city of reee g
TRANSCRIPT
City of
REee"l GAGENDA REPORT
DATE: December 2, 2019
TO: The Honorable Mayor, City Council Members, and Stakeholders
FROM: Administration
RE: Agenda Item # 4.A. 1. - Motion to Adopt Resolution No. 7456 Approving the City
of Red Wing' s 2020 Collectible Tax Levy in and For the City of Red Wing.
ACTION REQUESTED:
Adopt Resolution # 7456 approving the 2020 collectible tax levy in and for the City of Red Wing.
ATTACHMENTS:
Resolution # 7456
The annual budget serves a critical function in determining the required property tax levy. Assuch, consideration should be given to reviewing the budget which accompanies this packet asitem 4.A. 2.
BACKGROUND and DISCUSSION:
The Proposed Tax Levy
A proposed 2020 property tax levy in the amount of $23, 363, 588 is proposed in order to meetthe community' s service expectations, the Council Members' and Mayor' s policy objectives and
goals, and the 2020 operating and capital requirements necessary to fulfill them.
It is important to compare and assess the proposed 2020 property tax levy in relation to both the2018 and 2019 levies. The reason the comparison to the 2018 levy is particularly useful is becauseit fully funded the City' s activities whereas the 2019 levy underfunded the City' s activities by
2, 456,865 requiring the use of fund balance ( savings). The proposed 2020 levy restores the
previous practice of fully funding City activities without the need to draw on fund balance.
The 2020 property tax levy deviates from the 2019 levy as a result of the City Council' s intentionalaction to reduce the 2019 levy by $ 2, 923, 780 as compared to the 2018 levy. The Council directed
this reduction to assist property tax payers in mitigating and managing the impacts of significant
changes in the local tax base and the proposed school referendum. As previously mentioned thereduction underfunded the 2019 budget and therefore utilized $ 2, 456,865 in fund balance.
The proposed 2020 property tax levy is a $ 158, 365 ( 0. 68%) increase from 2O18' s property taxlevy of $23, 205, 223 and a $ 3, 082, 145 ( 15. 2%) increase from 2O19' s reduced property tax levy of
20, 281,443. The proposed property tax levy is estimated to result in a local tax rate of 71. 512%.
This compares to 2O18' s and 2O19' s respective local property tax rates of 70.954%and 64.445%.
The following table provides a further comparison and assessment of the proposed 2020 levy inrelation to 2O18' s and 2O19' s levies and fund balance utilization.
General Fund OperatingCapital Improvements Program
Debt Service
Total Levy
Fund Balance Draw
Total Levy + Fund Balance
2018 2019 2020
Difference 2020 v 2018 Difference 2020 v 2019
14,946, 086
4, 599,855
3, 659, 282
11, 425, 838
2, 730,576
6, 125, 029
14,635, 790
3, 109,500
5, 618, 298
310,296)
1, 490,355)
1, 959,016
2. 08%
32.40%
53. 54%
3, 209, 952
378, 924
506, 731)
28. 09%
13. 88%
8. 27%
23, 205, 223 20, 281,443 23, 363, 588 158, 365 0. 68% 3, 082, 145 15. 20%
2,456,865 NA 2,456,865) 100. 00%
23, 205, 223 22, 738, 308 23, 363, 588 158, 365 0. 68% 625, 280 2. 75%
The proposed 2020 levy is a result of the City Council placing a high priority on the long- termfiscal health of the City and significant efforts in long- term financial planning to manage propertytaxes and ensure property tax payers are not unduly burdened in meeting the community' sprogrammatic and capital renewal and replacement requirements.
The community' s tax capacity for years 2018, 2019 and 2020 are presented in the graphs andtables on the following page. The first series presents the dollar value of each propertyclassification while the second series shows the property classification' s contribution to total tax
capacity.
A couple key takeaways from the graphs and tables... the tax base bounced back to near historic
highs in 2020, the tax base continues to shift, 2O19' s public utility tax capacity decreasedsubstantially as the result of a settlement between Xcel Energy and the Minnesota Departmentof Revenue, public utility valuations continue to remain below 2O18' s values, public utilityvaluations continue to represent more than 50% of the local tax base, 2O19' s residential tax
capacity increased as a result of updated appraisals by Goodhue County, and in 2020 public utilitytax capacity increased notably while other property classes tax capacity remain fairly consistent.
