Brainerd’s 2021 tax levy will likely be lower than the preliminary numbers.

After approving a 4% increase over this year’s levy in September, Brainerd City Council members agreed to use a smaller number — a 2% increase over 2020 — when presenting the preliminary budget to residents during a public hearing.

The 2% increase agreed to during a workshop Monday, Nov. 30, equates to $6,193,888, or $151,811 more than 2020.

Estimating the impact

With a 2% levy increase, some property owners would see a decrease in property taxes. Those with a home valued at $140,000 would see an annual property tax reduction of about $62.58, while those with commercial property valued at $363,500 would see an annual reduction of $351.88. The tax estimates are based on a projected 9.5% increase in the city’s tax capacity for 2021.

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.

Brainerd’s tax capacity for 2020 was $7.73 million, after steadily increasing from $7.07 million in 2016. The 2020 tax rate was 79.33%, the percentage of the tax capacity paid by property taxes. The 2% levy increase would decrease the tax rate to 73.94%.

Expenses

Total expenditures for 2021 are expected to increase by about $95,000 over 2020.

Operating expenses will rise roughly $260,000, according to Finance Director Connie Hillman’s estimates. Personnel services will increase about 0.5%, with $2,500 added for the restructuring of the community development department, an additional temporary employee in engineering to assist with a street condition analysis and an increase in workers’ compensation insurance.

The debt and library levies will both see decreases in 2021.

The capital fund includes just over $1.6 million, which is an increase of about $300,000 from the proposed numbers in September. The changes include an increase in the estimated cost of the addition at the street garage and new cubicles and desks in city hall for the engineering department. After the police department remodel, the city planned to reuse the old police cubicles for the engineering department, but Hillman said that did not end up working out.

An additional $135,000 is also included in the capital fund for a new 800 megahertz radio for the police department.

“I really think when we were going through the CARES dollars, looking at what we needed and how we could fight the pandemic, I think we realized that we needed to add a couple more things to the capital expenditures for 2021,” Hillman said.

Council President Gabe Johnson questioned the radio replacement. Though not doubting the importance of a radio system, Johnson asked if the council should wait on new equipment until after Police Chief Corky McQuiston’s retirement in January to hear what the new chief wants to prioritize.

McQuiston admitted he could have done a better job at keeping up with technology changes over the years and said the department is behind the curve with its radio system compared to the state of Minnesota. Upgrades in encryption technology have come since Brainerd last purchased police radios, he said, meaning they are not compatible with other radios throughout the state. McQuiston said he would be surprised if the new chief does not also see this as a priority.

Parks department

A restructuring of the parks department will impact the city’s budget as well, accounting for just under $1.23 million.

With Parks Director Tony Sailer set to retire in mid-December, the city will test out a public works department for the next year instead of immediately replacing Sailer. Under the interim public works department set up for 2021, City Engineer Paul Sandy will act as public works director, with all parks maintenance staff reporting to him. Part of his salary would be paid by the parks department, while part of the parks administrative specialist’s salary would be paid for by the engineering department. This results in a decrease in the parks budget but no overall change for the city.

The parks department also plans to outsource programming for 2021, contracting with the YMCA and Brainerd Community Education. Outsourcing the programs will cost the city roughly $39,000, with $11,000 paid to the two entities, along with a decrease in both program expenses and registration revenue. That additional cost, though, will be offset by not hiring a new parks director, resulting in an overall savings for the city.

Revenue

Revenues for 2021 are estimated at about $8.07 million, a decrease of about about $74,537 — or 0.91% — compared to 2020.

Local government aid funds are expected to increase by $112,375, while permit revenue is expected to decrease due to the large volume of school district building projects in 2020. Hillman also expects a decrease in revenues from Baxter and Nisswa for prosecution services based on the contract agreement and a decrease in court and parking fines based on recent numbers.

A balanced budget

In 2020, the council approved a levy with $102,000 more than was needed to balance the budget as a levy stabilizer. The reasoning, Hillman said, was because of eventual expected increases to payroll costs with having to implement a new wage grid system and continued future decreases in permit revenue. The stabilizer would allow the city to keep its levy steady and avoid peaks and valleys. The 2021 levy includes another $102,000 stabilizer.

With all the change to expenditures and revenues, the council could theoretically decrease its levy by $4,182 — or 0.07% — from 2020 and have a perfectly balanced budget.

Johnson, who has continuously advocated for setting the levy as low as possible, said if a 0.07% decrease is what’s needed for a balanced budget, then that’s what he would like to see.

The final levy can be decreased but not increased from the 4% preliminary levy set in September. At the time, council members generally agreed on 4% as a starting point, knowing they could lower the final number if need be.

There are still some unknowns with the 2021 budget, Hillman said, including unsettled union contracts and possible changes in employee health insurance costs during the open enrollment period. Ongoing discussions at the parks board could also result in last-minute alterations to the parks department budget.

With the latest numbers, staff recommended Monday a final increase of 1.5-2.5% and asked council members what number they would like to use when presenting the budget to residents in a public hearing later this month.

Council member Kevin Stunek said he still liked 4% but would be happy with 2.5-3%. With so many unknowns, Dave Pritschet and Wayne Erickson said they were comfortable with 2%, as did Kelly Bevans. Tad Erickson said he liked the lower range of staff’s recommendation at 1.5-2%, and Jan Lambert supported 2.5%. Without taking a formal vote, the council came to the general consensus to use a 2% increase to present during the hearing.

Public hearing and final levy

The council’s public hearing on the levy is set for 6 p.m. Dec. 14 at city hall. The meeting will also be accessible via WebEx. Residents will be able to give feedback during the hearing or can send written comments to city hall before the hearing.

The council can opt to adopt the final levy right after the hearing Dec. 14 or wait until its regular meeting Monday, Dec. 21.

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