No members of the public spoke during a Brainerd City Council public hearing on the 2021 property tax levy Monday, Dec. 14.

Finance Director Connie Hillman gave an overview of the 2021 budget, explaining how the property tax levy works and where taxpayer money goes.

The city’s annual levy covers the difference between expenditures and non-tax revenues, like fees, grants and local government aid. The 2021 budget estimates $14,625,226 in expenditures and $8,564,189 in revenue. Because of election budgeting and a levy stabilizer, the difference needed for the tax levy is $5,974,037.

The city budgets about $30,000 for each election every other year. But to create a more stable levy without a lot of peaks and valleys, $15,000 is put into the budget each year. As 2021 is a year without an election, that means revenues will exceed expenditures by at least $15,000.

The council also approved a levy stabilizer of $102,000 in 2020 to offset pending expenses down the road and further help create a more stable levy instead of one that fluctuates, as the city has seen in the past. In 2011 and 2012, for example, the council at the time decreased the levy, following it up with no change in the levy for 2013. But the following years — 2014 and 2015 — each came with increases of 12.6% and 10%, respectively. Since then, the levy has increased between 3-6.5% each year.

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The current city council is considering a 1% increase for 2021, after setting the preliminary levy at a 4% increase in September. But changes to the budget since that time include final cost estimates on health insurance renewal rates, a change in the structure of health insurance plans offered, and the decision not to replace outgoing Parks and Recreation Director Tony Sailer. The city will test out an interim public works department for a year, with City Engineer Paul Sandy as the department head and one less full-time salary to pay without hiring a new parks director.
For a perfectly balanced budget, the council could reduce the levy by $98,402 over 2020. The 1% increase would add $60,724 to the budget.

“You might still be asking, ‘Why would the council want to set the final levy at a 1% increase?’” Hillman said.

Noting the city’s historic oscillating levy, Hillman also pointed to unknown costs in the future, like local government aid for 2021 and beyond and unsettled union contracts. Hillman also expects building permit revenue to continue decreasing in 2021 and 2022 after so many school district building projects in recent years. 2022 will also be the first year most city staff members are eligible to move to the merit step of the city’s recently adopted merit-based wage scale, which Hillman said will likely have an impact on the personnel services portion of the budget.

Spending breakdown

The property tax levy of $6.13 million — a 1% increase — would account for 39.1% of the city’s total revenue. The highest portion (41.1%) comes from intergovernmental sources, like local government aid and grants received to run the transit department. The rest of the revenue comes from: services and fines (8.6%), Brainerd Public Utilities (4.7%), licenses and permits (2.8%), miscellaneous (1.9%) and other taxes (1.8%). The miscellaneous category includes interest and donations, Hillman said.

Funds collected from the 2021 levy will be distributed as follows:

• Public safety, about 34.3%.

• General fund (city operating costs), about 15.5%.

• Capital fund, about 12.3%.

• Transit, about 9%.

• Street and sewer, about 7.8%.

• Parks, about 6.9%.

• Debt services, about 6.7%.

• Other, about 5%.

• Road maintenance, about 2.6%.

Money in the “other” category funds things like the Brainerd Public Library, the Northland Arboretum and the Center.

Property taxes explained

Property taxes for residential and commercial property owners for 2021 are based on the estimated market value of their property on Jan. 2, 2020. That value, Hillman said, is determined through a sales ratio study from October 2018-September 2019.

The city’s estimated market value as a whole increased an average of 8.4% from 2019 to 2020, or pay year 2020 to 2021.

The estimated market value of residential homesteads increased 9.1%, while commercial properties increased 2% and industrial properties decreased 4.6%. Values also decreased for agricultural land and increased for apartments.

With the 9.1% estimated market value increase and a 1% levy increase, a resident with a home previously valued at $120,000 would see an annual increase of about $28.70 for the city portion of their property taxes.

For every dollar a residential homeowner in Brainerd pays in property taxes, 49 cents goes to the city, 29 cents goes to Brainerd Public Schools, 21 cents goes to Crow Wing County and the final cent goes toward levies for the Housing and Redevelopment Authority and Region Five.

With the 2% increase in estimated market value for commercial properties, owners with businesses previously valued at $363,500 would see an annual property tax decrease of about $308.53.

For every dollar a commercial property owner in Brainerd pays in property taxes, 43 cents goes to the city, 20 cents go to Brainerd Public Schools, 18 cents goes to Crow Wing County, 18 cents goes to the state’s general fund and the final cent goes to the HRA and Region Five levies.

A 1% increase in the property tax levy would mean a decrease in the city’s tax rate from 79.33% in 2020 to 73.21% in 2021.

The tax rate is the percentage of the tax capacity paid by property taxes. The tax capacity for each property is based on the taxable market value, which equals the property’s estimated market value minus any tax exemptions, deferrals or value exclusions — like a homestead market exclusion. To determine the tax capacity, the taxable market value is then multiplied by the property’s classification rate, which is set by the state and differs based on how the property is used — residential, commercial, agricultural, etc.

What’s next?

The city council will approve the 2021 budget and set the final property tax levy at its regular meeting at 7:30 p.m. Monday, Dec. 21, as the levy needs to be certified to the county auditor by Dec. 30.
The meeting will be virtual through WebEx. Details for people to call into the meeting will be available closer to the meeting date.

THERESA BOURKE may be reached at theresa.bourke@brainerddispatch.com or 218-855-5860. Follow her on Twitter at www.twitter.com/DispatchTheresa .