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PA
20, 000, 000 Components of Tax Capacity ($)
15, 000, 000 M M M —
10, 000, 000 —
5, 000, 000 —
Personal propeYtyResidential ( Res) Public Utility Comustrialmercial/ IndNon
Hornestead
Ratheres
2018 2019 2020
Components of Tax Capacity ($) 2018 2019 2020
Personal Property
Residential ( Res)
Public Utility
Commercial/ Industrial
Non Homestead Res
Other
Tota I
468, 523
6, 852, 670
18, 807, 692
4,353, 535
1, 909, 398
433, 685
523, 756
8, 029, 246
15, 941,862
4,481,898
2, 184, 064
429, 374
526, 333
8, 000,895
16, 824,908
4,727, 907
2, 279, 316
434, 677
32, 825, 503 31, 590,200 32, 794,036
70% — Components of Tax Capacity (%) 60% —
50% —
40%
30%
20%
10%
111-- 0% —
PersonalProperty Residential (Res)
Public Utility Commercial/ IndusNn Homestead
ROther2018 2019 2020
Components of Tax Capacity (%) 2018 2019 2020
Personal Property 1. 43% 1. 66% 1. 60%
Residential ( Res) 20. 88% 25.42% 24.40%
Public Utility 57. 30% 50.46% 51. 30%
Commercial/ Industrial 13. 26% 14. 19% 14. 42%
Non Homestead Res 5. 82% 6. 91% 6. 95%
Other 1. 32% 1. 36% 1. 33%
Total Fully Taxable NTC 100. 00% 100.00% 100. 00%
3
The following graphic depicts the distribution of property tax levy across the community' s taxbase. The primary takeaways are that public utility property continues to remain vital and criticalto the community, that property tax burdens shifted in 2019 from public utility property to other
property classification, and that these shifts perpetuate themselves into 2020.
14, 000, 000 Property Tax Distribution ($) 12, 000, 000
10, 000, 000
8, 000, 000
6, 000, 000
4, 000, 000
2, 000, 000
PersonalProperty Residential (Res) Public Utility Commercial/
InduNonOther
stalHomestead Res
1111112018 2019 2020
The public utility tax base has a significant impact on the community. Its escalation insignificanceto the local tax base is presented in the following table.
Tax Capacity 2012 2013 2014 2015 2016 2017 2018 2019 2020
Residential
Public Utility
Commercial/ Industrial
Other
Total
Public Utility %
6, 643,804 6, 504,576 6, 005,991 5, 999, 284 6, 397,849 6, 699, 145 6,852, 670 8, 029, 246 8, 000,895
8, 524, 214 10, 330,550 10, 151,616 13,496,394 15, 838, 254 17, 506,541 18, 807, 692 15, 941, 862 16,824,908
4, 370,842 4, 096,607 4, 057, 196 4, 096,607 4, 157,844 4, 334,626 4,353, 535 4,481, 898 4,727, 907
2, 544,082 2, 615,884 2, 596,907 2, 613,877 2, 694,545 2, 790, 150 2, 811, 606 3, 137, 194 3, 240,326
22, 082,942 23, 547,617 22, 811,710 26, 206, 162 29, 088,492 31, 330,462 32,825, 503 31,590, 200 32,794,036
38. 60% 43. 87% 44. 50% 51. 50% 54. 45% 55. 88% 57. 30% 50.46% 51. 30%
The public utility tax base will continue to need to be closely monitored as over the near term itis expected to be less stable and less predictable than in previous years. The reduced stability and
predictability over the next few years originates largely from two primary sources and activities:
1. Xcel Energy' s active pursuit to reduce their property taxes. As the Council is aware Xcel
Energy continues to direct significant resources to actively pursue means of reducing theircontribution to the tax base through legislative and state agency means. For property
taxes payable in 2019 Xcel successfully garnered a settlement with the Minnesota
Department of Revenue that reduced their local property tax valuations by $ 60,000,000.
