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Erik Burgess, Published August 05 2013

Moorhead expects $500,000 shortfall with levy caps

MOORHEAD – Moorhead’s already slim budget will be put on a diet next year thanks to one-year levy caps instituted by the Minnesota Legislature.

The city will have an estimated $500,000 shortfall in its 2014 preliminary budget because of the caps, making the budgeting process this year all the more arduous, said Finance Director Wanda Wagner.

The levy cap takes away one of the primary tools the city uses to balance what’s already a “very lean” budget, she said.

“Over the last five years of changes, we’ve been really tightening our budget, so it would be more than just a tightening of the budget (this year),” she said “It would take quite a bit to come up with that $500,000.”

At the same time, Clay County commissioners might have to cut $1 million from its preliminary 2014 levy thanks to the cap, County Auditor Lori Johnson said.

The $1 million is about half of the increase from the final 2013 levy of $24.2 million to the proposed 2014 levy of $26.1 million.

Johnson said she believes the budget can trimmed without slashing services.

“I don’t think we’re at that point yet,” she said.

When they worked on the 2013 budget last year, commissioners had to trim about $700,000 from the preliminary budget, so cutting $1 million this year is “in the ballpark,” Johnson said.

To balance the budget last year, the county used dollars from two of its nine reserve funds. As of Dec. 31, 2012, Clay had about $38.8 million in its reserves.

Johnson said reserves likely will be used again this year to help balance the budget, but she doesn’t know to what extent.

While the Legislature instituted the levy cap this last session, it also passed a law stating cities and counties no longer have to pay sales taxes on purchases.

The sales tax exemption was meant to be a relief to local governments, but Wagner said figuring out the details of the exemptions is proving to be another burden in the budgeting process.

For instance, city services that have private market competitors, such as a municipal golf course, still have to pay sales taxes.

“It’s kind of a confusing mess,” she said.

Thanks in part to increases in state aid, Dilworth City Administrator Ken Parke said he doesn’t believe the levy cap will cause any budget cuts in Dilworth.

Next year, Dilworth will get an increase of about $110,000 and Moorhead will receive an additional $287,000 in local government aid, which had remained flat for four years.

Wagner said the increased aid “no doubt” helps Moorhead, but the projected shortfall already takes into account those dollars.

The Minnesota Department of Revenue will let cities and counties know their exact levy cap by Sept. 1, and local governments must have a preliminary budget and levy set by Sept. 15.

Wagner and Johnson said both Moorhead and Clay County will set their preliminary levies to match caps set by the Department of Revenue. Those levies can be lowered before a final budget is approved, which must be done by Dec. 28.

The Moorhead City Council will have a budget discussion on Monday night. Dilworth’s first budget workshop is scheduled for Aug. 12.

Readers can reach Forum reporter Erik Burgess at (701) 241-5518.