Workshop Item - Joe Huss, Finance Director/Asst. City Manager; Ali Bong, Deputy Finance Director
Title
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2023 Budget Development Discussion
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Background
For the 2022 Spring Retreat discussion on the development of the 2023 Budget, discussion will focus on:
1. The development of the 2023 tax levy
2. The City’s debt service schedule and related debt service levy projections
3. The general revenue outlook
At the Winter retreat that took place on January 29, staff provided Council with a broad, high-level review of the budget process. The review included an explanation of fund accounting and the types of funds the city employs; the budget development process and the new budget improvement processes being implemented for 2023; the driving forces of the budget; and the guiding principles for establishing the city’s annual tax levy.
2023 Tax Levy
At the January retreat, Council considered and discussed three different approaches to levy development - a set dollar increase to the levy; a target percentage increase of the levy; or, as has been the case over the last several years, a levy targeting a specific tax rate. General consensus was to follow the practice of targeting the previous year’s overall tax rate in setting the preliminary levy.
2022/23 Tax Base Projection.
Some weeks ago, staff updated Council on preliminary property value information from Anoka County. This preliminary information indicates an overall tax valuation increase of roughly $1.5 billion (23%). Most of the increase is attributable to inflationary increase in residential property. This market value increase translates into a tax capacity increase of 22.5%.
2022/23 Tax Rate
From the January retreat, it was Council consensus to begin the 2023 budget planning process with a tax levy that equates to the 2022 tax rate of 35.836%. With property values increasing in the 22% to 23% range, it follows that the actual dollar amount of the 2023 tax levy would increase by that same percentage.
2022/23 Tax Levy
With the current tax rate of 35.836%, overall levies could increase by $8 million and still maintain the current rate. With most of the increase in property values coming from residential property, the bulk of the dollar increase in the 2023 tax levy would be borne by single family property owners. Initial analysis indicates a levy of this amount exceeds what would be necessary to support 2023 budgeted programs and initiatives. With respect to that, staff will begin to develop other levy scenarios for Council to consider as the 2023 budget is developed.
Debt Service Levy Projections
Debt service is one of the major components of the city’s overall levy and remains the most cost-effective method to fund street improvements. Staff has reviewed the current debt service levy model incorporating the streets capital improvement plan and developed initial estimates for 2023 debt service needs. Even with expected increases in interest rates over the next 18 months, the debt service model remains stable.
General Revenues
Initial analysis of other revenues show the continued return to stabilization of revenues following the pandemic-related economic turndown. Revenue susceptible to economic conditions (such as state aid for local roads maintenance and recreation program fees) have rebounded. As called for in the budget process, staff will continue to refine 2023 estimates as development of the budget takes place.