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Tax relief would stress city

Lowering property taxes could set city back years, finance director says

Published: Tuesday, Nov. 12, 2013 1:15 a.m. CDT

DIXON – With $40 million in settlement money, Dixon could decide to lower property taxes, as many residents have suggested, but doing so might not be best for the city’s financial future.

The idea was suggested during an October town hall meeting, which sought residents’ suggestions about what the city should do with money it will recover from an out-of-court settlement and sold assets from Rita Crundwell’s estate.

In total, Dixon will receive about $29.7 million – after legal fees – from the settlement reached in September with its former auditors and bank. Additionally, the city expects about $9.2 million from the sale of Crundwell’s assets.

Because of the Property Tax Extension Limitation Law – also known as the tax cap – Dixon is limited in how much it can raise its tax rate each year, by the lesser of either 5 percent or the change in the Consumer Price Index, Meyer said in an interview last week.

The CPI change in 2010, 2011 and 2012 was 1.6, 3.2 and 2.1 percent, respectively, meaning that Dixon could have raised property taxes by, at most, 3.2 percent in the past 3 years.

Lowering the city’s property tax levy is a possibility, Finance Director Paula Meyer said, but not something she recommends. Doing so would set the city back, depending on how much rates were lowered, anywhere from 6 to 233 years in terms of revenue, she added.

If the property taxes were reduced by 10, 50 or even 99 percent for just one year, the next year the city couldn’t immediately return to the previous year’s rate, Meyer said. It could increase the reduced rate by only 5 percent or the CPI change.

The years it would take for the city to return to the 2012 tax rate, she said, would put the city in poor financial standing.

If the city were to lower property taxes by 10 percent, based on the 2012 tax rate and equalized assessed value of Dixon homes, it would lose $706,070 and take the city 6 years to get the tax rate back to the level in 2012, Meyer said.

If property taxes were lowered by 50 percent, Meyer said, the city would lose out on $22.8 million and take 36 years to return to the 2012 tax rate.

Lowering the tax rate by 99 percent would amount in $418 million in lost revenue, Meyer said, and take the city 233 years to return to the 2012 rate.

Instead of lowering property taxes, Meyer has suggested that the city pay down its internal and external debt, as well as setting aside some money and investing in capital projects, which could keep sewer rates, for example, lower in the future.

The city has received $14 million of the settlement money and expects to receive the rest by Thanksgiving, Meyer said, and could have the money from the sale of Crundwell’s property by Jan. 1.

Some of the settlement money, $8.7 million, has already been allocated to pay internal debt. An additional $12.3 million will pay back three bonds early, which will ultimately save the city $3.87 million in interest.

 

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