Budget: Real estate tax rate will likely go to 60 cents (for now)

After a two-hour budget work session last night, here’s where City Council members seem to be on the budget:

$300,000 in schools funding will be restored, along with some city salary cuts. This money comes from one-time reserves that had been set aside for jail and school needs. Remember that the original budget proposal had cut the schools $1 million from this year. Also coming from this pot of money is $250,000 to restore the 1 percent across-the-board salary cut that had been proposed for all city employees. Employees who make more than $70,000 would still see a half-percent salary cut.

The real estate tax will rise four cents, to 60 cents per $100 of value. With the additional $400,000 that the extra penny will generate, council members plan to restore $150,000 to nonprofit groups that were cut and put $120,000 in the budget for a new economic development director. Another $100,000 was talked about as a way to avoid using so much one-time reserve money to restore the cuts to the schools. A few council members, however, seemed to want to spend it on projects ranging from trees to crosswalks. Remember that every time the council uses one-time reserve money instead of recurring revenue to pay for something they want to do, it adds to the deficit they will begin with in the 2011 budget.

The meals tax will not rise. Since a half-percent hike in the meals tax and a one-cent hike in the real estate tax would bring in roughly the same amount of money, the debate last night really came down to which tax council members preferred using. Vice Mayor Kerry Devine and Councilman Matt Kelly both said they’d rather raise the meals tax. Kelly pointed out that the meals tax is on disposable income, and would affect city households less than the real estate tax. Councilmen Brad Ellis, George Solley and Hashmel Turner were for raising the real estate tax. Ellis, who had originally proposed raising the meals tax by an entire percentage, said last night that he had decided it might hurt restaurants so much that the city wouldn’t end up bringing in as much new revenue as it projected with the increase. Mayor Tom Tomzak and Councilwoman Mary Katherine Greenlaw were in favor of raising both the meals and real estate taxes. So the majority opinion was to raise just the real estate tax by a total of four cents. (That prompted Kelly to announce he would vote against the budget.)

Stay tuned. Real estate assessments could come out by the middle or end of next week, it sounds like. Once you and city officials get those, this entire numbers game will change. The city will still be looking to get the same amount of new money from the real estate tax, but because overall values are expected to drop, look for the real estate tax rate to rise quite a bit. The impact on individual taxpayers will vary drastically based on what happened to property values in your neighborhood. There will be a separate public hearing, sometime in mid-May, on the adjusted real estate tax rate. Also, don’t forget that the city is likely to equalize the personal property tax rate to keep up with declining car values. That adjustment would not show up in your bill until spring 2010.  

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