Tax base rebound helps Lake Elmo balance budget

More money coming in from property taxes helped Lake Elmo keep its tax levy flat in 2014.

With a 4-0 vote, the Lake Elmo City Council approved next year’s tax levy at its Dec. 3 meeting with no increase from 2013, while increasing debt service payments, which were covered by last year’s surplus, said city staff. Council member Anne Smith was absent.

There are signs that new houses will continue to bring in more property-tax revenues for the city.

“The tax base, which is what our budget is based upon, is starting to rebound,” said Cathy Bendel, finance director, at the council meeting. “We’ve been building approximately 20 to 25 houses per year … We’re well on a good path to having a good, cash-flowing city.”

Taxes applied to eligible properties in Lake Elmo include current and unpaid property taxes and the fiscal-disparities tax, which depends on measurements of commercial and industrial property values in the metro area, according to city documents. Property-tax revenue is expected to jump 4.3 percent to more than $2.7 million in the projected 2014 budget.

That means good news for most Lake Elmo property owners. According to City Administrator Dean Zuleger, homeowners will see a slight decrease in taxes this year,  “largely due to the fact that their value went up.”

About 605 Lake Elmo homeowners will see a small increase in taxes, according to the county’s 2014 proposed-tax notices. The remaining 1,482 will have either no increase or a decrease of up to 2.5 percent in taxes. In all of Washington County, 29 percent of parcels are expected to receive an increase.

Where the money’s going

Lake Elmo’s government operations are expected to cost more in 2014, but there’s even more money coming in to cover it.

General fund expenses are up 5.8 percent from the 2013 budget, totaling $3.3 million.  The general fund levy of nearly $2.57 million is 7.9 percent higher, in part due to the anticipated collection of new development-related property taxes.

Other revenue sources include licenses and permits, service charges and fire aid and highway and street funding from the state. The city did not receive local government aid, which is state money generally meant to help cities whose needs exceed what property taxes can practically fund and is based on a distribution formula.

Public safety is the most costly for the city at nearly $1.16 million in the 2014 budget. Of that total, $500,000 is set aside for police, and nearly $400,000 is designated for fire protection services. The community contracts with the Washington County Sheriff’s Department for policing services and has a volunteer fire department.

General government is a close second at nearly $1.04 million, including $396,539 in administrative costs and $45,270 for the mayor and council members’ salaries.

Next categories in line: $540,270 for public works expenses and $206,837 for culture and recreation, which is the cost of maintaining parks and park buildings. Planning and zoning expenditures, which are part of general government expenses, have a higher price tag than the latter category at about $273,000.

Rating debt

Lake Elmo’s disciplined budgeting has paid off. Included in the 67-page budget book, which summarizes where taxpayer money is going and why, Moody’s Investor Services opinion reaffirmed the city’s Aa2 rating on its $15.6 million of post-sale general obligation debt.

It’s the second highest rating category. Those who receive “Aa” are of “high quality and subject to very low credit risk,” according to Moody’s. Aa1 would be higher than Aa2, and Aa3 signifies the lowest range of the category.

The rating was based on the city’s moderate, but affluent tax base within the metro area, strong finances underscored by conservative budgeting, surpluses every year and a healthy unreserved fund balance, the Moody’s opinion said. It also took into account the city’s low direct-debt burden and favorable pension liability.  

The challenge for Lake Elmo reportedly is its trend of a decreasing tax base, which is small compared to others that fall in the category, the service opinion said.

But as the state economy recovers from the Great Recession, Lake Elmo’s property values also seem to be on the upswing. That helps put the city in a good financial position, according to Bendel.  

Property taxes make up 78 percent of the city’s revenue, while nearly half of debt is being paid off by money from water and sewer fees.

Kaitlyn Roby can be reached at 651-748-7814, kroby@lillienews.com or at twitter.com/KRobyNews.

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