Prior Lake residents might find some relief in their 2020 tax bills after a preliminary look at the market value of homes in the city, though city leaders would still need to vote on the change.
According to city staff, more homes and increasing market values could help lower the portion of property taxes charged by the city.
City Manager Michael Plante said the city experienced a little more than 9 percent growth in its tax capacity, which is tied to the total value of property in the city. Plante called the growth phenomenal compared to other cities and “one of the strongest growth rates Prior Lake has had recently.”
Plante and city Finance Director Cathy Erickson said development divvies up the tax levy, the number of dollars collected by the city each year, over more properties, so each individual taxpayer has a lower city tax rate — the percentage charged on each property’s worth.
“We saw a very handsome growth in that tax capacity,” said Mayor Kirt Briggs. “Because of that, we are going to be able to give back to existing taxpayers and citizens some relief in that tax rate.”
That outcome depends on the mayor and City Council. In May, city staff presented the council and mayor with two options of how to respond to the growing tax capacity: Either take in about 8.83% more tax revenue to keep the tax rate the same or take in the same amount of money and reduce the tax rate.
For his part, Briggs said he was “confident we are going to provide a reduced tax rate.” Plante echoed Briggs, saying, “I can pretty much guarantee that the effective tax rate for the city of Prior Lake will go down next year.”
Plante explained that a reduced tax rate would mean lower property taxes for properties that keep the same value and classification next year. But that’s only if market values freeze.
Erickson and her staff calculated that by maintaining the tax rate a residential home valued at $338,100 — the average value for a residential home in Prior Lake — would see a $60 increase. A residence valued at $400,000 would see a $69 increase and so on.
Briggs said he and the council have been looking for ways to blunt the impact of rising property values on homeowners’ tax bills by pushing for greater commercial development in the city.
Commercial developments add to the city’s tax capacity and “helps diversify, become less dependent on those those homeowners,” Briggs said.
The council got one set closer to a reduced tax rate by voting in a 4 to 1 vote on Monday to passing the proposed 2020-2024 Capital Improvement Plan, the document that lays out infrastructure projects and money sources for several years.
The approved plan calls for an increase of $274,000 in the funds for facility management, equipment and parks next year. That increase brings the total capital improvement tax levy to $4.75 million.
Erickson proposed bumping up the city’s 2020 tax levy by 8.25% to almost $14 million in all for the 2020 budget and taxes. It would be a small enough increase to reduce the tax rate by 0.58% and likely reduce city taxes for Prior Lake residences without major value changes.
Council member Annette Thompson cast the dissenting vote out of concern that the plan would hurt the city’s ability to lower its debt load. The council asked staff to further study the city’s debt and comparable cities’ debt management.