City Sets Levy of Less Than 1 percent

The Minnetonka City Council approved a maximum tax levy of $30.55 million on Monday, an increase of 0.9 percent over 2011.

Recent legislative changes to the state’s market value homestead credit (MVHC) program will significantly impact 2012 property tax levies throughout the state, said City Manager John Gunyou. Hennepin County set a maximum levy of 1 percent on Tuesday.

The former system used a property tax credit based upon home value, and when the state did not fund the program in selected cities for seven of the last 10 years, the city of Minnetonka was required to raise taxes on all properties to make up the difference.

The new homestead market value exclusion program makes adjustments within the tax formulas to provide the same tax relief, and takes cities out of the middle, Gunyou said. As a result, a one-time adjustment in Minnetonka’s levy is possible, since those cities that previously lost state funding no longer need to levy to make up the state’s shortfall.

“There’s a benefit that occurs to our taxpayers in the levy that will take place in 2012,” he said. “In a study session with the council we talked about spreading that over two years. Rather than freeze taxes for the year and then have a major increase the next year to stay on this long-term growth pattern, we have a minor increase in 2012 and a smaller increase in 2013.”

This will result in a 0.9 percent levy increase for 2012, followed by a 2.1 percent increase in 2013. This year's levy was $30.26 million.

“We’re not aware that any other city is doing this, but we think it provides a better long-term benefit,” he said.

The median-valued Minnetonka home—$287,300 in 2011—qualifies for the new HMVE  program. Staff estimates a home with that value would likely only experience a 0.4 percent city tax increase.

Homes valued higher than $414,000 and commercial properties will likely see higher tax increases as a result of the new state formulas, especially related to school and county levy adjustments.  

Gunyou said previous planning on the city’s part is helping to hold down the levy as well. In 2009, the city of Minnetonka enacted in a long-term budget strategy designed to restructure the way city services are provided. The permanent budget restructuring continues to save more than $1 million every year, he said.

“The city did some proactive things two and a half years ago when we made some pretty major repositioning changes to bring balance into the budget long term, not just for a year or two,” Gunyou said. “At the same time, we sustain those core services that our citizens rely on.”

Decisions made in 2009 involved new ways of doing business: cooperative service agreements, productivity investments that help deliver core services more efficiently and reorganizations of the city. The city’s work force was permanently reduced by 6 percent, and employment contracts limit future wage increases to 1 percent annually, with an allowance for market adjustments, when warranted, to remain competitive.