Crow Wing County: Commissioners agree to 7% preliminary tax levy for 2nd year
Crow Wing County Commissioner Paul Koering raises concerns about HRA tax levy and property rights before voting against the 2020 preliminary budget and levy.
The Crow Wing County Board of Commissioners approved the 2020 preliminary budget and levy despite the concerns and objections of Commissioner Paul Koering.
“That preliminary budget and levy is used to send out the notice to property owners of the proposed property tax increases,” County Administrator Tim Houle explained.
The board voted at its Tuesday, Sept. 24, meeting in favor of a 2020 preliminary budget of $93.89 million, and the preliminary levy is $39.31 million or a 6.95% increase from 2019.
“When you set a preliminary levy, according to law, you can lower it between now and the end of December when you have to adopt your final levy, but you cannot increase it,” Houle told the board on Tuesday.
The county’s eight-year record of a reduced tax levy ended when the board approved the final 2019 budget and a levy increase of 6.99% at its December 2018 meeting.
That vote came after Houle proposed in September of last year the levy increase, warning commissioners the county would otherwise risk reductions in staff and services. Factors affecting the county's 2019 budget included methamphetamine use in the county.
“In 2016, meth outpaced the rate of alcohol for the number of people that we send to treatment. … That trend is continuing and that ought to alarm us,” Houle said Tuesday. “We’re seeing significant rates of increase in meth seized in our community.”
Preliminary levy, budget
Finance Director Nick Mielke walked the board through a presentation of the 2020 preliminary budget and levy before the commissioners voted.
“A good portion of the funding needed for that department is levy based,” Mielke said of the county community services department. “And as we’ve seen those out-of-home placement costs increase, we’ve seen that levy demand continue to increase.”
The levy revenues for the 2019 budget were $36.7 million while the expected levy revenues for the 2020 preliminary budget approved Tuesday are $39.3 million, so the increase in the levy revenues from 2019 to 2020 is projected to be about $2.6 million.
“We do not need the levy in 2020 to make bond payments as our last payment will be in February on the jail and the community services building, as well as our other buildings that we’ve bonded for,” Mielke said.
Koering said, “The citizens of Crow Wing County should be encouraged that the county is literally going to be out of debt, which is a good thing.”
Excluding unorganized townships, total revenue for the 2020 preliminary budget is projected to be $90.6 million, with property taxes comprising about 40% or $39.31 million, and money in the form of federal or state grants and aid comprising about 30% or $31.17 million.
“This is the same percentage as 2019,” Mielke said of the property taxes portion.
About 35%, or $13.55 million, of the property tax portion of the total expected county revenue for the 2020 budget will go toward community services, while about 30%, or $11.81 million, will go to public safety services in the 2020 preliminary levy and budget.
“Where the county expends its funds? Public safety is 17%, community services is 32%, and highway is 21%. Those three combined make up 70% of where our funding goes,” Mielke said. “I think this kind of shows where our priorities are, where we are focused on.”
HRA tax levy
Koering questioned in the preliminary budget and levy a $729,500 tax levy designated for the Crow Wing County Housing and Redevelopment Authority -- an increase of $631,000 from the HRA’s tax levy of $98,500 for 2019.
“We are proposing that there’d be a housing trust fund established and that the proceeds of that trust fund be used for the workforce housing issues associated with trying to get more workers to come into our community,” Houle said of the trust fund to assist with rent or a down payment.
Koering said, “If you drive around, I think the private sector is desperately trying to fill in the housing need and for us to levy more of the taxpayer dollars to try to set up a fund to build affordable housing … I don’t know that I agree with that.”
Crow Wing County HRA Executive Director Jennifer Bergman told the board at Tuesday’s meeting the HRA hears anecdotally there is a shortage of workforce housing in the county.
“One of the other things that we did research was what impact does this have on the taxpayer, and we found that on a $125,000 homestead that a $729,500 levy would be about $7.29 annually,” Bergman said of the HRA tax levy increase.
The U.S. Department of Housing and Urban Development defines “affordable housing” as a dwelling a family can obtain for 30% or less of its income.
