by the end of 2014. In 2015 final property tax bills will be mailed to property owners. The 2015 property tax distribution for a property in the City located within Minnetonka School District 276 is: 35.2 percent to the school district, 35.1 percent to Hennepin County, 22.5 percent to the City, and 7.2 percent to other smaller taxing jurisdictions. It is based on a home in the District valued at $360,000. CITY OF SHOREWOOD SPECIAL MEETING MINUTES December 1, 2014 Page 3 of 5 The 2015 total City property tax percent change compared to the 2014 total tax for residential homestead properties in the City based on statistics from the Hennepin County Assessor’s Office is as follows. Approximately 35.0 percent of the parcels (812) will see a decrease. Approximately 33.2 percent of the parcels (768) will see an increase of $0 – $300. Approximately 10.3 percent of the parcels (239) will see an increase of $301 – $600. Approximately 7.0 percent of the parcels (162) will see an increase of $601 – $900. Approximately 14.5 percent of the parcels (335) will see an increase of more than $900. The residential properties in the City experienced an average increase in value of 6.6 percent. The average City tax impact is as follows. For a property valued at $250,000 in 2014 its value increased to $266,500 for 2015, and the tax increased by $16 (or 2.1 percent). For a property valued at $375,000 in 2014 its value increased to $399,750 for 2015, and the tax increased by $21 (or 1.8 percent). For a property valued at $500,000 in 2014 its value increased to $533,000 for 2015, and the tax increased by $44 (or 2.7 percent). For a property valued at $750,000 in 2014 its value increased to $799,500 for 2015, and the tax increased by $55 (or 2.1 percent). For a property valued at $1 million in 2014 its value increased to $1,066,000 for 2014, and the tax increased by $67 (or 1.8 percent). That will be different depending on the individual property value. The values are based on sales from up to almost two years ago. During its November 24, 2014, work session Council asked staff to come back with two additional levy increase options for 2015; a 2 percent increase and a 1.5 percent increase. Every 0.5 percent decrease in the proposed 2.5 percent levy increase results is an approximate decrease of $25,000 in the tax levied. It costs about $25,000 to buy the levy down by 0.5 percent. Each 0.5 percent reduction of $25,000 could come out of the excess General Fund balance reserves. There are three tax relief programs available through Hennepin County and the State. There is a homestead credit refund which is based on income and taxes paid. That refund is available if taxes exceed 2 percent of income for household with income up to $65,409 and 2.5 percent for those over $65,409 and below $105,500. There is a special property tax refund available if taxes increase more than 12 percent and the increase is over $100. There is a renter’s refund for those with household income of $57,169 or less. City staff can help individuals get in touch with the right people if they want to pursue any of those options. B. Public Hearing Mayor Zerby opened the Public Hearing and Public Testimony portion of the Public Hearing at 7:26 P.M. In response to a question from a woman in the audience, Administrator Joynes explained there was not any levy cap in place for 2015 or for 2014 for what a City could levy on properties. The tax rate may go up or down depending on the value of the property. A woman in the audience asked who determines property values. Mayor Zerby stated Council is aware that in the South Lake area some property values have increased substantially and therefore property taxes increased substantially also. Councilmember Woodruff stated the City retains Hennepin County as its assessing authority. Each year a County assessor sets a value for each residential property in Shorewood. A detailed review of about 25 percent of the properties/houses is done each year. The market value of the properties is adjusted based on the value of similar properties and improvements made. He reiterated the tax assessment and levy timeline for residential property taxes payable in 2015 that Administrator Joynes explained earlier. He stated if a CITY OF SHOREWOOD SPECIAL MEETING MINUTES December 1, 2014 Page 4 of 5 property owner does not get any satisfaction during the Board of Review process with the assessor about their property valuation they can then go to Tax Court to appeal the valuation. He noted the valuation of properties for taxes payable in 2015 was set after the Board of Review process was completed. He clarified that this evening Council is talking about the 2015 General Fund Operating Budget. In response to a woman in the audience, Administrator Joynes explained during January 2015 