1. Truth in Taxation Public Information Hearing December 5, 2011 6:00 P.M.

2. BUDGET PROCESS TO DATE City Council and Staff held work sessions over the summer and fall on the proposed budget for 2012 City Council adopted the preliminary budget and levy in September Truth-in-Taxation Notices were mailed to all city property owners last month City Council met on November 7 th and November 21 st to revise budget and levy

3. BUDGET PROCESS TO DATE Truth-in-Taxation Hearing Purpose The main purpose of the Truth-in-taxation hearing is to enhance the public participation in the property tax system by allowing a public forum to: Discuss the Budget Discuss the Tax Levy Explain the Increases Hear Public Comments and Questions on Budget and Tax Levy

4. BUDGET PROCESS TO DATE TONIGHT – Truth-in-Taxation Hearing MONDAY, DEC. 19 th : Continuation of Truth- in-Taxation Hearing (if necessary) DEC. 19 th – DEC. 28 th : Budget and levy must be adopted by the City Council

5. A REMINDER Tonight we discuss the Citys share of your total 2012 tax bill, not property valuations

7. BRIEFLY ON VALUATIONS In Minnesota, the market value of a property is determined by January 2 of the year prior to the year in which taxes on that property are due. In other words, market values for taxes payable in 2012, were set in January 2011. Property Values on Statements recently received are based off of home sales from October of 2009 to September of 2010. Property owners will receive new notices of market values from the assessor in March/April of 2012. Questions on Valuations should be addressed at the Equalization Hearing in May/June.

8. FIRST OFF! The preliminary tax levy set in September, and the property tax affect (Statement you got in the mail) showed a tax increase of 5.0% The revised budget now shows a 2.2% tax levy increase The City has eliminated roughly $21,000 in expenses since its preliminary budget was adopted

9. WHERE WE STAND Where does Arlington Stand in regards to the rest of the County when it comes to our City property tax rate? Arlingtons 2011 Average City Tax Rate ranked the 2 nd lowest in Sibley County! 1. Henderson144.06% 2. Gibbon142.41% 3. Green Isle130.41% 4. New Auburn111.22% 5. Gaylord82.00%PreliminaryProposed 6. Arlington73.00%91.21%88.75% 7. Winthrop61.65%

10. 2011 TAX COMPARISON OF CITIES IN SIBLEY COUNTY Home Value City$50,000 $100,000 $150,000 $175,000 $200,000 Winthrop$478$1,074 $1,797$2,159 $2,520 Arlington$544$1,205 $1,994$2,388 $2,782 Gaylord$579$1,276 $2,100$2,512 $2,924 New Auburn$753$1,623 $2,621$3,120 $3,619 Green Isle$832$1,781 $2,858$3,397 $3,935 Gibbon$846$1,809 $2,900$3,445 $3,991 Henderson$932$1,981 $3,158$3,746 $4,334

11. EXPLANATION OF PROPERTY TAX RATE Arlingtons Property Tax Rate is set by taking the citys tax levy and dividing it by its total tax capacity. $756,805 / $852,716 [Total Tax Capacity] = 88.75% Total Tax Capacity = Tax capacity is determined by multiplying a propertys market value by its classification rate. Each property rate is assigned a classification rate depending on its use by the State Legislature. Properties associated with income production (commercial & industrial) have a higher classification weight than other properties. The Citys total tax capacity is an accumulation of all parcels within the city, minus adjustments.

12. PROPERTY TAXATION 101 How do I determine the Citys portion of my proposed tax bill? [parcel market value] x [parcel class rate] x [city tax rate] = City portion of your tax bill Example: $125,000 (home) x 1.0% (class rate) x.8875 (city tax rate) = $1,109.38

13. MARKET VALUE EXCLUSION If the taxy levy was raised by 5%, why did my city property tax increase by much more than that? State had over a $5 Billion deficit 2011 Legislative Action Changed the Market Value Homestead Credit program and replaced it with the Market Value Exclusion program The change in the Homestead Credit Program meant that property owners no longer receive a credit that reduces the property taxes paid. Instead, a portion of a propertys value is now excluded from taxation This change saved the state $261 Million The change was both good and bad to the City

14. OLD MARKET VALUE CREDIT SYSTEM Arlingtons Tax Levy Under the Credit System: 2011 Net LevyAg Credit State Credit Levy as Seen by Taxpayers $740,726 $114 $91,096$649,516 Problem with Credit System = Cities werent receiving full payments In 7 of the last 9 years, the State didnt make full credit payments to local governments Arlington was shorted $50,961 in 2010 and 2011 This was on top of LGA cuts in 2008, 2009, 2010 & 2011.

