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Brainerd’s 2023 levy depends on firefighter settlement

The city must figure out how to pay the $1.9 million it owes to five former firefighters after approving a lawsuit settlement earlier this month.

Several people sit around tables
Brainerd City Council and staff members talk about the 2023 budget and property tax levy during a workshop Monday, Aug. 29, 2022.
Theresa Bourke / Brainerd Dispatch
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BRAINERD — Next year’s property taxes in Brainerd depend largely upon how the city decides to pay out the $1.9 million it owes to five former firefighters.

Paying the majority of the sum through the 2023 property tax levy would mean a 25.64% increase over this year’s levy, but the city has other options.

City officials settled a seven-year-long lawsuit two weeks ago, resulting in damages to be paid to five former full-time fire department equipment operators whose positions were eliminated in 2015. That year, the City Council voted to restructure its fire department to paid on-call and dissolve the firefighter’s union. The Minnesota Supreme Court deemed that move a violation of state labor laws. The settlement agreement council members approved earlier in August requires $3.9 million to be paid to the firefighters, $2 million of which will be covered by the city’s insurance through the League of Minnesota Cities Insurance Trust. The remaining $1.9 million is up to the city to pay.

During a budget workshop Monday, Aug. 29, council members learned they would have to increase the city’s 2023 levy by just over $300,000 — or about 4.86% — for a perfectly balanced budget. That number does not take the lawsuit into account though.

Finance Director Connie Hillman presented several options to council members Monday. It is not yet known when or how the payment will be due, but the city would not be able to pay the entire $1.9 million in cash without cashing in certificates of deposit. If the city were to do that, it would still be about $300,000 short of the sum needed, assuming it ends 2022 exactly on budget. In that scenario, the city could explore borrowing from Brainerd Public Utilities instead of having to cash in investments or apply to use the League of Minnesota Cities Insurance Trust loan program, but Hillman said she does not know if this expense would qualify for the program.

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The council could use a portion of its general fund to pay part of the lawsuit. The council’s policy calls for a general fund balance of 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. At the end of 2021, the general fund had 39% of expenses. Decreasing that to 35% would free up $450,000 to go toward the lawsuit if the city were to end 2022 right on budget, which is not likely to happen. Another $150,000 could come from transferring funds from the city’s insurance fund, which is an internal restricted fund composed of the dividends the city receives from the League of Minnesota Cities Insurance Trust.

With the possible combined $600,000 from those two sources, the city would still need to come up with $1.3 million, which, if levied, would result in more than a 25% levy increase.

Other options include using $100,000 from the city’s Economic Initiatives Fund, levying for the sum over several years, issuing settlement bonds or delaying all capital expenses for 2023 until 2024.

The final decision will likely be a combination of various options, Hillman said, as is the recommendation from her meeting with Council President Kelly Bevans and Personnel and Finance Committee Chair Gabe Johnson.

“We have so many options to do this,” Johnson said Monday night. “None of them are fun … but we have enough flexibility to do this.”

Expenses

Hillman estimates a combined increase of about $663,000 for services, supplies and personnel services over 2022. Notable changes include:

  • Backfilling open positions, including assistant planner, administrative specialist and two police officers.
  • An estimated increase of 10% in workers’ compensation premiums, as recommended by the League of Minnesota Cities.
  • The assumption that all employees who are eligible to move up a step on the wage grid will do so, with the largest change in salary coming from the police department.
  • Cost increase in supplies like salt, sand and motor oil.
  • An approximate $33,000 increase in computer support services due to information technology improvements as a result of audit mandates from the Bureau of Criminal Apprehension, and increases in body-worn camera computer support and scheduling software for the police department.
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Proposed expenses for capital equipment expenditures and facilities costs are $1,946,100, nearly half of which comes from parks department requests. The largest proposed parks expenditures are $400,000 to update lighting at Memorial Park fields, $150,000 for concession stands, warming shelter and restroom facilities at Lum Park, $150,000 for concessions, lockers and restroom facilities at Memorial Park and $60,000 for pavilions at Lum Park.

While a couple council members had a hard time swallowing the $400,000 cost for lighting, they acknowledged how out of date the current lighting system is at Memorial Park, and Parks Board Chair Troy Rushmeyer said the park has seen more traffic recently, with increased baseball field use and more visitors because of the splash pad.

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Parks board members plan to meet again to further discuss the budget before the council approves its preliminary levy. The board is also undergoing a master planning process for all the city’s parks.

“In reality, we’re going to use what we get,” Rushmeyer said of the funds allocated to the parks department. “But we also want to have a good plan in place so that when we get what we get that we’re going to use it in the best way for our community.”

Revenues

Hillman estimates a total increase of about $283,719 to the city’s revenues for 2023. Notable changes include:

  • Almost a $100,000 decrease in licenses and permits, largely due to Brainerd Public Schools finishing their referendum building projects.
  • An increase of $80,491 — or 1.7% — in Local Government Aid.
  • An assumed increase in the school resources office agreement with the school district for the 2023-24 school year, though that contract has not yet been approved.
  • Reduced rental income since the city’s lease with the drivers’ license testing office ended in 2022.
  • A projected continued decrease in court fine revenue.
  • An increase in revenue from BPU from the two proposed cryptomining facilities. If both facilities were to be up and running for all of 2023, that revenue would be about $196,000, though it is unknown how much of the year they will be running.

Estimating the impact

While there are still some unknowns in the budget, Hillman estimates a 2023 tax levy of $6,559,982 is needed for a perfectly balanced budget. That amount represents an increase of $304,156 — or 4.86% — over 2022.

That estimate is based on the assumption of a 20% tax capacity increase in Brainerd, based on preliminary data from Crow Wing County and Hillman’s own calculations indicating an overall increase in property values.

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.

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.

Brainerd’s 2022 tax rate was 70.911%, down from 73.43% in 2021 and 79.33% in 2020. A 4.86% increase would further decrease the tax rate to around 62%, while a 25.64% increase accounting for the lawsuit settlement would increase the number to 74.26%.

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Assuming a 20% increase in the tax capacity, a person with a residential property valued at $120,000 in 2022 would see a property tax decrease of about $83 for the year with a levy increase of 5%, but would see a roughly $31 increase with a 25.64% levy increase.

Chart of property tax information
Even with a 5% levy increase in 2023, Brainerd property taxes could decrease.
Contributed / City of Brainerd

Under the same circumstances, a person with a commercial property valued at $363,500 in 2022 would see an estimated property decrease of $577 for the year under the 5% levy increase, but would see an increase of roughly $218 with a levy increase of 25.64%.

Setting a preliminary levy

After hearing the budget synopsis Monday, Bevans and Johnson agreed to meet with Hillman again before the council approves the preliminary levy Sept. 19. The preliminary levy must be set by the end of September. The final levy will then be set in December and can be lower but not higher than the preliminary number.

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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