Erik Burgess, Published August 28 2013
Oversight by state lawmakers puts Moorhead tax hike in the mix to deal with budget shortfallMOORHEAD – Thanks to what is likely an oversight by state lawmakers, Moorhead leaders could raise city property taxes next year by what one city official called a “ridiculous” amount.
The tax hike is possible despite the state imposing earlier this year a one-year operating levy cap on cities and counties for 2014, a move meant to force local governments to limit increases in taxes.
Moorhead city officials thought they would have to limit the city’s operating levy to about $4 million. Instead, state law would allow it to swell to about $8 million.
That means Moorhead could raise property taxes by as much as 60 percent, or $235 on the median-valued home here.
City officials are working on new budget proposals that take into account the essentially nonexistent cap. The city is trying to balance a $400,000 shortfall in the 2014 budget.
Despite the legislative error and the need to balance the budget, Mayor Mark Voxland said a massive increase to the operating levy won’t happen. He’d like to keep any increase to about 1 percent.
“We’re not going to just jump and do it just because it works out that way,” Voxland said. “We’ll be careful, as we always are, with coming together with the budget.”
In preliminary proposals, Moorhead city officials had already planned on an 11 percent increase in the city’s debt levy for 2014, which isn’t covered by the levy limits legislators approved this spring. That increase is expected to mean an extra $40 in property taxes next year for a $139,900 home.
Before the state announced the levy cap figures Monday, Moorhead officials thought the city might need to impose a new streetlight utility fee to balance the budget. Now that the cap is not nearly as constricting as anticipated, Finance Director Wanda Wagner is looking at how operating levy increases could be used in tandem with fees to balance the budget. She said she’ll make a presentation to the City Council soon.
Wagner said a 60 percent increase to the levy would be “ridiculous” and likely is not what the Legislature intended.
“The ‘levy limit’ really does not limit the city of Moorhead at all,” she said.
Gary Carlson, director of government relations with the League of Minnesota Cities, said lawmakers could have made a “drafting error.” Other communities are just as shocked as Moorhead, Carlson said. Since Monday, he said he’s fielded calls or emails from 40 or 50 cities.
“There’s been tons and tons of confusion,” he said.
So where did lawmakers go wrong?
Total levy can be broken into two categories: operating levy, where property taxes pay for city services, and debt levy, where property taxes pay for the city’s bonds. The state only put a cap on operating levies for next year.
Moorhead’s 2013 operating levy is about $4 million, and its 2013 debt levy is about $3.77 million, for a total levy of $7.8 million.
Based on how previous caps have worked, Wagner presumed that next year’s cap would be around $4 million, about equal to the 2013 operating levy.
Instead, the Legislature set the operating levy cap equal to the total levy, nearly $8 million for Moorhead. Throw the $4 million debt levy into the mix for a roughly $12 million total levy, or about a 60 percent hike if Moorhead were to raise taxes to meet the cap.
Voxland said it has to be a mistake on the part of state lawmakers.
“I think they just worded things wrong,” he said. “Instead of a levy cap, they kind of blew it wide open.”
Carlson said the oversight could’ve occurred because the Legislature only started discussing levy caps three days before the session ended.
Regardless, Voxland said he think Moorhead should honor the legislative intent because an increase could come back to bite the city.
“I’m concerned that the Legislature will try to figure out a way to get those dollars back next year,” Voxland said. “So I think it would be smart of all of us to stay very close to zero. Maybe a 1 percent (increase) might be something to look at, but, boy, to just look at ‘Well, we can do whatever we want,’ I think is a very, very bad idea.”
Moorhead’s projected budget shortfall of $500,000 has dropped to $400,000. The city was budgeting for its employees a 10 percent health insurance premium increase, but that increase actually came in at around 3 percent, Wagner said.
Wagner said Moorhead has been balancing the budget by cutting government spending for the last five years, and that is no longer possible without cutting services.
“We’ve cut everything pretty much to the bare bones,” Wagner said.
Moorhead City Council is scheduled to set preliminary levy and budget amounts Sept. 9. The city’s final budget is set for approval Dec. 9.
Readers can reach Forum reporter
Erik Burgess at (701) 241-5518