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Brainerd council looks to lower 2023 tax levy

The Brainerd City Council will set the final levy in December.

Brainerd budget workshop (2) - Nov. 28
Brainerd City Finance Director Connie Hillman explains the 2023 budget and tax levy to council members during a workshop Monday, Nov. 28, 2022.
Theresa Bourke / Brainerd Dispatch
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BRAINERD — Many residential property owners in Brainerd can expect an increase in their property taxes next year, but the city’s budget isn’t entirely to blame.

Finance Director Connie Hillman told the Brainerd City Council during a budget workshop Monday, Nov. 28, the city’s estimated market value looks to have increased about 22% this year, which equates to a rise of almost 25% in the city’s tax capacity.

“For residential property owners, I really don’t have any good news for them this year,” Hillman said Monday.

The council set its preliminary 2023 property tax levy at $6,852,566 in September. That number represents a 9.54% increase over this year, largely due to the money the city must pay out to five former full-time firefighters as the result of a lawsuit settlement .

That preliminary number would have decreased the city’s tax rate from 70.91% to about 64.74%, but changes to the budget since September have pushed the number even lower.

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Council members favor a 3% increase in the final levy, which would likely exclude $400,000 requested for new lights in Memorial Park.

The final levy, which the council will set in December, can be lower but not higher than the preliminary number.

A balanced budget

For a perfectly balanced budget, Hillman told council members Monday night they would have to increase the levy 5.88% over 2021.

Changes in the budget from this year include:

  • Wage increases for 10 employees, who are expected to move to steps 7 and 8 on the city’s wage grid, based on preliminary reviews.
  • A reduction of temporary employees, as election judges will not be needed in 2023, and there will be one less temporary employee in the information technology department.
  • A 10% increase in rates for workers compensation premiums.
  • Increase in motor fuels costs.
  • Increase of $33,000 in computer support for Bureau of Criminal Apprehension audit mandates, body-worn camera support and scheduling software for the police department.
  • An increase to the debt levy by $100,000 to account for the repayment of loans from Brainerd Public Utilities and the League of Minnesota Cities Insurance Trust for lawsuit payments.
  • A 2% increase in the public library’s levy.

The preliminary budget the council approved in September also included $250,000 for the firefighter lawsuit.
The former firefighters were granted a total settlement of $3.9 million earlier this year due to unfair labor practices when the council voted to dissolve the full-time firefighter department and its union in 2015. The city’s insurance will cover $2 million of the cost, leaving the council to determine how to come up with the remaining $1.9 million.

The city plans to borrow $250,000 from the League of Minnesota Cities Insurance Trust loan program and $1 million from Brainerd Public Utilities.

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When talking about the preliminary budget , the council also agreed to reduce the city’s general fund balance, which is at 39% of the yearly operating budget. The council’s policy calls for a balance of between 35-50% of operating expenses, which is a recommendation from the state auditor to ensure the city has enough money on hand at the end of the fiscal year before receiving the majority of its revenue from property taxes and Local Government Aid funding. Council members agreed in September to decrease the fund from 39% to 37%, which would have freed up about $400,000, leaving the city with $250,000 still needed for the lawsuit. That money was figured into the 9.54% preliminary levy increase.

Since then, the council took two actions resulting in a decrease to the amount the city needs to levy to cover the lawsuit.

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On Nov. 7 , council members agreed to transfer funds left over from two debt issues to the general fund. The council paid off the issues in February, and the funds for those bonds had a combined $83,900 in them. While the city typically transfers positive balances after debt issues to the capital fund to pay for future expenses, Hillman told the council they could instead transfer that money to the general fund, which will inevitably take a hit from the lawsuit.

Earlier in November, the Economic Development Authority agreed to transfer the $227,815 in proceeds from the sale of industrial park property to VCV Digital Solutions — a company planning to build a cryptocurrency mining facility in Brainerd — to the city’s general fund to recoup the cost of infrastructure the council previously put into the industrial park.

