GF mayor and council differ on tax cuts
The Grand Forks City Council gets it's first crack at the mayor's proposed 2007 budget today at 5 p.m. at City Hall.
I'm betting there's going to be a lot of discussion about the property tax rate cut. The council earlier said it wants a 6.5 mill cut. Finance director John Schmisek is recommending only 4.18.
I've reported on this before.
As in the past, the main difference between the two sides is the council's desire to trim the mill levees set aside for the dikes. Council members figure that, with higher property values and more taxes collected, the city can cut the tax rate and still pay the debt in the same amount of time.
Schmisek wants to keep the money and pay off the dikes sooner, saving on the interest.
I once compared it to paying the minimum payment on your credit card (the council's approach) and paying off as much as you can afford to pay (Schmisek's approach). Both approaches have their merits. What do you guys think?
Update 12:18 p.m., 8/3/06: Man, I suck. Sorry readers, I forgot to give you an update on what happened at the budget discussion yesterday. Actually, practically nothing.
The meeting was scheduled two hours before the Planning and Zoning Commission meeting and one hour was taken up by Schmisek's presentation. Two council members were absent. Council President Hal Gershman was on vacation and Council member Mike McNamara, well, given the time difference, I'm guessing he was still on duty at the time. So there were hints of the big debate to come but little in the way of debate.
Here's a couple of nuggets I came away with:
* There appears to be less resistance to the mayor's refusal to trim the dike mill levees. Council member Doug Christensen, for example, said he wasn't going to fight the mayor on this issue. Both he and Council member Curt Kreun acknowledged the differences with the mayor were merely philosophical.
* Schmisek gave another reason for paying off the dikes early: It'll make it easier for the city to get a better credit rating from Moody's Investors Service. The city's debt load is just a little too high so it's still at Aa3. Schmisek said credit analysts told him bringing the debt down could help get the city Aa2.
Moody's is pretty much the most trusted name in credit ratings and is known for giving entire countries credit ratings. "Issuers or issues rated Aa demonstrate very strong creditworthiness relative to other US municipal or tax-exempt issuers or issues," according to Moody's. Aa3 is on the low end of that ranking with Aa1 at the top. The best ranking is one level up at Aaa.
For you Alerus Center haters, Schmisek also said the other significant debt load the city carries is the Alerus Center debt. We're paying that off with the 3/4-cent sales tax.
* Council member Art Bakken said he was a little disturbed by the $7.4 million the city was pulling out of reserves. I asked Schmisek later if it would be fair, then, to call it a deficit budget. He said it's not quite like that because there is revenue that the city got in other years that it saved for this spending.
Other spending, such as economic development, is, as a matter of caution, maxed out even though it's inconceivable the economic development fund would be drained. Hypothetically, if a really, really, really great business came along and needed an incentive, the city might do that.
What counts, Schmisek said, is that reserve levels stay within a certain range. I'll admit that I haven't had time to check into this because there are multiple funds and reserve levels vary. The utility fund reserves, for example, is 25 percent of the utility budget. The general fund reserves is 15 percent of budget.
* Christensen is having heartburn over the $6.5 million the mayor wants to spend to build a police and firefighter training center and a mosquito control chemical storage facility. It's a needs versus want thing, he said.
* Remember that resolution the council passed asking the other local taxing entities -- the School and Park Districts and the county -- to match the city's mill levee cut?
Basically, the council wanted the other entities to "consider" a quarter mill cut for every 1 percent of all property tax levies that they now collect. For example, the city collects 24 percent, so it would cut at least 6 mills.
The other entities' response: Yeah, right. The city is the only one with a truly diverse revenue source. It's the only one that collects sales tax, a tax most people never complain about.
Anyway, if the city only makes a 4.18 mill cut, that pretty much makes a mockery of the resolution.
I'm betting there's going to be a lot of discussion about the property tax rate cut. The council earlier said it wants a 6.5 mill cut. Finance director John Schmisek is recommending only 4.18.
I've reported on this before.
As in the past, the main difference between the two sides is the council's desire to trim the mill levees set aside for the dikes. Council members figure that, with higher property values and more taxes collected, the city can cut the tax rate and still pay the debt in the same amount of time.
Schmisek wants to keep the money and pay off the dikes sooner, saving on the interest.
I once compared it to paying the minimum payment on your credit card (the council's approach) and paying off as much as you can afford to pay (Schmisek's approach). Both approaches have their merits. What do you guys think?
Update 12:18 p.m., 8/3/06: Man, I suck. Sorry readers, I forgot to give you an update on what happened at the budget discussion yesterday. Actually, practically nothing.
The meeting was scheduled two hours before the Planning and Zoning Commission meeting and one hour was taken up by Schmisek's presentation. Two council members were absent. Council President Hal Gershman was on vacation and Council member Mike McNamara, well, given the time difference, I'm guessing he was still on duty at the time. So there were hints of the big debate to come but little in the way of debate.
Here's a couple of nuggets I came away with:
* There appears to be less resistance to the mayor's refusal to trim the dike mill levees. Council member Doug Christensen, for example, said he wasn't going to fight the mayor on this issue. Both he and Council member Curt Kreun acknowledged the differences with the mayor were merely philosophical.
* Schmisek gave another reason for paying off the dikes early: It'll make it easier for the city to get a better credit rating from Moody's Investors Service. The city's debt load is just a little too high so it's still at Aa3. Schmisek said credit analysts told him bringing the debt down could help get the city Aa2.
