Herald Journal, Dec. 5, 2005
Winsted council to reconsider tax levy after high statements
By Dave Cox
A misunderstanding resulted in the City of Winsted inadvertently proposing higher taxes for city residents.
The proposed increases on the statements were not welcome news for taxpayers who are faced with a school referendum Tuesday, Dec. 13, which if passed would mean another tax increase.
In order to understand how this situation could happen, it is necessary to first understand how tax rates are calculated.
The city begins by establishing a budget.
The budget takes into account all operating expenses and debt payments for the city for the coming year, said City Administrator Brent Mareck.
The city then approves a tax levy to meet its budget.
The proposed levy for 2006 was set at $1,030,133.
The next factor in the process is the city’s tax capacity (tax capacity is not the amount of tax you actually pay).
Tax capacity is calculated by taking the taxable market value of a property and multiplying by its tax rate percentage.
The tax rate percentage for a residential property is 1 percent. For example, a residential property valued at $100,000 would have a tax capacity of $1,000 ($100,000 x .01 = $1,000).
The city received a figure from McLeod County indicating that the total tax capacity for the city is $1,388,052.
Once the tax capacity has been determined, the tax rate must be established.
The tax rate is calculated by dividing the levy by the tax capacity.
When calculating the proposed tax rate for 2006, the city divided the levy of $1,030,133 by the tax capacity of $1,388,052 and arrived at a tax rate of 74.214 percent.
The actual city tax you pay is determined by multiplying your taxable market value by the tax rate.
Mareck stated that the city’s goal was to have no city tax increase, and when it compared the proposed tax rate of 74.214 percent to the 2005 tax rate of 74.231 percent, it believed it had accomplished its objective.
Mareck said the city believed that the $167,346 difference between the $1,388,052 tax capacity for 2006 and the $1,220,706 tax capacity for 2005 was the result of new development in the city.
What the city did not realize, according to Mareck, was that the county had included a 10 percent across-the-board increase in taxable market value in the tax capacity figure it gave the city.
As a result, even though the tax rate was roughly the same as the year before, the proposed tax statements sent to city residents reflected a higher amount for taxes payable in 2006, since the calculations were based on a taxable market value that was 10 percent higher than in 2005.
Mareck said that because the city’s intention was not to increase city taxes, the city council will consider reducing the proposed levy by $92,000, which would result in an adjusted proposed levy of $938,133. This would bring the adjusted tax rate to 67.586 percent.
If this change is approved by the council, the levy reduction would be made up by $37,671 in budget cuts, and $55,829 that the county owes the city for payments from the Westgate tax increment financing district, Mareck said.
The council will consider the proposal at its Tuesday, Dec. 6 meeting at city hall.