“In my district, everybody’s needing housing. Nisswa is looking at doing some apartments. Pequot Lakes is running about 80% occupancy. … Crosslake is looking for a location for additional housing,” Commissioner Bill Brekken said in support of the trust fund. “I’ve talked to one manufacturing company that he’s even considered building his own apartment building, so he could have his workers available to him in close proximity to where he’s working.”
An estimated 12 million renter and homeowner households pay more than 50% of their annual incomes for housing, according to HUD, and a family with one full-time worker earning the minimum wage cannot afford the local fair-market rent for a two-bedroom apartment in the U.S.
Building developers say the cost to build apartments is more than they are able to recoup in rent, according to Bergman.
“And we do have about a 1% vacancy rate in Crow Wing County for rental housing. … A healthy market is 5% … which indicates to us a shortage in housing,” Bergman said.
Koering made a motion to fund the HRA at the level it was funded in 2019, but no other commissioner supported his motion, so Koering’s motion to amend the levy died for lack of a second.
Vacation rentals by owner
Koering then made a motion to amend the levy to exclude revenues and costs associated with a proposed county ordinance regulating short-term rentals -- a motion supported only by Brekken.
“I support property rights and for people to do what they want with their property,” Brekken said.
Problematic tenants of short-term rentals have been a long-standing issue with some of their neighbors, and the contentious issues have come up before the county board of commissioners more than once.
“There are some people out there that are trying to do vacation rentals to help pay taxes,” Brekken said.
Vacation rentals by owner were also a matter of contention for Koering. The preliminary budget includes the cost of purchasing software that checks rental advertising sites and grabs data to get distinct counts in a designated area and revenue from proposed licensing fees for VRBOs.
“This sounds kind of innocent, but I look at it as a larger thing, as a slippery slope where we continually hire more staff to come out and check what everybody is doing,” Koering said. “I just feel like we’re encroaching more on people’s rights, I think -- property rights.”
The Minnesota Department of Revenue states if a home’s primary use is a short-term rental, then it shall be classified as 3a Commercial for the 2020 assessment, payable 2021.
“Your property taxes -- if they’re changed from seasonal recreational to commercial -- could foreseeably double if not triple,” Koering said.
Concerns associated with VRBOs include public safety, traffic, parking, safe drinking water supplies, adequate sewage treatment systems and disturbances such as noise and trespassing.
“Yes, there are a few bad apples that ruin it for everybody else,” Koering said. “Down in the St. Mathias area, if there were problems … we didn’t come running to the county to have them pass another ordinance to protect them from their neighbors.”
Only a small number of VRBOs in the county are licensed by the Minnesota Department of Health under the hotel/motel classification, but enforcing regulations on VRBOs would require time and county staff resources to enforce any regulation the county puts in place.
“I don’t know of any business in this state that doesn’t have some type of oversight and management to oversee their operations,” Commissioner Doug Houge said.
There has been an increase in the number of VRBOs in the county on VRBO.com, one of the most popular websites for short-term rentals, from 325 last year to 477 this year, according to the county land services department.
“All the resorts are asking for is a level playing field,” Brekken said of short-term rentals that do not have the associated costs of resorts.
The Minnesota Department of Health has licensing jurisdiction over food, pools and lodging services. In the state, a lodging license is required for short-term rentals from the department under the “hotel/motel” classification if rented a week or less at a time, to be renewed annually.
“Well, this isn’t the first time that we’ve studied this since I’ve been a county commissioner … and I’ve never supported it,” Commissioner Rosemary Franzen said of regulating short-term rentals. “But the Department of Revenue is requiring that we do it. … I don’t like it, but I don’t know how we’d do anything differently. The Department of Revenue wants us to classify these, it’s going to take extra staff to do that. I just see this as another unfunded mandate.”
Commissioner Steve Barrows made the motion to approve the 2020 preliminary levy and budget, which included the revenue from a proposed county ordinance regulating short-term rentals and software costs. Houge seconded the motion. The motion passed 4-1 with Koering the only dissenting vote.
“All we're looking at here is supporting these short-term rentals in the best and most responsible way possible, and I think that goes to their neighbors, it goes to the other small businesses in our county,” Barrows said.
The budget and levy meeting for the adoption of the final 2019 budget and levy will be 6 p.m. Dec. 11, and the proposed budget expenditures and revenues are to be reviewed and may be adjusted by Dec. 27.