City pondering six-mill increase
For the past five years, the Holton City Commission has fought to keep its ad valorem tax levy at a level it deemed reasonable. Starting in 2012, the city approved annual budgets that included a mill levy that averaged about 54.3 mills, helped four out of those five years by increases in the city’s overall valuation.
On Monday, Leavenworth accountant Mike Peroo, delivering the city’s annual audit and budget report to the commission, told commissioners that in order to keep the city’s spending authority for fiscal year 2017 at the same level as the past two years — and to allow for some inflation — the city would have to raise that tax levy by about 6 mills, to about 60.6 mills.
The 60.6-mill levy proposed by Peroo would give the city authority to raise $1,212,000 toward its proposed budget authority of $10,638,797 for 2017, based on the city’s 2017 assessed valuation of $19,767,947.
The city’s valuation is up from $19,601,196 in 2016 (the city raised $1,065,596 based on that valuation), $19,655,233 in 2015 ($1,068,614 was raised based on that valuation) and $19,610,068 in 2014 ($1,064,985 was raised based on that valuation).
“The way I look at it right now for you guys, maintaining the mill levy at 54, I think, is too difficult, unless we want to move some money around,” Peroo told commissioners.
On the other hand, the city could raise its mill levy about two mills to about 56 mills and continue a practice that the city has been doing in recent years — moving monies to the city’s general fund from other funds, commissioners noted. But as Peroo noted in the audit, the city could only do that with its sewer fund in 2017.
As a result, if commissioners go with the 56-mill levy, the city may need to look at raising its electric and water utility rates to build those respective funds back up, Peroo said — particularly in the electric fund, which he said has been “carrying the city” in recent years, and particularly in light of state legislation that will go into effect with the 2018 budget.
That legislation effectively places a “tax lid” on how much the city can raise in tax funds. Peroo said the Kansas Legislature states that if property tax revenue goes above the preceding year’s Consumer Price Index, cities and counties who want to exceed that amount must put it to a public vote, which “could create some budget havoc, especially for the things we’ve gotten behind on.”
If the tax lid were already in effect, Peroo said, the city could not go above 56 mills in raising next year’s tax funds, noting “that’s not inflation, that’s just the dollar amount because the tax lid we’re starting with is below all the inflation.” But therein lies the problem of raising enough tax revenue to cover the city’s spending needs for the year, he said.
The city has “whacked away at debt,” Peroo noted, adding that by planning projects and setting funds aside for those projects, the city is in the position to fund future projects with existing cash rather than through borrowing money. That, he said, will “protect the city from cash increases” in the future.
But there’s still the question about raising the current mill levy, which Commissioner Tim Morris said the commission had been “adamant” about not doing the past few years. While it has helped the citizens of Holton with their property tax burden, Morris said, it has also allowed the city to fall behind both Jackson County and Holton USD 336, which recently raised its mill levy to fund construction of the new Holton Elementary School.
“I’m not displeased at what we’ve done, but everything we’ve done for the last year is going to be working against us, starting next year,” Morris said. “If we would have taken the route that was being taken by other people, we would be at 60 mills. But we chose to hold the mill levy.”
Another positive for the city, Peroo noted, was the recently-approved 0.5-percent sales tax increase, which has “exceeded expectations” in the amount of funds raised to help the city pay down its debt and make infrastructure improvements. But there is still the matter of raising certain utility rates to boost funds where profits had been used in previous years to boost other funds.
Peroo said the city’s goal in the general fund is to maintain “45 days worth of operating cash,” or available cash on hand in relation to its operating expenses. But at present, it only has about 22 days, he said.
Similar situations were noted in the water fund with 45 days of operating cash, and the electric fund with 92 days of operating cash, Peroo said, whereas the goal with each fund is to have 180 days of operating cash. In the sewer fund, however, the city has 962 days of operating cash.
Despite the low “days of cash” calculations, Peroo said the city is financially strong and has been doing well in eliminating its debt, particularly through refinancing certain bonds to get lower interest rates. The city’s next step, he said, is creating a strategic plan for capital improvement that looks forward 10 years.
“Start planning for it and figuring out how you’re going to put money away so that when your needs come up, we’re going to be in pretty good shape,” he told commissioners. “You guys have kind of done that, just not in a really formal way.”
The city should also consider tracking various services and key indicators, such as response times by police and utility employees. Commissioner Dan Brenner noted that the street department “tracks everything they work on,” but City Clerk Teresa Riley suggested that most of the city’s utility employees keep track of emergencies brought to the city’s attention without keeping track of the time spent repairing those emergencies.
Peroo will use information from the city’s annual budget report to create a proposed budget for fiscal year 2017, and commissioners are planning to act on the budget at their next meeting, set for Monday, Aug. 1. By law, the commission must approve the budget and publish it in the official city newspaper 10 days before a public hearing; the final budget must be approved by Thursday, Aug. 25.