15. NEW MARKET VALUE EXCLUSION SYSTEM Under the new system, a defined portion of a propertys market value is exempt from taxation This results is some of that taxes that would have been borne by a property will now be shifted to all remaining taxable property value The Exclusion is based on a formula (handout) where the exclusion equals 40% of the first $76,000 in market value. It is reduced by 9% until it hits $0 at $413,800 of market value Will have a different impact for different cities based on the tax base composition.

16. OLD MARKET VALUE SYSTEM VS. NEW SYSTEM Old/Current System (2011): Market ValueTaxable ValueTax CapacityLevy Tax Rate $96,303,800$96,110,800$1,014,728 $740,726 73.00% New System (2012): Market ValueTaxable ValueTax CapacityLevy Tax Rate $96,245,700$79,820,100$852,716 $756,805 88.75% % Change% Change% Change % Change % Change -0.06%-16.96%-15.97% 2.6% 22.2%

17. IMPACT ON PROPERTY TAXPAYERS All else being equal, taxes paid by a homeowner that previously qualified for the Credit will increase because the State will no longer be paying a portion of the taxes. The taxes paid by those same homes will be reduced because a portion of the homes value will no longer be subject to taxation The homeowner relief under the new system results from taxes formerly paid on the now excluded value being shifted to other property types All else being equal, tax shifts occur because the exclusion will reduce the tax base of the City, which will have the direct effect of increasing the Citys property tax rate

18. IMPACT ON PROPERTY TAXPAYERS For homes, the tax rate increase will be offset by a reduction in the homes value. However, for other types of property that do not receive an exclusion, the tax rate increase will simply increase the propertys taxes QUICK FACTS The City did not Levy Back for the loss of the Market Value Credit The City would have had to reduce its budget by $118,243 (16%) over 2011s budget to account for the loss of taxable market value for its tax rate not to change. A 0% levy increase would have increased the tax rate to 86.87% A budget reduction of $91,096 (Market Value Credit), would have still increased the tax rate to 76.18%

19. EXCLUSION SUMMARY 1) State money is no longer reducing total taxes Entire local property tax levy will be paid by taxpayers 2) The reduction in taxable value increases tax rates With taxable value being reduced by exclusion, same levy = higher rate 3) The reduction in taxable value shifts the relative burdens of who pays With homestead values being reduced, other properties pay a larger share 4) The exclusion provides less benefit in low tax areas than the credit. Lower tax areas = less benefit; higher tax areas = greater benefit.

20. 14 REASONS PROPERTY TAXES VARY FROM YEAR TO YEAR 1. THE MARKET VALUE OF A PROPERTY MAY CHANGE 2. THE MARKET VALUE OF OTHER PROPERTIES IN YOUR TAXING DISTRICT MAY CHANGE, SHIFTING TAXES FROM ONE PROPERTY TO ANOTHER 3. THE STATE GENERAL PROPERTY TAX MAY CHANGE 4. THE CITY BUDGET AND LEVY MAY CHANGE 5. THE TOWNSHIP BUDGET AND LEVY MAY CHANGE. 6. THE COUNTY BUDGET AND LEVY MAY CHANGE 7. THE SCHOOL DISTRICTS BUDGET AND LEVY MAY CHANGE 8. A SPECIAL DISTRICTS BUDGET AND LEVY MAY CHANGE 9. SPECIAL ASSESSMENTS MAY BE ADDED TO YOUR PROPERTY TAX BILL 10. VOTERS MAY HAVE APPROVED A SCHOOL, CITY/TOWNSHIP, COUNTY OR SPECIAL DISTRICT REFERENDUM 11. FEDERAL AND STATE MANDATES MAY HAVE CHANGED 12. AID AND REVENUE FROM THE STATE AND FEDERAL GOVERNMENTS MAY HAVE CHANGED 13. THE STATE LEGISLATURE MAY HAVE CHANGED THE PORTION OF THE TAX BASE PAID BY DIFFERENT TYPES OF PROPERTIES 14. OTHER STATE LAW CHANGES MAY ADJUST THE TAX BASE