Additionally, for property taxes in 2020 Xcel successfully garnered a settlement with theMinnesota Department of Revenue that reduced their local property tax valuations by
42, 800,000. Lastly, Xcel Energy continues to assert that the Minnesota Department of
Revenue valuations significantly overstate their properties value and Xcel has stated that
al
they are prepared to seek a remedies, and additional property tax relief, via tax courtchallenges.
2. Regulatory actions pending before the Minnesota Public Utilities Authority. The
Minnesota Public Utilities Authority commenced regulatory activity in 2019 that will
shape Minnesota' s future energy mix and the Prairie Island Nuclear Generating Plant' srole in that future energy mix. The regulatory activity has been delayed and is expected
to take until the end of 2021, or possibly into 2022, to complete. During this time period
there will be increased uncertainty and unpredictability regarding the community' s public
utility tax base. The regulatory activities will require close monitoring and timely reportingso the Council may shape or address outcomes which have the potential to adverselyaffect the community' s interests in the PINGP.
The City Council, as in previous years, continues to actively and progressively manage community
needs and fiscal pressures. The following table provides a history of Red Wing' s local property
tax rates and the annualized increases in such since 2002. The primary takeaway is that the
Council' s efforts have resulted in an annualized increase in the local property tax rate whichcontinues to be significantly less than 1%. The estimated tax rate for 2020 is 71. 512% or an
annualized rate of 0.45% ( less than 1%) since 2002.
Tax Rates 2002 2014 2015 2016 2017 2018 2019 2020
Red Wing Tax Rate 65. 916% 64. 225% 65. 897% 67. 536% 69. 188% 70. 954% 64.445% 71. 512%
Annualized Change Since 2002 Base Year - 0. 22% 0. 00% 0. 17% 0. 32% 0. 46% - 0. 13% 0. 45%
The Council' s progressive management of community needs and fiscal pressures is furtherillustrated in the following table which provides a brief history of changes in the purchasing
power of Red Wing' s property tax levies. The data indicate that the 2020 levy will yield a 27. 36%
increase in the City' s purchasing power since 2002. The increase naturally begs the question
where the increase in purchasing power is being directed. In short, the total increase in
purchasing power of $2, 981,451 — and more - is directed at capital improvements and capital
related debt service which have seen an increase in purchasing power of $ 3, 247, 247 ($3, 337, 630-
90, 383) while the purchasing power for operations remains flat or below 2002 levels.
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61
As presented in the following table the changes in the 2020 levy are ( 1) an decrease of $ 506, 731to support debt service, ( 2) a reduction of $ 21, 076 to support for capital expenditures, ( 3) an
increase of $ 748, 401 to support operating activities, ( 4) an increase of $ 2, 456, 865 to eliminate
the utilization of fund balance, ( 5) an increase of $ 411, 766 to support operating transfers, and6) a reduction of $ 7, 080 for abatements.
The proposed 2020 levy is an increase of $ 158, 365 over 2018' s property tax levy and $ 3, 082, 145
over 2019' s property tax levy. The debt service levy in 2020 will be $ 5, 618, 298 as compared to
2019' s $ 6, 125, 029; 2018' s $ 3, 659, 282; 2017' s $ 2, 996, 058; 2016' s $ 2, 076, 505; 2015' s $ 1, 229, 422
and 2014' s $ 588, 000.
2019 Levy
Changes
Debt Service
Capital Improvements and Acquisitions
Initiatives and OperatingReduction in General Fund fund balance draw
GF Operating TransfersEconomic Development Abatements
Total Change in Levy
Proposed 2020 Levy
20, 281, 443
506, 731)
21, 076)
748, 401
2, 456, 865
411, 766
7, 080)
3, 082, 145
23, 363, 588
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L"
Base Year Change in Property Tax Levies Purchasing Power ( Inflation Adjusted) 2002 2017 2018 2019 2020
Total % Base Year 27. 24% 31. 82% 12. 86% 27. 36%
Total $ 10,898,020 2, 968,200 3, 467,892 1, 401, 531 2, 981,451
Operating % Base Year 0. 51% 0. 60% 24. 67% 2. 89%
Operating $ 9, 198, 020 46, 804 54,818 2, 268,894) 265, 796)
Capital % Base Year 58. 69% 67. 51% 2. 59% 5. 32%
Capital $ 1, 700,000 997, 659 1, 147, 683 44,060) 90,383)
Debt % Base Year NA NA NA NA
Debt $ 1, 923, 736 2, 265, 392 3, 714,485 3, 337, 630
As presented in the following table the changes in the 2020 levy are ( 1) an decrease of $ 506, 731to support debt service, ( 2) a reduction of $ 21, 076 to support for capital expenditures, ( 3) an
increase of $ 748, 401 to support operating activities, ( 4) an increase of $ 2, 456, 865 to eliminate
the utilization of fund balance, ( 5) an increase of $ 411, 766 to support operating transfers, and6) a reduction of $ 7, 080 for abatements.
