Craig Clark: A better understanding of budget

Published 8:18 am Friday, September 14, 2018

Craig Clark

City Administrator

It’s unfortunate a recent article “Small businesses take the brunt of levy hike” fails to provide readers sufficient context to appreciate the factors which account for the levy increase currently under consideration by the city council. While the first article had a balanced approach the second story was a well-worn “taxes are bad” segment. There is little secret that most people don’t like what they pay in taxes and it is not difficult to find folks who will outdo the next expressing their disdain for taxes. The truth is, the city council has the hard job of building a budget in the face of real challenges and real consequences. Easy would be the decision to look at a small levy increase and forgo tending to the challenges we face.

City Administrator Craig Clark

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Our business owners and residents should know several points to better understand how the City’s budget is developed. This is a lengthy and systematic process that starts shortly after the first of the year. It is an open discussion with the Council as we evaluate where we want to go as a City and how we should prioritize our goals. One should not be surprised to see budget items which took root six months before as a part of this process. We encourage you to visit the city’s web site at: and learn about all the goals the city council developed.

One of these goals was taking prudent steps to ensure we have the tools to maintain our workforce to serve the City as we look to the future. This is a growing challenge for all employers and with 62 percent of our budget being personnel related (a reflection of being a public service employer) we need to respond constructively by doing a detailed analysis of how we compare with similar employers, comply with state labor laws and ensure internal equity. We see applicant pools getting smaller and it appears it’s becoming a bygone era to congratulate folks for thirty years of service to the city. Not including a budget accommodation for implementation would be short-sighted especially when many of our peers have done multiple assessments when we haven’t done one in nearly 25 years.

Other levy pressures are related to housing and working to better ensure our employers can attract the necessary talent and improve the likelihood that they live in Austin and spend their dollars locally. Funding for the coming Community Recreation Center is also included for our operational share of this extraordinary gift that further adds reason for people to call Austin home and improve our quality of life. We could sit by idly and miss out on these opportunities which ultimately work to improve the economic climate by improving housing options and promoting a higher quality of life.

Another key component the article neglects to mention is the classification rate, that has businesses paying a substantially higher percentage of their valuation, is determined by the State of Minnesota. While the city council determines the overall levy, how that amount is apportioned is a matter for the governor and state legislators. The specific component the article highlights is that our small businesses carry a heavy load. On that we agree. That is why we asked the legislature to implement, which they did in 2017, an exemption on the first $100,000 of value on the statewide business property tax and equally why we asked that amount be increased to $150,000 in 2018, which did not gain approval. We will continue to ask the legislature to better reflect the challenges of main street businesses and hope this can be constructive common ground for both sides of this discussion.

In addition, readers gained little context of how the taxes fit into the economic reality of the marketplace. No one is minimizing the realities of the tax burden on business owners but folks are smart enough to know that businesses and landlords pass along the property taxes and other expenses to their consumers. That takes us to the real point of consideration and perhaps opening ourselves up to another perspective the article did not present. How do we compare to other communities and are Austin businesses at a competitive disadvantage when it comes to the taxes they pay? In other words does our tax rate, which get built into the price of the businesses widget, translate to higher comparative costs to the consumer and thereby handicap our businesses? The answer to that by looking at the state auditor’s data is a clear no.

If we were to move a property valued at $1 million to Albert Lea, Faribault and Owatonna, using the 2018 budget year, they would pay $12,486, $11,007 and $12,275 respectively for the city share of the taxes. All well above the Austin city tax rate that would produce a tax bill of $9,928. This would be a 10-25 percent increase if you were to do business in any other of these communities. Even looking broader, the most recent available numbers from the State Auditor demonstrate Austin is 220 out of 229 cities meaning we’re in the bottom less than 4 percent of Cities when it comes the amount of City taxes. It is clear you’re hard pressed to find a more cost effective city to do business in. While many factors contribute to a business owner’s decision to locate in Austin, or elsewhere, but as much as a tax bill is an unwelcome reality of life we need to be clear Austin clearly provides an attractive cost of doing business and we shouldn’t be afraid to say so.

We recognize this is a significant increase and appreciate this has real implications for our area businesses. We just want to make sure our constituents understand the context of this proposed levy to meet tomorrow’s challenges while still recognizing Austin does have one of the lowest and thereby most competitive tax rates when compared to our comparable cities.