It’s unanimous. We’ve got a new budget.
That’s what happened last Tuesday night at the City Council’s final Council meeting of the year. On a unanimous vote of 5-0, the City Council approved the proposed City budget for 2007. Here’s a link to a short story in the Eden Prairie news about the vote and the budget. The unanimous vote of approval is significant. We haven’t had a unanimous budget vote since December 2002. For staff, it is a sign of support and unity from the Council for the direction of the City. That doesn’t mean carte blanche support by any means, but it is a statement. And in the political world, statements and votes are everything.
The City’s tax levy, which is term we use to describe the level of taxation we spread among our taxpayers, will go up 7.6% in 2007. The City’s five year average annual increase in the tax levy has been 4.1%. The total budgeted spending in 2007 will increase by 6.2% to $39,261,313. The City’s five year average annual spending increase is 4.3%. You might be asking why the City would raise its tax asking by 7.6% if spending is increasing by 6.2%. This apparent disconnection shows that we are expecting non-property tax revenues to decrease in 2007, which means that we will need to fill that gap with a higher reliance on property taxes.
Our general operations budget for 2007 will increase 5.7%. Our five year annual average increase is 5.1%. This budget excludes our debt service and capital improvements budget. Our capital spending is anticipated to increase in 2007 as we plan and execute a number of the projects approved by citizens in the 2005 Parks & Recreation Bond Referendum. Our debt service payments are budgeted to increase 14.5% in 2007. Our five year average annual increase in debt service has been 3.6%. The increase in debt payments reflects the fact that we are starting to make payments on the 2005 park bonds.
Property values in Eden Prairie increased for all classifications of property in 2006. Values increased for commercial and apartment properties more than they increased for residential properties. The ratio of value increases among these three main classifications of property changes each year. When I started working in Eden Prairie in 2002, the commercial property market was in the dumps and values were stuck or actually decreasing. That has turned around during these past two years. Commercial property in Eden Prairie is hot again. Residential property isn’t doing too bad either, but it’s not as hot as commercial.
All of this means that the property tax burden for 2007 has shifted a bit from residential to commercial and apartment properties. Even though our tax levy is increasing by 7.6%, the impact of that levy increase on the median valued residential property will be to increase its 2007 City property taxes by 3.4%. For the median valued commercial property, however, the 7.6% levy increase translates into a 12.7% property tax increase in 2007. For apartment properties, it translates into a 9.5% tax increase. The differential impact of how tax burden is spread among taxpayers is what we call property tax impact.
The property taxation scheme in Minnesota is complicated to explain. The property tax impact is where the rubber meets the road in the property tax world. It is the confluence of the matrix of local spending, local property values, and state property tax policy. The City Council controls local spending. The natural forces of the real estate market determine local property values. The State Legislature controls the property tax rules for local governments. There are many people involved in the property tax process, which dilutes everyone’s individual accountability, unfortunately.
But we’ve got a budget for 2007. That means it’s time to start working on the next one.