The proposed 2020 levy is an increase of $ 158, 365 over 2018' s property tax levy and $ 3, 082, 145
over 2019' s property tax levy. The debt service levy in 2020 will be $ 5, 618, 298 as compared to
2019' s $ 6, 125, 029; 2018' s $ 3, 659, 282; 2017' s $ 2, 996, 058; 2016' s $ 2, 076, 505; 2015' s $ 1, 229, 422
and 2014' s $ 588, 000.
2019 Levy
Changes
Debt Service
Capital Improvements and Acquisitions
Initiatives and OperatingReduction in General Fund fund balance draw
GF Operating TransfersEconomic Development Abatements
Total Change in Levy
Proposed 2020 Levy
20, 281, 443
506, 731)
21, 076)
748, 401
2, 456, 865
411, 766
7, 080)
3, 082, 145
23, 363, 588
This area is left blank intentionally -
L"
The proposed 2020 levy will be allocated as presented in the following table.
GENERAL CITY LEVY
General Fund Operating $ 12,807,804
General Fund Operating Transfers 1, 712, 718
Capital Improvements and Acquisitions 3, 109, 500
SPECIAL CITY LEVIES
Principal and Interest on G. O. Bonds 5, 618, 298
Economic Development Tax Abatements 115, 268
TOTAL CITY GENERAL AND SPECIAL LEVIES: $ 23, 363, 588
Numerous factors, including the level of certainty and predictability of the community' s tax base, capital budgeting, and the City Council' s strategic planning, will influence the property tax levy
over the long-term.
Overthe last several years the Council has taken a proactive approach to deferred capital renewal
and replacement. To address deferred capital renewal and replacement the proposed 5 -year CIP
includes over $27. 6 million in current and future levy support. Given the heightened uncertainty
and unpredictability in the community' s tax base the resources available for capital renewal
requirements will need to be monitored closely to ensure alignment. Monitoring and reportingwill be critical to ensure the improvements are undertaken in a manner the community can affordand which does not adversely affect either the Council' s strategic planning, priorities, long- term
financial planning, or property tax rates.
Capital budgeting in Red Wing had until relatively recently (201o) been a pay- as- you- go program. The City has developed a policy objective that seeks to employ current year property tax receiptsto leverage other dollars ( both internally from Enterprise and Special Revenue Funds and
externally from State, Federal and other Grant sources). This policy provides intrinsic value to the
community by creating collaborations and partnerships which minimizing the community' s directexpenses associated with capital projects.
It is recommend that the property tax levy dedicated to the GF CIP continue to be increased ona regular basis and further adjusted for inflation over the short-term. Such is recommended as a
means of leveraging externally sourced funding, leveraging public utility tax base growth, responsibly addressing the community' s infrastructure requirements, avoiding cost escalation,
avoiding infrastructure replacement ( rather than maintenance) and avoiding disruptions in the
critical public services the community relies on.
Lastly, stable and reliable funding mechanisms continue to warrant exploration to financeimportant economic develop initiatives, employment opportunities, regionally significant capital
projects, and segments of the community' s infrastructure.
ALTERNATIVES:
The City Council retains the authority to approve, defeat, or establish a reduced levy. 1. Adopting the Resolution — authorizes the County to collect, on the City' s behalf, the
property taxes the City reasonably requires to provide services to the community, service
the general obligation debt, support necessary capital projects, and otherwise operate. 2. Tabling or Delaying Adoption of the Resolution — time is of the essence with this
resolution. The City is required to file a certified copy of the accompanying resolution andother related documentation with the Minnesota Department of Revenue and the Countyprior to December 30 to ensure execution of tax collections and avoid penalties. Filing
the required documentation late may have unintentional and detrimental consequences. 3. Not Adopting, Defeating Adoption or a Mayoral Veto of the Resolution — would not
authorize the County to collect, on the City' s behalf, the property taxes the Cityreasonably requires to provide services to our residents, service the general obligation
debt, support necessary capital projects, and otherwise operate.
