Council Agrees to Preliminary $260,350 Tax Levy Increase

Last month, the Inver Grove Heights City Council was pushing for no increase to the city’s 2012 tax levy rate—a move that would have resulted in nearly $292,000 in budget cuts.

But now a complicated state program that may reduce the city’s tax base and 2012 tax revenue has local officials on the defensive—and considering a tax rate increase.

On Monday night, the council voted unanimously to set the city’s preliminary 2012 tax levy at $15,736,146, a $260,350 increase over the $15,475,796 levied in 2011. The proposed increase is the direct result of the state’s new Market Value Homestead Exclusion program, according to City Administrator Joe Lynch, who spoke at a council work session prior to the meeting.

The program, which replaced the state’s Market Value Homestead Credit initiative, exempts a portion of certain homestead properties from taxation—effectively shrinking the city’s tax base. The net tax capacity loss for Inver Grove may be as much as $1.9 million and could result in a tax revenue loss of as much as $860,000, according to Lynch, who cited statements from the League of Minnesota Cities. City officials won’t now how large the actual net tax capacity decrease will be until later this year, when they receive projections from Dakota County.

To compensate for the potential loss of tax revenue—and to hedge against the uncertainty that the homestead exclusion brings to the budgeting process—councilors reluctantly agreed to a preliminary tax levy increase. The council can still reduce the levy amount before the final 2012 tax levy is passed at a budget meeting scheduled for Dec. 12.

“As we’ve all said, it is imperative to be able to look at [the preliminary levy amount] as the max. We cannot go any higher than that. We can go down, and we’re waiting on further information,” Mayor George Tourville said at the meeting. “Hopefully we can come in a lot less than that.”

The preliminary tax levy amount, if passed in December, would mean the owner of an Inver Grove Heights home valued at $251,500 would see an increase of $25.66 in their taxes for 2012, compared to their 2011 amount. A business owner with property valued at $583,200 in 2012 would experience an increase of $162.34 in their taxes over the amount they paid in 2011, while a business owner with property valued at $3,080,800 in 2012 would see an increase of $905.44 in their taxes over the amount they paid last year.