21. 2012 PROPOSED BUDGET PROPOSED TAX LEVY AND GENERAL FUND BUDGET

22. BRIEFLY ON THE 2011 BUDGET In the spring of 2011, the City was notified that it would be facing an additional cut of $50,961 in Market Value Homestead Credit (State Aid) due to the State Budget Deficit. This was on top of an already reduced payment of Local Government Aid in the amount of $87,791 (reduction was budgeted for) The City Council covered the reduction in Market Value Credit by using Fund Reserves

23. PROPOSED TAX LEVY 20112012Increase General Fund Levy$591,817$591,817 0.0% Other Levies$0$2,888100.0% Special Levies (Debt Service) Comm. Ctr. Debt$45,000$50,000 11.1% 2010 Fire Cert.$17,274$21,600 25.0% 2009 GO RF Bond$0$35,500 100.0% 2000 Improv. Bond$16,535 $0 -100.0% 2001 Improv. Bond$15,100$0 -100.0% 2004 Improv. Bond$55,000$55,000 0.0% TOTAL LEVY$740,726$756,805 2.2%

24. TAX LEVY BREAKDOWN

25. TAX LEVY TREND SINCE 2002

26. ADDITIONAL INFORMATION ON THE TAX LEVY Since 2002, the Citys tax levy has nearly doubled, increasing by 84%. Since 2006, the Citys tax levy has increased by 23% From 2008-2011, the average year-to-year levy increase was at 3.0% (Inflation was at 2.1%) Since 2002, the City has had its State Aid reduced 5 times. Of those 5 times, 4 have taken place within the past 4 years THE 2012 TAX LEVY ACCOUNTS FOR A PER CAPITA TAX OF $339, UP FROM $331 IN 2011

27. PROPOSED GENERAL FUND REVENUES 20112012Increase Taxes$591,817$591,817 0.0% Local Govt Aid$636,892$636,892 0.0% Other State Aid$50,743$52,943 4.3% Licenses/Permits$24,560$20,295-17.4% Other Revenue$55,347$238,376330.7% Total General Fund$1,359,359$1,540,323 13.3%

28. 2012 GENERAL FUND BUDGET - REVENUES

29. ADDITIONAL FACTS ON GENERAL FUND REVENUE 38% -- Property taxes account for 38% of the revenue in the general fund, down from 43% in 2011. 41% -- Local Government Aid accounts for 41% of the revenue in the general fund; down from 47% in 2011. 21% -- All other revenue sources in the General Fund account for 21% of General Fund Revenues. This is a large increase from 10% in the 2011 budget. $186,300 – Transfer of Other Funds into the General Fund for 2012. This is due to the closing of 3 funds with fund balances (TIF Fund and two Debt Funds) Local Government Aid and Property Taxes are the biggest supporters of the General Fund

30. PROPOSED GENERAL FUND EXPENSES Department20112012Increase Council$34,943$33,624-3.8% Administration$230,459$220,460-4.3% Elections$0$2,550100.0% Assessing$9,350$9,350 0.0% Law/Legal Serv.$7,520$8,020 6.6% Planning/Zoning$51,180$42,772-16.4% Buildings/Plant$22,356$25,26313.0% Police Department$245,969$233,699-5.0% Fire Stations$32,363$17,860-44.8% Civil Defense$1,852$1,8520.0% Animal Control$455$4550.0%

31. PROPOSED GENERAL FUND EXPENSES Department20112012Increase Public Works$241,367$238,045-1.4% Street Lighting$9,600$10,2006.3% Parks & Recreation$41,054$41,5081.1% Libraries$26,214$27,9556.6% Health Services$258$2580.0% Econ. Develop.$16,821$16,365-3.3% Miscellaneous$5,000$5,0000.0% Transfers$382,498$605,08758.2% Total General Fund$1,359,359$1,540,32313.3%

32. 2012 GENERAL FUND BUDGET - EXPENSES

33. ADDITIONAL FACTS ON GENERAL FUND EXPENSES 23% -- General Administration accounts for 23% of the general fund expenses, down from 27% in 2011. 23% -- Public Safety accounts for 23% of the general fund expenses, down from 30% in 2011. 16% -- Public Works/Streets account for 16% of the general fund expenses, down from 19% in 2011. 6% -- Parks and Recreation account for 6% of the general fund expenses, down from 7% in 2011. 4% -- Percent of General Fund dollars that go to help pay off debt, same as in 2011

34. ADDITIONAL FACTS ON GENERAL FUND EXPENSES 27% -- Percent of General Fund Expenses that will go to help fund the Capital Improvement Fund, up from 12% in 2011. 28% -- of General Fund Expenses go to employee wages and benefits, down from 36% in 2011. 10% -- of General Fund Expenses go to pay for professional services (Attorney, Auditor, Building Inspector, Engineer, etc.), same as in 2011. $690 -- Amount the City will spend, per capita, for General Fund needs, up from $658 in 2011.

