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Cottage Grove budget plan to be reviewed after state tax changes; 9% levy proposal nixed

An eleventh-hour tax deal reached by state lawmakers nullifies Cottage Grove's proposed 9 percent levy increase for next year and forces city officials to re-evaluate their initial 2014 budget.

After four years of essentially flat property tax levies, a preliminary budget proposed the staggering levy hike as part of a $14.6 million draft general fund budget for the 2014 fiscal year.

The city proposal calls for a total levy increase from this year's $12.24 million levy to $13.35 million. However, after lawmakers approved the tax bill in the final hours of the legislative session, the city's finance director said Cottage Grove must rework its budget proposal.

"We've been in tougher straits than this but I think we're well positioned to move forward," Robin Roland said. "There are a few things that we can do within the scope of the Legislature. We're not going to know the real ramifications of the tax bill until about two to three weeks from now when all the important parties at the Legislature sit down and look at what they actually passed."

Part of the tax package approved by Gov. Mark Dayton includes a 3 percent cap on local property tax levy increases for next year. The levy restraint eliminates the possibility for Cottage Grove to implement the proposed 9 percent hike.

"(The tax bill) certainly cuts back on the ambition of our plans," Roland said. "We will work on keeping our expenses within the limits the state has identified."

During preliminary budget discussions, some City Council members expressed concern for the significant levy increase. Council member Justin Olsen called it a scare tactic.

"We have had three years of flat levies and operating expenses have been even flatter," City Administrator Ryan Schroeder said during the recent workshop. "We can't do that forever and things have to start changing or we are going to end up starving the operation."

Last fall, council members rejected a proposed small levy increase and directed staff to prepare a budget that kept the property tax levy flat.

"It was a political decision to not increase the levy because times were tough and people's property values were falling," Roland said.

Mayor Myron Bailey denied that the decision to vote against a city levy increase last year was politically motivated, saying he wanted to keep the budget tight.

"Staff recommended during the previous discussions (last year) to boost (the tax levy) up a bit," Bailey admitted in an interview. "But, I'll say that every time that subject came up we said 'no,' knowing that at some point that we would have to bump it up."

During budget discussions last year, the council voted 4-1 to maintain the low tax levy, with council member Derrick Lehrke casting the dissenting vote.

The 9 percent proposed 2014 levy would have helped to provide a roughly $700,000 increase in the city's general fund, pay for debt service on pavement management projects and address a perennial budget shortfall at the municipal River Oaks Golf Course, a plan still on schedule.

"The general information about the bill requires debt payments be outside the levy limits," Roland said, meaning the roughly $320,000 anticipated for debt service on pavement management projects will still go forward as planned.

The city is now capped at a 3 percent levy increase next year, but another provision in the tax bill exempts cities and counties from paying sales tax on their purchases.

"The extra money from the sales tax (exemption) will help us in the general fund and will save us about $90,000 to $100,000 a year," Roland explained. "At this point, I've talked to Ryan (Schroeder) and we are crafting the expense budget and will put it through a few scenarios to see what we are able to fund and what we aren't."

Roland said she was not ready to unveil a modified levy proposal yet. That will be dependent on what the budgets look like for each city department. Those must be submitted by June 20.

"As far as I'm concerned, we have lots of time to make this work and I'm certain we will have different options that we'll look at," Roland added.