BRAINERD — Brainerd’s preliminary 2023 levy accounts for the lawsuit settlement to be paid out to five former firefighters but would still likely result in a tax rate decrease across the city.
Council members approved a levy of $6,852,566 — a 9.54% increase over 2022 — on a 5-1 vote Monday, Sept. 19. Council member Mike O’Day voted against the motion, while council member Kevin Stunek was absent.
The final levy, which will be set in December, can be lower but not higher than the preliminary number.
Changes in the budget
Staff reviewed the budget after the council’s workshop last month, and Finance Director Connie Hillman said she met with Council President Kelly Bevans and Personnel and Finance Committee Chair Gabe Johnson to further discuss line items.
Changes in the budget include:
ADVERTISEMENT
- A reduction to the budgeted number of sworn police officers from 26 to 25.5, with the goal of still having 27 sworn officers, though it has been several years since the department has been fully staffed.
- A Health Partners insurance renewal rate of about 3% rather than the 4.4% estimated earlier.
- An estimated $50,000 increase in revenue from licenses and permits. The old Thrifty White building in downtown Brainerd was purchased by a developer, potentially resulting in the construction of a mixed-use building in 2023.
- A reduction of $14,100 in other revenues, partially due to less money from Brainerd Public Utilities, as the two cryptocurrency companies will more than likely not be at full capacity for all of 2023. This means BPU’s revenue stream will likely be lower than initial estimates.
- A decrease of $88,000 in capital expenses for 2023.
- An increase to the debt levy by $100,000 to account for the repayment of loans from BPU and the League of Minnesota Cities Insurance Trust for lawsuit payments.
Hillman said a perfectly balanced budget would require a levy increase of 5.54% over 2022.
The lawsuit
The city must determine how to pay $1.9 million owed to the former firefighters, who were granted a total settlement of $3.9 million due to unfair labor practices when the council voted to dissolve the full-time fire department and its union. The city’s insurance will cover $2 million of the cost.
Part of the money will come from reducing the city’s general fund balance, which sat at 39% of the yearly operating budget at the end of 2021. 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. The council will reduce that to 37% to free up funds for the lawsuit.
The city then plans to borrow $250,000 from the League of Minnesota Cities Insurance Trust loan program and potentially $1 million from BPU, an amount Hillman said BPU’s finance director told her the utilities agency thinks it is able to lend at this time.
“By borrowing, it spreads the settlement over several years rather than all in one year, but it does add an interest component,” Hillman said.
After the loans and change to the general fund, the city would still need to find $250,000 for the settlement, which accounts for the additional 4% hike in the preliminary levy over Hillman’s estimation for a balanced budget.
Behind the numbers
The city’s tax rate for 2022 is 70.91%, a decrease from 73.43% in 2021. The rate increased to more than 80% in 2019 but has steadily decreased each year since.
Based on “very preliminary” numbers from Crow Wing County, Hillman said the city’s estimated market value looks to have increased by about 20.39% this year. Through those projections and her own calculations, Hillman estimates a 20% increase in the city’s tax capacity.
ADVERTISEMENT
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.
With the increases in estimated market value and tax capacity, Hillman projected a 9.54% levy increase would decrease the city’s tax rate to about 64.74%.
Council comments
Council member Gabe Johnson made a motion to set the preliminary levy at the 9.54% increase. Typically advocating for fiscal conservatism, Johnson said he does not expect to see the final levy that high and would not support it in December.
“I support it as a preliminary levy because that’s where we are right now,” he said. “... By the time we get to December, I think we can get this down to under 4%. There are some changes that can be made.”
O’Day, who voted against the levy, said he does not think the council cut the budget enough and would have liked to see a preliminary levy at around 8% to encourage further reductions.
Johnson, Bevans, Tiffany Stenglein, Jamie Bieser and Tad Erickson voted in favor of the 9.54% preliminary increase.
The council set a public hearing for the final levy for 7:30 p.m. Dec. 12.
ADVERTISEMENT
THERESA BOURKE may be reached at theresa.bourke@brainerddispatch.com or 218-855-5860. Follow her on Twitter at www.twitter.com/DispatchTheresa .
The Trust Project