35. 2012 PROPOSED BUDGET SPECIAL FUNDS, CAPITAL FUND, AND ENTERPRISE FUND BUDGETS

36. PROPOSED SPECIAL FUND REVENUES Department20112012Increase Fire Fund$93,547$99,4776.3% Ambulance Fund$230,697$235,7022.2% Community Center$91,585$87,103-4.9% EDA Loan Fund$7,671$10,15132.3% Revolving Loan Fund$11,902$18,12752.3% Cemetery$8,591$6,157-28.3% Cemetery Perp. Fund$1,500$1,5000.0% Park Dedication Fund$460$60030.4% TIF District #2$5,000$0-100.0% TOTAL SPECIAL$450,953$458,8171.7%

37. ADDITIONAL FACTS ON SPECIAL FUND REVENUES TRANSFERS (TAX DOLLARS) FROM THE GENERAL FUND TO HELP SUPPORT THE SPECIAL FUNDS IS AT $130,500, A DECREASE OF $35,900 (22%) FROM 2011 28% -- PERCENT OF TAXPAYER $$$ THAT GO TO SUPPORT SPECIAL REVENUE FUNDS, DOWN FROM 37% in 2011 THE AMBULANCE AND FIRE DEPARTMENT HAVE INCREASED COVERAGE RATES FOR 2012. RENTAL RATES FOR THE COMMUNITY CENTER WERE INCREASED IN 2011, FULL IMPACT TO TAKE AFFECT IN 2012. TIF FUNDS WILL BE DECERTIFIED IN 2011, EXCESS FUNDS TO HELP SUPPORT THE CAPITAL IMPROVEMENT FUND

38. PROPOSED SPECIAL FUND EXPENSES Department20112012Increase Fire Fund$93,547$99,4776.3% Ambulance Fund$230,697$235,7022.2% Community Center$91,585$87,103-4.9% EDA Loan Fund$1,170$1,2789.2% Cemetery$8,591$6,157-28.3% TIF District #2$4,791$0-100.0% EDA Special Fund$0$3,000100.0% TOTAL SPECIAL$430,381$432,7170.5%

39. ADDITIONAL FACTS ON SPECIAL FUND EXPENSES 69% -- Percent of Fees and Charges collected that support the expenses of the Fire and Ambulance Department, up from 58% in 2011. 59% -- Percent of Fees and Charges collected that support the expenses of the Community Center and Cemetery, down from 64% in 2011. $264 -- When you combine the Special Fund Expenses of the Fire Department and Ambulance with the General Fund Public Safety Expenses, the City spends more per capita ($264) on public safety than any other function besides the Enterprise Funds.

40. CAPITAL PROJECT FUND 20112012Increase Budgeted Expenses$161,500$446,405176.4% Capital Needs$383,670$1,872,646388.1% PAYMENT METHOD 20112012Increase Cash Through Taxes:$119,500$420,705252.1% Cash Through Utilities:$47,000$209,000344.7% CIP Reserve:$0$22,700100.0% EDA Reserve:$0$3,000100.0% Sibley County:$44,778$112,241150.7% Federal Grant:$0$105,000100.0% City Issued Debt:$0$1,000,000100.0% Cash through taxes include $186,300 in Fund Closures

41. 2012 BUDGETED CAPITAL $$ Proposed Budget Comm. Center =$8,000 EDA =$13,000 Public Works =$261,500 Railroad Crossing =$126,855 Parks =$28,050 Police =$9,000 TOTAL =$446,405 Capital Expenses are the Single Biggest factor for a 2.2% tax levy increase

42. PROPOSED ENTERPRISE FUNDS Department20112012Increase Water Revenues$432,646$441,0281.9% Sewer Revenues$503,699$84,692-83.2% AG-I Revenues$0$491,364100.0% Electric Revenues$1,584,755$1,672,5105.5% TOTAL REVENUES$2,521,100$2,689,5946.7% Department20112012Increase Water Expenses$425,272$444,3484.5% Sewer Expenses$435,106$137,585-68.4% A-GI Expenses$0$404,606100.0% Electric Expenses$1,637,185$1,683,8702.9% TOTAL EXPENSES$2,497,563$2,670,4096.9%

