Sean C. Morgan
While assessed values increased, real market values decreased in Sweet Home this year leading to less revenue for police and library services.
The City Council and Budget Committee met on Feb. 11 in a workshop previewing the budget process. Budget meetings begin on April 24.
City Manager Craig Martin and Finance Director Pat Gray outlined budget projections for the 2014-15 budget, which takes effect on July 1.
Beginning fund balances across all city departments are estimated to be $1 million lower in 2014-15 compared to 2012-13.
The beginning fund balances recognize cash that rolls over from one fiscal year to the next. State law requires cities to carry forward enough funds to provide cash flow during the first four months of the fiscal year to cover expenses until property owners pay property taxes.
The largest decrease in carryover will be in the Police Department levy, which will see a decrease from nearly $1 million in the beginning fund balance in 2012-13 to $563,000 in 2014-15.
Water funds also will see large decreases, about $400,000, as the city has spent down reserves over the past two years, which have had no rate increases.
Meanwhile, the city will need to transfer money from the General Fund in the upcoming 2014-15 budget to ensure the department has enough cash to operate in the beginning of the 2015-16 fiscal year, Gray said.
With dwindling revenues, the Police Department is projected to be in a $619,000 deficit by 2015-16 unless city officials take action, which can include spending cuts, slowing spending and transfers from other funds. The library was in a similar position, but the city has saved enough cash to cover the costs of the library through the end of 2015-16 when the police and library tax levies expire.
The city and its union employees have agreed to a new insurance plan that provides health savings accounts. The move offsets wage increases, helping hold costs down with a savings of more than $100,000.
But insurance rates are expected to increase by 7 percent in 2015.
While preparing the budget, officials are must keep in mind Linn County’s request for a 20-cent increase in the county law levy and the removal of the Edgewater resort and marina from the tax rolls.
“Next year’s going to be pretty tight with the law enforcement levy and that property coming off,” Gray said.
“These are some of the factors we need to look at when we’re looking at funding for the police and library,” Martin said.
Revenue from the construction of Bi-Mart won’t materialize until 2015-16, the final year of the police levy.
“We’re being very conservative because we anticipate property tax revenue to continue to decrease and costs of operating to increase,” Gray said. Staff members will look citywide for opportunities to reduce costs this year.
Tax revenue dwindles based on the interaction of real market values and assessed values. The effect is called “compression” and results from property tax limitations introduced in 1990 and the creation of two types of value assessments in tax limitation measures in the mid 1990s.
When real market value falls, revenue falls even while assessed value rises. Property taxes are limited to $10 per $1,000 of real market valuation for general government and $5 for education agencies.
For example, the combined tax rate may be $18 per $1,000 of assessed value. On a $100,000 home, the tax would be $1,800. That amount is compared to the real market value. At $150,000 real market value, the tax bill would be limited to $1,500 for general government. If the assessed value increased to $110,000, the tax assessment would be $1,980, but if the real market value declined to $120,000, the tax bill would be limited to $1,200.
When this occurs in school district taxes, the difference is offset by income tax in the state’s school fund.
In 2013-14 in Sweet Home, overall real market values fell $5.8 million to $440.5 million while assessed values increased $4.9 million to $383.8 million.
In other business, the council:
n Appointed Steve Young to the All-Hazard Mitigation Committee and Aaron Pye to the Charter Review Committee.