Alternatives 2 and 3 would require additional City Council action prior to the statutory deadlineof December 30 as these alternates have the potential to result in the City' s default on many ofits commitments and obligations including those to its residents, vendors, creditors and
stakeholders.
RECOMMENDATION:
To provide the public and creditors with confidence that the community' s 2020 service
expectations and debt service requirements are adequately financed, staff recommends the CityCouncil adopt Resolution No. 7456.
Resolution No. 7456
A Resolution Approving the 2020 Collectible Tax Levy in and for the City of Red Wing
BE IT RESOLVED by the City Council of the City of Red Wing, Minnesota, that the followingsums of money be and the same hereby are levied for taxable assessment year 2019 to becollected in 2020 upon the taxable property located within the City in accordance with the lawsof the State of Minnesota and the City Charter of the City of Red Wing:
GENERAL CITY LEVY
General Fund Operating $ 12,807,804
General Fund Operating Transfers 1, 712, 718
Capital Improvements and Acquisitions 3, 109, 500
SPECIAL CITY LEVIES
Principal and Interest on G. O. Bonds 5, 618, 298
Economic Development Tax Abatements 115, 268
TOTAL CITY GENERAL AND SPECIAL LEVIES: $ 23, 363, 588
BE IT RESOLVED that the Administrative Business Director is hereby directed to deliver a
certified copy of this Resolution to the Goodhue County Auditor/ Treasurer and to take any and
all other action necessary to demonstrate compliance to the Minnesota Commissioner ofRevenue with the provisions of the Minnesota Truth -In -Taxation Law and other provisions of the
Minnesota Statutes.
BE IT FURTHER RESOLVED that the City Council of the City of Red Wing, in accordancewith Minnesota Statutes 475. 61, Subdivision 3, certifies that it has in its accounts sufficient funds
with the above certified debt services levies to pay all debt service including general obligationtax increment debt upon receipt of the 2020 payable tax levy and tax increments and, therefore,
the City requests and instructs the Goodhue County Auditor/ Treasurer to not levy the amount
originally certified and noted in Column 1 below, but instead to levy the amount certified aboveand noted in Column 2 below for payable tax year 2020.
Levy Originally Actual to be
Requested Levied
5, 283, 360 GO SEWER REVENUE NOTE OF 2004 $ 364, 672
2, 100,000 GO SEWER REVENUE NOTE OF 2002 165, 569
15, 283, 450 GO WATER REVENUE NOTE OF 2004 1, 112, 246
1, 835,000 GO BONDS, SERIES 2011A 215, 261 215, 261
2, 375,000 GO BONDS, SERIES 2012A 184, 123 184, 123
2, 930,000 GO BONDS, SERIES 2013A 360, 885 360, 885
1, 115, 000 GO EQUIIPMENT CERTIFICATES, SERIES 2014A 130, 877 130, 877
7, 735,000 GO BONDS, SERIES 2015A 919, 380 919, 380
8, 525,000 GO BONDS, SERIES 2016A 1, 021, 650 1, 021, 650
Continued from previous page.
9, 325,000 ($ 6, 740,000) GO BONDS, SERIES 2017A
13, 535,000 GO BONDS, SERIES 2018A
5, 955,000 GO DISPOSAL SYSTEM REV BONDS, SERIES 2019A
TOTALS:
Adopted by the City Council this 2nd day of December, 2019.
Teri L. Swanson, MCMC
City Clerk
seal)
Levy Originally
Requested
1, 118, 834
1, 958, 933
433, 263
7, 985, 692
Dean Hove, Council President
Actual to be
Levied
827, 190
1, 958, 933
5, 618, 298
Presented to the Mayor at on this day of December, 2019. Approved this
day of December, 2019.
Sean M. Dowse, Mayor