Moody's is pretty much the most trusted name in credit ratings and is known for giving entire countries credit ratings. "Issuers or issues rated Aa demonstrate very strong creditworthiness relative to other US municipal or tax-exempt issuers or issues," according to Moody's. Aa3 is on the low end of that ranking with Aa1 at the top. The best ranking is one level up at Aaa.
For you Alerus Center haters, Schmisek also said the other significant debt load the city carries is the Alerus Center debt. We're paying that off with the 3/4-cent sales tax.
* Council member Art Bakken said he was a little disturbed by the $7.4 million the city was pulling out of reserves. I asked Schmisek later if it would be fair, then, to call it a deficit budget. He said it's not quite like that because there is revenue that the city got in other years that it saved for this spending.
Other spending, such as economic development, is, as a matter of caution, maxed out even though it's inconceivable the economic development fund would be drained. Hypothetically, if a really, really, really great business came along and needed an incentive, the city might do that.
What counts, Schmisek said, is that reserve levels stay within a certain range. I'll admit that I haven't had time to check into this because there are multiple funds and reserve levels vary. The utility fund reserves, for example, is 25 percent of the utility budget. The general fund reserves is 15 percent of budget.
* Christensen is having heartburn over the $6.5 million the mayor wants to spend to build a police and firefighter training center and a mosquito control chemical storage facility. It's a needs versus want thing, he said.
* Remember that resolution the council passed asking the other local taxing entities -- the School and Park Districts and the county -- to match the city's mill levee cut?
Basically, the council wanted the other entities to "consider" a quarter mill cut for every 1 percent of all property tax levies that they now collect. For example, the city collects 24 percent, so it would cut at least 6 mills.
The other entities' response: Yeah, right. The city is the only one with a truly diverse revenue source. It's the only one that collects sales tax, a tax most people never complain about.
Anyway, if the city only makes a 4.18 mill cut, that pretty much makes a mockery of the resolution.
posted by Tu-Uyen at 9:52 PM
9 Comments:
I'm normally a staunch advocate of tax cuts as I think that Americans are wildly over taxed at every level of government, but the idea of the city paying of debt early to save on interest is a good one. Good enough reason to hold off on tax cuts until the debt is paid.
I would hope, though, that once the debt is paid the excess tax being levied would then be cut.
Why can't the dikes be paid off sooner and make up for the tax cut elsewhere.
How did it become dike payoff vs. tax cuts. It seems that the beurocrats and politicians have framed the discussion in a very narow fashion.
Oversimplified or "red herringed"?
John Schmisek said the mayor directed him to put together a "service neutral" budget, meaning no services will be cut. In the past, the way to do this has been to hold back on equipment replacement and I think the consensus maybe that the city can't keep doing that. That suggests the city might have made deeper cuts than it really should have, given the goal of keeping services the same. That doesn't leave a lot of wiggle room for major cuts this time around.
There is more wiggle room, though, in the dike funds because it hasn't been tapped for anything other than the dikes. With tax rates being the same, the fund will be collecting more money than is necessary to pay off the dikes on schedule.
By the way, when we talk about "services" we're not talking about things like leaf pickup or recycling. The cost of those services are trivial next to the cost of police and fire services, which eat up a significant chunk of the budget. I don't think the mayor's in a hurry to trim police and fire.
"I don't think the mayor's in a hurry to trim police and fire."
I would hope not. These are two of the relatively few legitimate services a municipality should offer its citizens. Many of the other "services" are simply conveniences or placating the wants of various interests.
Recycling is done by the private sector: Waste Management. The city contracts with WM for the service. Recycling is one way to extend the life of the landfill.
Dave, I guess before we say either way we should look at which option saves the city, and thus the taxpayers, more money.
If keeping the taxes at the level they're at allows them to save more interest than what they'd lose if the taxes were cut then I think you gotta keep the taxes high.
And vice versa.
The key is to try and determine just how much a cut in property taxes will increase tax revenue in other areas. Since that's relatively unknown, and since a cut in property taxes isn't likely to pay for itself (though it will stimulate the economy) I think you gotta pay the bill on the dikes first.
It seems to me that a good rule of thumb is to pay more on the principal than you have to and thereby avoid interest--something that is an extra cost. Anytime you can do that you are practicing good money management, if you can swing it.
I thought the discussion was not a dichotomy (cut taxes vs. pay off dikes) but merely a question of how much to cut the taxes, and that the lower cut would allow the resulting higher income to pay off the dikes early. I like the idea of paying off the dikes early and then property owners won't keep getting big dike assessment bills every few years (or are the property owners done paying their share?).
Recycling and garbage come as a package because recycling reduces the amount of garbage going into a rapidly shrinking landfill. I don't see what difference it makes if WM contracts with individuals or with the city, solid waste disposal is still going to be necessary. The city, with the economy of scale it brings to the table, can probably negotiate a better contract.
The dike is paid by locals in two ways:
1. Each property has been special assessed
2. A specific number of mills in the budget go directly to payment of bonds that financed construction.
Obviously, as property values have increased the #2 has generated more funds for the same number of mills.
The city has actually done a pretty good job keeping it's budget in check. ec99 can whine about "placating interests" but when you look at the percentage of the budget covered by police, fire, and you could probably argue streets, sewer and water systems, and health and building inspections (self funded) you're looking at dollars a VAST majority of citizens are willing to spend. EC may sound smart an placate his emotions with that sort of speech, but he's doing little more than pissing into the wind.
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