Staff Outlines Property Tax Levy Cycle; Tentative 3.5'4% Range Recommended for Discussion

City staff presented an overview of the property tax levy process, pension funding pressures and a tentative levy range of about 3.5 to 4 percent at the Government Operations Committee meeting.

The presentation matters because property taxes account for roughly one-quarter of the city's revenues and pension funding increases have been absorbing a larger share of the levy, reducing amounts available for core services, staff said.

"Property taxes are almost 25% of all city revenues and are an important revenue source funding critical services to the community," Staff member Bill Hanna said. He told the committee the city must adopt an official levy estimate in October, approve the official estimate at the Nov. 3 City Council meeting and adopt the tax levy ordinance on Dec. 1; the city must file an official estimate at least 20 days before approving a levy ordinance, staff said.

Hanna reviewed recent levy history and figures: the 2024 tax rate was 0.7343, an 11 percent decrease from 2023; last year's approved tax levy total was $14,865,000; the pension component of the levy has risen to about $7,500,000, leaving less available for general operational support. Hanna said the taxable equalized assessed value (EAV) used in the example was just over $2 billion and illustrated that the city portion of taxes on a $300,000 fair-market-value home in the example was about $690.

Hanna used examples to illustrate how new construction can expand the EAV base and enable the city to increase the levy without raising the tax rate, but he emphasized that the city must proactively adopt a higher levy to realize that revenue: "If we have a new residential subdivision with 500 homes, we don't receive any benefit of that if the city is not levying and increasing the tax levy to take into account that that new EAV has been added."

Hanna also showed a multi-year illustration: if the city adopted a 0 percent levy change compared with a 3 percent annual increase, the city could forgo roughly $445,000 in 2025 and about $2.4 million across five years, all else being equal.

Staff said actuarial valuations for police and fire pensions arrived in July and that required pension levy components will be included in the upcoming levy regardless of other components. Hanna said staff will present a formal recommendation for next year's levy at the Oct. 20 Government Operations Committee meeting; the tentative recommendation range is around 3.5 to 4 percent.

Committee members asked for additional context and comparative information. Committee member Vicki asked whether the city could compare the levy request to peer towns; Hanna said it was early in the process and he had no firm peer comparisons at that time. Committee members asked staff to provide more budget detail before the Oct. 20 meeting, including likely uses for levy increases (for example, pensions versus general operations), anticipated structural or multi-year impacts and specific infrastructure or staffing needs that would be supported by a levy increase.

Several members also asked staff to explore alternative revenue sources. One public commenter, Steve Leffler, suggested a $5 per-tire user fee as a potential revenue source, noting the town's many tire retailers; Leffler called the idea "a home rule" option that could raise revenue from nonresidents.

A committee member asked whether state-shared income tax (local government distribution) amounts have changed; staff said LGDF collections have been "largely coming in as expected" and that the city continues to participate in regional requests for increased state distributions.

No formal levy vote was taken at the meeting; staff will return with a formal recommendation and additional budget detail on Oct. 20.