property owners will receive a notice from Hennepin County indicting what the County thinks properties are valued at. Property owners will be notified of when the Board of Review process will take place. Mayor Zerby stated he recently received a statement from the County about proposed levies and taxed for 2015 (i.e., a Truth-in-Taxation Notice). Early to mid spring next year a notification of when the Board of Review will take place will be sent out. It will be a post card notification. He then stated it has been his experience that the assessors’ valuations are very close to what the properties are worth. He noted there has been a great deal of demand from people wanting to live in the area. He stated there are two parts to the valuation of a property – the house and the land. The four people in the audience indicated they have no land; they live in townhomes. Administrator Joynes stated if residents want to they can contact City staff during regular work hours and staff will help them get in touch with the assessor. A woman in the audience noted she already spoke with the assessor. She stated if two properties are valued the same she asked why her taxes went up 31 percent and the taxes for the other property only increased 8 percent. Administrator Joynes reiterated that the valuation increases are based on property sales between October 1, 2012, and September 30, 2013. He stated the County bases the value of a property on the sale price of similar properties in the area they are in. All of the properties in the City are not treated the same. The County assessor should be able to show cases of sales made in that date range. The assessor is required to be very accurate with the valuations they place on properties per state law. Director DeJong clarified that properties with the same valuation in the City will be taxed the same. He explained the reason for the percentage tax increase for one property being much more than another of the same valuation is the property tax for the first property was much less last year than it was for the second property because the second property was valued higher last year. The percentage increase is based on the change in the property value. Mayor Zerby stated assessors use what comparable properties have sold for in the area when determining current property values. Assessors look at quality construction and fit and finish. A woman in the audience noted she found the assessor to be very helpful. She was told that if the property owners in that townhouse community want to pick a date he will come out and tour the inside of the houses if the owners want him to. He explained that he had left door hangers on the houses if no one was home. The assessor indicated he just steps of the length and width of the structure when he cannot get inside. He had no idea if anything went on inside the house. Councilmember Woodruff stated if there had been a significant change to the house that would be evidenced by a building permit. The assessor gathers the building permit information from the City. Mayor Zerby stated the City gets a market valuation book. CITY OF SHOREWOOD SPECIAL MEETING MINUTES December 1, 2014 Page 5 of 5 Zerby then stated Council makes a concerted effort to spend the property owners' tax dollars as economically as possible. Mayor Zerby closed the Public Hearing and Public Testimony portion of the Public Hearing at 7:40 P.M. C. Council Deliberation/Decision to Reconvene Councilmember Woodruff stated he does not think there is a reason not to go with the 1.5 percent City tax levy increase option. There are sufficient reserves to use about $49,000 to reduce the levy increase from 2.5 percent to 1.5 percent. Councilmember Siakel concurred. Mayor Zerby thanked staff for providing Council with what the impact would be if reserves were used to reduce the levy increase to 1.5 percent or 2.0 percent levy; the options he asked for during the November 24, 2014, Council work session. Those two options were in addition to what Council already knew about the 2.5 percent maximum levy increase certified in September. There was Council consensus not to continue deliberation of the 2015 General Fund Operating Budget to Council's December 8, 2014, meeting. 3. APPROVING THE 2015 GENERAL FUND BUDGET AND PROPERTY TAX LEVY COLLECTIBLE IN 2015 Woodruff moved, Siakel seconded, Adopting RESOLUTION NO. 14 -09$ "A Resolution Adopting the 2015 General Fund Operating Budget and Approving the Property Tax Levy in the Amount of $4,931,464 Collectible in 2015." Motion passed 4/0. 4. ADJOURN Woodruff moved, Sundberg seconded, Adjourning the City Council Special Meeting of December 1, 2014, at 7:45 P.M. Motion passed 4/0. RESPECTFULLY SUBMITTED, Christine Freeman, Recorder ATTEST: Jean Panchyshyn, City Clerk F Sc "Zerby, Ma or