MANKATO — Property tax collections by the city of Mankato would rise $723,000 — or 3% — under City Manager Susan Arntz’s proposed 2025 budget.
“We are really pleased with what we have (proposed), pleased with our team,” Arntz said when presenting the administration’s budget plan to the City Council last week.
The budget work session kicked off more than three months of discussions on the upcoming 2025 budget, the preliminary budget for 2026 and how decisions made now could impact taxes and fund reserves in 2027, 2028 and 2029.
The two-year budget process, complete with five years of projections, requires 567 pages of materials and tens of thousands of numbers compiled by Administrative Services Director Parker Skophammer and his staff. This year, it all adds up to a relatively pleasant picture, Skophammer said Aug. 26.
“I think there’s a reason to feel a little jovial,” he said.
A 3% levy hike compares favorably to the 8.1% jump in tax collections in 2023, largely to deal with steep inflation at the time, and the 4.7% increase imposed this year.
Since the city began estimating the long-term ramifications of each year’s budget in 2022, the goal has been to ensure decisions made now didn’t force property tax increases higher than 5% in future years. At the same time, a competing goal has been to maintain the city’s budget reserves, which are critical for cash-flow purposes and as a rainy-day fund, at a size equal to between 40% and 55% of the city’s general fund.
When the last budget was approved in December, the projections showed those goals being met but just barely.
Mankato is now in a stronger position than anticipated, meaning the 3% recommended increase in 2025 can be approved even while keeping future levy increases at 4.5% or less.
“We’re actually lower than the 5% (annual increases) we were kind of hovering at,” Arntz said of last year’s budget projections.
And the projections show the reserve funds being maintained at between 41% and 45%.
The administration’s budget proposal also looks good compared to what other Minnesota cities are considering, Arntz said.
In discussions with counterparts around the state, many had started with budget plans that boosted property taxes by 10% or more and are now working to get them down to single digits as city councils prepare to set preliminary levies in September.
“There are many cities that are 7, 8, 9%,” Arntz said.
Mankato’s council is expected to approve its preliminary levy Sept. 9, which will establish a ceiling for any tax hike. The number can stay the same or be lowered — but not raised — when a final budget is approved following a public hearing in early December.
By presenting their proposed budget before the end of August, Arntz and Skophammer were looking to provide time for adjustments if the council had major objections.
The proposal followed talks throughout the summer with municipal department heads about what they wanted or needed in their individual budgets in 2025. Skophammer said it is not a case where they were denied critical needs to keep the levy low.
“Even though it’s 3%, it’s not a stripped-down budget,” he said.
Along with dealing with inflationary increases and the rising costs that come with a growing city, the budget adds a firefighter, sets aside dollars for another police officer if a strong candidate becomes available, continues to support the workforce that is critical to much of the work done by municipal government, and funds dozens of construction projects and replacement vehicle purchases, Skophammer said.
Revenue from sources other than property taxes helps to finance the budget growth even while the property tax increase is kept relatively low. The budget plan would boost the basic service rate for water and sewer by 3%, the volume-based charge for sewer by 3.75%, garbage bills by 3% and the street-lighting fee by 2%.
The upcoming budget also benefits from the council’s willingness a year ago to set aside some of its 2024 revenue — from the 4.7% property tax hike and from $900,000 in added state aid — to deal with anticipated pressures on future budgets. That’s allowing for the 3% increase this year and the favorable projections for the following four years.
“Last year we did the hard work,” Skophammer said.
Council member Jessica Hatanpa, quickly backed by Council President Mike Laven, wondered if the city should delay some of the benefit of that hard work by passing a slightly higher levy for 2025. Essentially, the goal would be the same — a little more pain now to provide a cushion in the budget that would reduce the likelihood of steeper tax hikes in the more distant future.
“I’m just asking: Is it a better strategy?” Hatanpa said. “… So taxpayers don’t have those huge peaks and valleys.”
“I’m with you,” Laven said.
Moving the levy to 4% would add about $240,000 in annual revenue to use as a contingency, Skophammer said.
While other council members didn’t offer strong opinions on the topic, Arntz and Skophammer said they would compile data on how a 4% levy hike might alter projections of future levies and reserve funds compared to the 3% plan. The two options will be presented to the council Sept. 9.
If consensus can’t be found that night, the council could still pass a preliminary levy at its Sept. 23 meeting and still meet the end-of-the-month deadline under state law.