Mankato city budget, tax hike adopted

Dec. 6—MANKATO — Four residents is something less than a groundswell in a city of 44,488, but the number of speakers Monday night was large by historic standards for Mankato's annual budget hearing.

The public's chance to speak followed a summary of the city's planned 2023 operating budget and the property taxes and fees necessary to finance it. Municipal property taxes totaling just over $23 million will be collected in 2023 under a tax levy approved by the City Council at the end of the public hearing — 8.1% more than this year.

An 8.1% increase probably wouldn't have been enough to attract even four concerned citizens if that reflected the actual impact on the tax bills of individual homeowners. In reality, the hit is much heavier because the taxable value of homes has skyrocketed, based on the inflated sales prices in the housing market in recent years. And that has shifted the tax burden away from commercial and industrial property and onto residential real estate.

The average value of a home in Mankato has risen to $273,000, and that home's municipal tax bill — not counting the amount paid to Blue Earth County and Mankato Area Public schools — will be $1,090 in 2023. The $226 increase over 2022 equates to 26%.

"Those sorts of increases can't be sustainable," said a Bradley Street resident who identified himself only as Russell. "... We're going to have to start thinking about what sort of services or operational expenses we're going to have to cut."

Cy Denn, a retired financial adviser, said he wouldn't be able to afford the property taxes on top of other increases in living expenses without the property tax breaks that come with his status as a disabled veteran.

"It don't balance out when you look at the 8.5% raise I'm going to get from my Social Security," Denn, 75, told the City Council.

The impact on homeowners would have been larger without efforts by the council and city administration to trim the levy even while dealing with significant inflationary pressures on city finances.

The budget initially proposed by City Manager Susan Arntz and Administrative Services Director Parker Skophammer in August would have raised the overall property tax collections by 14% — something that would have left that average home paying 33% more. Through the fall, the levy was pushed lower while still maintaining core services and budget strategies that Arntz and Skophammer considered critical to maintaining long-term stability in the city's finances.

The 2023 tax levy was trimmed from $24.6 million to $23.025, primarily by postponing a $350,000 expenditure to replace an aging playground at Thomas Park and by plugging $860,000 in one-time federal COVID relief money into the city's general fund.

The final budget anticipates another significant increase in the municipal levy in 2024 — 6.23% — before the levy increases are projected to decline to less than 4% in 2025 and 2026. The size of the future projected increases are based in part on the city's goal of maintaining adequate reserves in the general fund — the part of the budget that consumes most of the property taxes and provides high-profile services such as police and fire protection, street maintenance, snow plowing, parks and city administration. Maintaining adequate reserves has helped Mankato earn a AA bond rating and also allows it to comfortably cash-flow city operations in the months between semi-annual payments of property taxes and state aid.

The budget also largely achieves the city's goal of setting aside adequate money for future expenses such as major repairs to municipal buildings and parks and replacing high-cost equipment. Failing to do that would force Mankato to borrow more money in the future whenever big-ticket items come due, according to Skophammer.

"This is something we've worked on for several years," Skophammer said. "We're trying to avoid large swings in debt."

And the approved budget maintains core services despite the impact of the highest inflation in four decades, which pushed vehicle operations expenses up more than 38%, the price of supplies up 30% and personnel costs up 6.9%.

Overall, the general fund will increase from $30.9 million this year to just under $33.2 million.

Skophammer, who handled Monday's budget presentation, showed a slide comparing Mankato's tax rate with those in North Mankato and in Minnesota's regional centers of Duluth, Moorhead, St. Cloud and Rochester. Only Duluth, which receives substantially more state aid than Mankato and has special legislative authority to use sales taxes to finance its general fund, has a lower rate.

The result appeared to be satisfactory to owners of commercial and industrial property and apartments in Mankato. An average commercial/industrial property valued at $918,000 will see municipal taxes drop by $169 in 2023 to $7,364. A Mankato apartment building with an average taxable value rising to $1.58 million will pay $8,265 in municipal property taxes in 2023 — a nearly 10% increase but still much lower than the hike facing homeowners.

No owners of those property types spoke Monday night.

When other municipal operations are included — such as street construction and other building projects; the transit system; water, sewer and other utilities; and sales-tax-funded enterprises such as the civic center — the total 2023 operating budget will be $148.95 million.

Along with tax increases, the larger budget will be supported with fees, including a few set to rise next year. Most significant will be a bump of $41 in annual water and sewer costs to $1,081 for 2023 for the average Mankato home.

Unlike three residents who were newcomers to annual budget hearings, the fourth speaker had been to at least eight. Former two-term Mayor Eric Anderson told the council he expects even more difficult budgets to come and asked them to begin preparing.

Housing values might drop by 2024, which could shift the tax burden back toward other properties. But with a recession likely, the council might also be dealing with a declining tax base, said Anderson, who encouraged the council to schedule a budget retreat now to begin planning for spending cuts that might be required.

"I think this would be more in anticipation if the Fed is unable to (guide the economy to a) soft land," Anderson said.

Council member Karen Foreman, attending her last meeting after 12 years on the council, made the motions to pass the proposed tax levy, the operating budget, the fee schedule and a five-year construction plan. Other council members took turns seconding Foreman's motions, and all four budget items passed unanimously.