What's behind county's tax hike?



Whenever Winona County leaders talk about their financial challenges, the community services department is often the main focus. The $15-million-a-year department makes up nearly 28 percent of the county’s budget and includes everything from welfare programs to public health. The department is full of unfunded or underfunded state mandates for services such as child protection and sex offender treatment, and in 2018, the county plans to spend $4.8 million in local property taxes on community services. Lately, county leaders have been pressuring the state government to fund social services programs or take over responsibility for them. “The only reason we raised taxes this year was to fund unfunded mandates in the community services area,” Winona County Board member Jim Pomeroy told local legislators last month.

However, other departments account for the vast majority of the county’s year-over-year spending increases in 2018, and the cost of law enforcement may be more responsible for 2018’s tax hike than community services.

While the county is forecasting a $392,000 uptick in social services spending — one area of the community services department — savings, cuts, and increased revenues in other areas of the department are expected to make up for much of that increase. According to the 2018 budget, the community services department needed an extra $150,000 in local property taxes to balance its budget this year.

That puts the community services department in second place among Winona County departments with the largest increases in net spending (expenditures minus revenues) in the 2018 budget, after the sheriff’s office’s $220,000 uptick. The jail, personnel (human resources) department, and county attorney’s office are a close third, fourth, and fifth, with net increases of $141,000, $128,000, and $115,000 respectively. Taken together, the increased net spending on the sheriff’s office, jail, and law enforcement center add up to $442,000.

In percentage terms, the community services department’s $150,000 uptick in net spending represents a three-percent increase in the department’s reliance on local tax dollars. The 2018 budget calls for the sheriff’s office’s net spending to grow by 11 percent and for the personnel department’s net spending to grow by 21 percent.

Winona County Administrator Ken Fritz said that while spending is going up in other departments, too, the county’s focus on community services makes sense. The community services department’s year-over-year increase from 2017 to 2018 might not be dramatic, but that is because the county was already devoting millions of local tax dollars to state-mandated community services programs, Fritz said.

Referring to Pomeroy’s statement to the legislators, Fritz added, “He’s not saying there were no other increases in the budget in 2018. What he’s saying is that if we didn’t have the unfunded mandates, we would be able to handle those normal increases.” Fritz added, “If the state fully funded their programs, would we have to increase taxes? No, we could decrease taxes.”

Furthermore, Fritz said the focus on community services makes sense because it is something that is within the legislature’s power to change. “When you look at our budget, one of the things you have to consider is 43 percent of our budget is personnel costs,” Fritz said. Across departments, salaries and benefits make up a big share of the county’s increased costs every year. Fritz said that because of the way public sector labor laws are set up in Minnesota, the county is more or less obligated to give incremental raises each year. “Forty-three percent of your budget is going to increase, most likely, based on the current rules and the way the system is, and you have no control about it,” he stated. “You have to have deputies, and you have to have a dispatch center. They’re not things that you can not do,” Fritz added.

Budget overruns are the norm, affect reserves

While, on paper, the community services department only accounts for less than one percentage point of the county’s 5.5 percent tax hike in 2018, there is a reason to take that seemingly modest impact with a grain of salt.

Every year since 2012, the community services department has run significantly over-budget. In 2017, the department ran over-budget and ended the year with a cash flow of -$381,000. In 2016, the department ran over-budget and ended the year with a cash flow of -$468,000. The county has had to use its reserve funds to make up for those overruns.

If 2018 is like every year in recent history, the community services department’s impact on the county’s actual cash flow at the end of the year will be worse than the 2018 budget forecasts. Although, if the county saves money in other departments it could make up for an overrun in community services, Fritz pointed out. If there is another overrun, it would not increase taxes, but it would reduce the county’s reserves.

A few years ago, the County Board set a target level for how much money the county would keep in its reserve funds: five months’ worth of operating expenses. However, to avoid an even higher tax increase this year, the County Board agreed to spend some of the county’s reserves and drop below that level. Fritz has said that county reserves are still healthy, that keeping five months’ worth of reserves on hand is actually very conservative, and the county can safely operate with a smaller rainy-day fund.

Will growth balance out tax hikes?

Like everything else, taxes go up, Winona County Assessor Steve Hacken said. The ideal situation for local governments that depend on property-tax revenue is to have a growing tax base. If communities are growing and there is more wealth to tax, then governments can raise taxes without charging the same cash-strapped citizens more every year.

So how is Winona County’s tax base doing? “It’s not terribly great,” Hacken said. “Farmland hasn’t changed probably in three years, and that’s a big part of our tax base. Big commercial [properties], they’re all suing us. Houses — they’re all going up, but we’re not having a lot of new construction.”

The county’s total tax capacity is projected to increase by about $3 million in 2018, from $44.5 million to $47.4 million, Hacken said. That is an increase of about 6.5 percent. It does not compare to Rochester, but Hacken said, “There’s a lot of counties that are doing worse than that.”

Hacken stated that the apartment market is one sector that is doing well, while the home market has a problem. Few new homes are being built, and most of the increases in home property value seem to be driven by a tight home-buying market, Hacken observed. More new construction would help spread the tax burden. “The advantage to new construction is it doesn’t take increases in property values to create more tax base because those new properties are creating it. Whereas, I think most of our increases [in residential property values] are just inflation in the real estate market,” he stated.



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