43. ADDITIONAL FACTS ON THE ENTERPRISE FUNDS 5% -- Budgeted water user rate increase for 2012 $6.00 -- Budgeted monthly sewer base rate increase for 2012 (To help pay for the 2011-12 plant upgrade). This on top of a $5 increase in 2011. $18.27 -- Estimated total sewer base rate increase needed to eventually pay for the 2011-12 plant upgrade 7% -- Budgeted electric user rate increase for 2012 A-GI Fund -- 1 st Year of Fund. Created to track $$ better

44. WHY THE NEED FOR RATE INCREASES? SEWER FUND – To help pay for the 2011-2012 Plant Improvement Project WATER FUND – Fund has been in the negative 4 of the last 6 years. General Fund dollars (taxes) were used to balance the fund in 2009. ELECTRIC FUND – Fund has been in the negative the last 4 going on 5 years

45. 2012 PROPOSED BUDGET DEBT SERVICE FUNDS

46. DEBT SERVICE PAYMENTS Fund20112012Increase 2000 Imp. Bond$21,080$0-100.0% 2001 Imp. Bond$31,410$0-100.0% 2004 Imp. Bond$90,778$88,153-2.9% 2009 GO. Improv.$41,085$41,085 0.0% 2008 GO. Equip.$81,213$83,625 3.0% 2010 Fire Cert.$34,547$33,674-2.5% 2004 Pub. Proj.$59,873$63,433 5.9% TOTAL DEBT$359,686$309,070-14.1% Fund balances in the 2000 & 2001 Improvement Bond Fund will be transferred to the General Fund 2012 will be the first year that the City levies ($35,411) for principal payments for the 2009 GO Improvement Bond (Payment due in February of 2013)

47. FUTURE DEBT PAYMENTS

48. FUTURE DEBT LEVIES

49. OTHER DEBT SERVICE INFO $826,320 -- Total debt payments in 2012, up from $737,772 (12%) in 2011. $223,871 -- Dollar amount of property taxes that go to pay for City Debt, up from $209,006 (7%) in 2011 30% -- Percent of the total tax levy that goes to pay for city debt obligations, up from 28% last year. 15% -- Percent of all City Expenses that go to cover debt obligations, the same as last year THE REMAINING DEBT IS COVERED BY ASSESSMENTS, INTEREST EARNINGS AND/OR USER FEES (WATER/SEWER)

50. 2012 PROPOSED BUDGET IN CONCLUSION

51. 2012 PROPOSED BUDGET – ALL CITY FUNDS 20112012 % Increase GENERAL FUND$1,359,359$1,540,32313.3% SPECIAL FUNDS$430,381$432,717 0.5% ENTERPRISE FUNDS$2,497,563$2,670,409 6.9% DEBT SERVICE$359,986$309,970-13.9% CAPITAL IMP. FUND$161,500$446,405176.4% TOTAL BUDGET$4,808,789$5,401,57412.3%

52. 2012 BUDGET - ALL CITY EXPENSES

53. 2012 BUDGET - ALL CITY REVENUES

54. ADDITIONAL FACTS ON THE 2012 BUDGET Total Budgeted Revenues will increase by 12.8% in 2012 – Mainly due to Utility Rate Increases and Fund Balance Transfers Total Budgeted Expenses will increase by 12.3% in 2013 – Mainly due to an Increase in Capital Expenses and Debt in Utility Funds The City will spend $2,419 per person in 2012, up from $2,328 in 2011. Top 5 Per Capita Spending: 1) Enterprise Funds -- $1,196 2) Public Safety -- $264 3) Capital Projects -- $200 4) Administration -- $153 5) Debt Service -- $139

55. CITY CONCERNS Tax Base remains stagnate, property values falling Poor/Stagnate Economy What happens at the Federal/State Level? Good News! – State Projecting a $876 million Surplus! $255 million will be used to increase State cash flow $621 million will be used to increase reserves Means there shouldnt be any additional State Aid cuts in the near future Citys fiscal condition is currently healthy

56. LOCAL GOVT AID (2003-2012)

57. NEXT STEPS TONIGHT: Questions from Council Members Open Public Hearing and Receive Input Close Public Hearing or Continue FUTURE: MONDAY, DEC. 19: Continuation of Truth-in- Taxation Hearing (If Necessary) MONDAY, DEC 19 – DEC. 28: Authorize Final Budget and Tax Levy

58. Truth in Taxation Hearing Thank you for your Attention! December 5, 2011