Photo illustration by Eric Johnson

Despite budget woes and an impending tax levy increase, Austin is sitting pretty compared to other area cities.

Although Austin City Council members are considering a 14 percent tax levy increase to balance the 2012 budget, Austin property owners can rest assured they will still have one of the lowest local tax rates in Minnesota.

As of the latest State Auditor’s report in 2009, Austin had the third lowest property tax rate per person out of cities with more than 2,500 people. The problem now, city officials and council members say, is that a tax hike will be necessary unless Austinites don’t mind losing some of the services to which they’ve become accustomed.

“We need to have a balanced approach here,” City Administrator Jim Hurm said. “If we continue to lose Local Government Aid, (our current tax rate) is not going to be enough.

“Even if we do go with a 13 or 14 percent increase in the tax levy, we’ll still be lower than other cities.”

A hefty chunk of Austin’s general fund budget comes from the state in the form of Local Government Aid (LGA). Because the state has been gradually reducing the amount of LGA given to cities, Austin City Council members are struggling to decide which, if any, services to cut and whether to compromise Austin’s low property tax rank.

“We may need to, one way or another, find additional revenues unless we want to significantly reduce the services we provide,” Hurm said.

Austin receives significantly more state funding compared to similarly-sized area cities. Owatonna, which only has a few thousand more people than Austin, receives about $275 worth of state grants per person, whereas Austin receives $445 of grants per person. When it comes to property taxes, Owatonna residents pay about $200 more per resident than Austinites.

Rhonda Moen, Owatonna finance director, said Owatonna’s 2012 proposed tax levy began at zero percent in an effort to stop raising property taxes. However, City Council members will likely pass a two percent levy increase to play it safe, Moen said.

“We’re just trying to hold the line and be prepared for what may come,” Moen said. “Unfortunately, with the state making their revisions, everybody’s taxes are going up even if the city doesn’t raise their levy.”

Owatonna is slated to receive nearly $4 million less than Austin in LGA for 2012, and other area cities like Faribault and Albert Lea are set to receive almost $2.5 million less than Austin.

According to Moen, Austin is a “special case” when it comes to LGA because the city receives significantly more funding than most other cities its size, with the exception of Winona. In 2012, Winona will receive $2 million more LGA than Austin.

Unlike cities that receive less LGA, Austin and Winona have lower property taxes and spend fewer city dollars per resident.

Although Faribault and Austin only had a two-person population difference in the 2000 census, the city of Austin spent $145 less per person than Faribault in 2009. Faribault residents paid $141 more per person in property taxes than Austin residents in 2009, as well.

Hurm and Moen agreed that taxes are necessary to make a city appealing and useful.

“If you want services, you have to pay for them,” Moen said. “Those are what make your community desirable to live in — the parks, the trails, the recreation programs and a great library to go to.”

“We have a nature center. We have a pool. We have a nice library,” Hurm said. “We could bring costs down if we dropped all that, but the more services we cut, the less attractive Austin is going to be.”

The amount of LGA cities receive is contingent on many factors, including the percent of homes built before 1940, population decline over the last 10 years, accidents per person and average household size. According to the League of Minnesota Cities, these factors play an important role when the state determines LGA distribution.

According to the U.S. Census Bureau’s American Community Survey 2005-2009 five-year estimate, 25.3 percent of Austin homes were built before 1940, whereas 19.2 percent of Owatonna homes were built before 1940. Because of this, Austin receives more funding than cities with newer homes.

“Cities with older infrastructure are expected to have higher per-person costs for infrastructure maintenance and repair,” the League of Minnesota Cities website says. “The variable is also highly correlated with poverty and other socio-economic factors that may increase some city service costs.”

Because Owatonna’s average home value is $146,000, compared to Austin at $102,000, Moen said home values are likely the primary reason Austin receives more than double the LGA of Owatonna.

“There are so many factors that go into LGA, but I’d say the primary difference is … Austin has an older stock of homes,” she said.

Austin is set to receive $7.12 million in LGA for 2012. However, even with a 14 percent tax levy increase (amounting to slightly more than $4 million), cuts are included in the budget.

The proposed budget includes cuts from the prior year to the city’s capital outlay and contingency funds; capital outlay and contingency are used to pay for building maintenance and upgrades and emergency expenditures, respectively. One vacant position in the street department will remain open for another year, saving the city roughly $70,000.

However, the proposed budget includes funding to fill another street department vacancy; someone holds the position temporarily but will be hired full-time and receive benefits under the budget proposal. Funding was also included to hire a children’s librarian at the Austin Public Library. The librarian position has been vacant for two years, and Library Executive Director Ann Hokanson said she is in desperate need of more staff.

Austin City Council members preliminarily voted 4-3 in favor of the proposed budget at a recent work session. They are scheduled to vote to approve the budget at 5:30 p.m. Tuesday.

Once the budget passes, the tax levy cannot be increased, but it can be decreased.

Austin Finance Director Tom Dankert was unavailable for comment.