Council digs into 2018 budget, levy

The Forest Lake City Council looked at proposed 2018 budget numbers and offered feedback on individual pieces and priorities during a workshop on Aug. 8. The meeting was the first of multiple meetings the council will have this month before setting a preliminary budget and levy, a number that cannot be increased for the rest of the budget process, in September.

The basics

The initial proposal for the 2018 levy, prepared with input from city staff and the city’s Finance Committee, calls for an overall levy increase from the approximately $9.48 million of this year’s levy to $9.94 million in 2018, an increase of about 4.88 percent or $460,000. However, even though the levy itself is going up, two important levy numbers are set to decrease under the proposed levy.
The first number set to decrease is the total general fund levy, which is going down because the city is moving its capital equipment replacement costs ($330,000 this year) to a separate levy. The move is part of the city’s process to transition to a pay-as-you-go system for its equipment and to provide a better picture of general city operations without replacement costs.

Though the levy could still rise until the preliminary number is approved next month, the initial proposal discussed by the council on Aug. 8 saw the general fund levy decrease from approximately $7.32 million this year to $7.18 million next year, a 1.9 percent decrease. The increased levy is due to increases in other levies, including economic development (a $50,000 increase signifying a more active Economic Development Authority committed to downtown revitalization) and the aforementioned capital equipment replacement. As has been the case for the last few years, the biggest single driver of the levy increase was an increase in debt service for the Forest Lake City Center, which will go up by $221,000 next year. However, in another piece of good news for taxpayers, 2018 is the last year of the “phasing in” of city center debt, meaning that the building’s debt service won’t go up again for the remainder of the bond.

The second number set to decrease is the city’s tax rate, which affects the level of city taxes on individual properties. The property values in Forest Lake rose in 2017 by $166.6 million, with $16.5 million of that due to new construction, which means that to raise the amount of money needed in the levy, a smaller percentage of market value needs to be taxed. Under the proposed levy, the tax rate would fall from 43.473 percent this year to 41.747 percent next year, a decrease of 3.97 percent.

A decrease in tax rate means that if a property maintained the same value from year to year, its city taxes would fall. However, property values are generally expected to rise, especially residential property, which means that most homes will likely see a tax increase while some businesses may see a small decrease. Assuming a 5.7 increase in residential property value (currently projected as the median in Forest Lake next year), an average value home in Forest Lake of $220,600 would be valued at $233,150 when taxed in 2018, resulting in a city tax of $905.48 under the current tax rate – an increase of $22.03 or 2.5 percent from the property’s 2017 city tax bill. By contrast, if a $500,000 commercial property rises in value by 3.6 percent, projected as the median increase for commercial properties, its taxes would fall about $10, or 0.3 percent, to $4,010.79.

Individual issues

The council asked questions about different city costs during and after a presentation from city staff. Generally, the four council members present (Ed Eigner was absent) took little issue with the overall budget and levy numbers.

“I don’t see a lot of changes,” Mayor Ben Winnick said after the overview.

While there were some individual costs some members had questions or statements about (for example, Councilman Michael Freer thought that some budgeted vehicle purchases could be deferred or forgone), the majority of council discussion centered around a few different policy questions. All were interested in potentially changing the city’s policy that the cost of paving a gravel road be 100 percent assessed to affected property owners, but they didn’t want the money for a potential city share of such projects to come out of the funds currently budgeted for street improvements. That topic will likely be discussed further as the budget process continues.

“You’re never going to get them fixed as cheap as you can right now,” Councilman Sam Husnik said of gravel roads.

Another topic that will likely receive more discussion is whether or not the city should hire a building/fire inspector. The city’s building permits have increased significantly in the last few years, and another inspector would help current building staff keep up with inspection needs. On the fire side, the fire department would get a day-time firefighter, an employee that would help schedule and manage firefighter training, and a return to fire inspections after the old fire inspector position was removed from the budget for 2015.

“That (inspection) knowledge helps to protect firefighters when they enter a building should there be a structure fire,” Fire Chief Alan Newman told the council.

The Forest Lake Fire Board wishes to continue to research the position before making a final recommendation to the council about whether to add it to the budget. Winnick said he would like to learn more about the specifics of the position, and Councilwoman Mara Bain expressed concern that lumping building inspection, fire inspection and fire training together might be too much for one position.

The council also discussed, and appeared to lean toward, replacing Forest Lake police K-9 officer Ranger in the 2018 budget. Though a K-9 replacement was not included in the initial budget, multiple council members stated that the program was a good one to keep around both for the safety and crime-fighting aids it provides human officers and the public relations it helps foster between the Police Department and the public. City Administrator Aaron Parrish informed the council that funding a K-9 officer is deceptively expensive, costing roughly $80,000 over a dog’s expected nine years of service time (more than half of that coming from overtime accrued for off-duty care for the dog), but Bain, Freer and Husnik said that the cost was worth it, either in this budget or an upcoming one. They also agreed that if the program was worth having the city should fund it itself and not depend on a community fundraiser, though they said they’d still accept donations if people felt led to give.

“I’m a big proponent of having the dog program, and I think that cost is well worth it,” Freer said.

Finally, the council discussed the possibility of adding an ongoing fund to the budget for maintenance of current buildings. Winnick proposed setting aside $100,000 to $200,000 annually to fund maintenance and repairs as they came up, and Freer said that if the city had been doing this in the past, he believed it could have held on to old buildings longer and wouldn’t have needed to burden the tax rolls with a large city center.

“We should have been doing this the entire time,” he said.

Freer and Parrish also briefly discussed the use of city reserves to fund one or more one-time projects to benefit the city City policy to keep reserve funds at about 50 percent of budget expenditures, and with current reserves sitting about 5 percent higher than that, Freer thought some funds could be used. However, Parrish said the initial plan was to use the money to pay off part of the deficit in the Headwaters Development Fund, which currently has a $900,000 deficit owed to the city’s sewer and water fund (most of it accrued when the city purchased the Forestland Nursery site and installed roads and utilities at the airport business park).

Freer said that he viewed transferring money to eliminate the deficit was shifting funds around and did little good for residents.

“I’m more in favor of using it for actual projects that will benefit the city itself,” he said.

However, Parrish said that the deficit needed to be paid off at some point and has been identified as an issue in city audits. After the meeting, he explained that the water and sewer funds may ultimately need to be paid back as important projects related to them come to pass (lift station repairs, for example), and he noted that unlike general fund expenditures, the sewer and water fund is paid for by a certain segment of Forest Lake residents with the expectation that their costs go back into serving their utility needs.

“A smaller subgroup of our population would be paying for these expenses that aren’t really related to their (utilities),” he said.

The council’s next meeting is scheduled for 6:30 p.m. Aug. 16. Another meeting may be held at 6:30 p.m. Aug. 23, subject to the council’s discretion.