Erik Burgess, Published November 13 2013
Moorhead's proposed levy increase one of highest in MinnesotaMOORHEAD – With taxpayers on the hook for abandoned housing developments, the city’s preliminary tax increase next year is one of the largest in the state, according to state data released this week.
And it’s only going to get worse in the coming years, unless construction takes off in those developments.
Moorhead’s preliminary levy increase of $882,876 is the state’s fourth-largest dollar increase in preliminary levies. Only Burnsville, Bloomington and Lakeville are planning a larger increase in their preliminary levies, which act as a cap and can only be lowered when final budgets are approved in December.
Of the 20 cities proposing the largest levy increases in raw dollars, Moorhead is the only city outside the Twin Cities metro area.
Moorhead, Minnesota’s 23rd-largest city, proposed an 11.3 percent levy hike, a much bigger bump than the 22 larger cities. The next largest percentage increase among that group is Burnsville, which proposed a 5.7 percent increase.
The big tax hike is all going toward paying the city’s debt, which would’ve been “manageable” had it not been for the more than 60 recently tax-forfeited lots in Stonemill Estates, Johnsons Farm and Parkview, Mayor Mark Voxland said Wednesday.
Nearly two-thirds of the $882,876 preliminary debt levy increase, about $558,000, is needed to cover those tax-forfeited lots.
“We sold bonds, and the bonds have to be repaid and they’re on a certain schedule,” Voxland said.
The city has a policy of fronting 70 percent of infrastructure costs on new developments, requiring developers to provide a letter of credit for 30 percent of those costs.
In the case of Stonemill Estates, which was started during the housing boom but abandoned after the economic crash in 2008, no letter of credit was provided, city officials have said.
Outgoing Councilman Luther Stueland said the tax hike planned is a result of that “poor policy,” which he said leaves taxpayers on the hook when private developments turn sour.
“I just don’t think it’s fair to put constituents in that position,” Stueland said. “To say, ‘Well, we’re going to take back everything that we gave you this year because we just figured out that we have to pay a bill.’ ”
Debt levy could grow
Moorhead’s levy is split into two pieces.
The operating levy uses property tax to pay for city services. The city needs to reconcile at least a $342,000 shortfall in revenue before balancing the operating budget by Dec. 9. There is no proposed increase to that part of the levy.
The debt levy uses taxes on property to pay off the city’s bond. Moorhead may raise its debt levy by up to 11.3 percent, putting a $32 tax hike on a median-value home of $139,900.
Moorhead pays for its debt from various sources, but the two largest pots are special assessments and property tax. Because of the tax-forfeited lots, Moorhead is projecting it will take in less in specials, forcing it to make up the difference. Without future growth, the levy will go up each year through 2017, Wagner said.
She said the biggest increase to the debt levy is next year’s. The lots weren’t forfeited back to the city until late last year – too late to budget for it – so now the city has to play “catch-up,” she said.
“It’s just something that needs to be done,” she said.
Since the preliminary levy was set, Moorhead has come closer to closing a deal with a private developer in Stonemill Estates, a major housing project that is expected to bring in $150,000 in special assessments next year. That could lower the tax increase.
Kicking the debt can
Voxland said the council over the past few years has been unwilling to pass any levy increases, which is, in part, why the levy increase next year seems so stark.
“The council has been balancing things in years past, kind of ignoring it (the debt),” he said. “But it has to get taken care of.”
Stueland, who has become known for voting “no” on many issues, said he was trying to keep the city from paying for things it couldn’t afford.
“This is not a staff problem. This is a council policy problem,” Stueland said. “Many council members want to say ‘yes’ throughout the year, and then when it comes time to pay the bill, then there’s all of the sudden this crisis that needs to be averted.”
Moorhead was not alone in trying to keep taxes low after the recession, said Gary Carlson, director of government relations at the League of Minnesota Cities.
In the early 2000s, cities on average were raising taxes by 4 percent to 8 percent every year, Carlson said. After the recession hit, cities started slimming down budgets, and only raised taxes by averages of about 2 percent or less in 2010, 2011 and 2012.
Carlson said he expects cities will soon realize they need to raise taxes in order to fill long-vacant positions or pay for major projects that have been put off.
Moorhead council members on Tuesday discussed either cutting services or raising more revenue – possibly via a proposed monthly streetlight fee.
The council is expected to discuss the topic again Monday night and will hold a public hearing on the levy and budget at 6 p.m. Dec. 2 in City Hall.
Readers can reach Forum reporter
Erik Burgess at (701) 241-5518