The combined funds from the debt issues and the EDA are more than the $250,000 needed for the lawsuit. The budget Hillman presented to the council Monday night took the difference of $61,715 away from the $400,000 by which the council planned to reduce the general fund balance.

A lower levy

During a meeting with Hillman ahead of Monday’s workshop, Council President Kelly Bevans and Personnel and Finance Committee Chair Gabe Johnson said they would like to see the final levy at a 3% increase over 2021, or $6,443,501. In order to do that, Hillman said the council would have to eliminate $179,958 from the budget she proposed Monday, which accounted for a 5.88% increase.

Bevans and Johnson said they both wanted to eliminate the $400,000 request from the Parks Department for new lighting at the Memorial Park softball fields.

Brainerd budget workshop - Nov. 28
Brainerd City Council and staff members discuss the 2023 budget during a workshop Monday, Nov. 28, 2022.
Theresa Bourke / Brainerd Dispatch

The Parks Board’s original 2023 budget request included $947,000 for expenses.

Council members have since allocated $575,000 of its COVID-19 relief funds from the American Rescue Plan Act for parks projects, and Parks Board members revised their original budget.

While board members removed some items they believed could be taken care of in the future, they prioritized their $400,000 request for the Memorial Park lights.

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City Engineer/Public Works Director Jessie Dehn said the $400,000 cost came from a vendor, which estimated new lights to cost $388,000 in 2022 dollars. The extra cost was added to account for inflation.

Dehn said refurbishing the existing light poles and putting new LED lights on them is estimated at $320,000.

Johnson said he wanted to have a council discussion at some point on whether Brainerd even needs lighted softball fields, and council member Mike O’Day asked at what point the lights become infeasible for the city to fund.

Council member Kevin Stunek suggested games for the summer adult softball league could start sooner so the lights wouldn’t be needed on the fields at all.

President Bevans said he isn’t sure the lights are needed at all either as very few citizens actually benefit from lighted softball fields.

“I’m not sure that it benefits the city as a whole,” Bevans said. “... The other thing is, we have to cut money out of this budget. We have a firefighters lawsuit that we know we’re funding, and if we can reduce the levy from the preliminary levy, then this is one of the obvious things in my mind.”

The public hearing

Taking out the money for the Memorial Park lights would more than make up for the funds needed to reduce the final levy to a 3% increase. Hillman asked the council if they would like to hear from the Parks Board before then to give board members a chance to change their request. Bevans said the board could do so at the council’s next meeting Dec. 5, and he would prefer a written request prepared ahead of time for the agenda packet for that meeting. While the Parks Board is not scheduled to meet until Dec. 6, Bevans said members can call a special meeting if they wanted to.

Council members told Hillman they want her to present a budget with a 3% levy increase for the public hearing, which is set to take place at 7:30 p.m. Dec. 12, at City Hall. Members of the public will get a chance to address the council about the budget at that time. Council members can either adopt the final budget and levy after the hearing on Dec. 12 or at their regular meeting Dec. 19.

Estimating the impact

Taking into account the large increase in estimated market value for city properties, Hillman said a residential home valued at $140,000 in 2022 would be worth about $173,600 in 2023. A homeowner with that property would see an increase of about $71.34 in their property taxes next year under the 3% levy increase.

Even if the levy were not increased at all, Hillman said that same property owner would still see a $45 increase on their property taxes.

Commercial property is a different story, though. Hillman estimated a commercial property valued at $363,500 in 2022 to be worth $426,022 in 2023. Someone with that property would see a decrease of about $74.89 on their property taxes under a 3% levy increase.

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. A property’s estimated market value is determined by recent sales of similar properties.

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.

If the city’s levy stays the same and its total tax capacity increases, the tax rate decreases. If the city’s levy stays the same and its total tax capacity decreases, the tax rate increases.

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

Theresa Bourke started working at the Dispatch in July 2018, covering Brainerd city government and area education, including Brainerd Public Schools and Central Lakes College.
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