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Where our city tax dollars go

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Perham Focus
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Where our city tax dollars go
Perham Minnesota 222 2nd Avenue SE 56573

Ever wonder what your city tax dollars pay for, exactly?

A report released by Perham City Manager Kelcey Klemm at a meeting last week breaks it down.

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The report shows that a typical homeowner in Perham (the owner of a home with a taxable value of $120,000), paid $521.31 in city taxes for 2013.

Of this, the bulk goes to the city’s debt service ($148.04), police department ($79.79), library ($51.35), capital outlay ($42.07), fire department ($41.42), golf debt ($27.84), administration ($27.31) and parks ($22.96).

Lesser amounts go to public works ($18.56), the mayor and city council ($11.11), ice and snow removal ($9.56), community center ($7.32), housing and redevelopment ($5.85), and toward other services like summer recreational programs ($2.46) and the museums ($1.85).

As a whole, the highest percentage of the city’s 2013 tax levy – 36 percent of it – goes into the city’s general fund. This fund covers the costs of the police department, administration, parks, airport, public works, street lighting, the community center, museums, senior services and other expenditures.

The second-highest percentage of the tax levy, 34 percent, goes toward debt service, while 10 percent goes to the library, eight percent to the fire department, another eight percent toward capital improvements, three percent to economic development and one percent to the housing and redevelopment authority.

Residential homestead properties pay 25 percent of Perham’s tax bill, Klemm said, while 54 percent is paid for by commercial and industrial properties. Another 15 percent comes from non-homesteaded residential properties, and the remaining 6 percent from other types of properties.

This is markedly different from the state average of 48 percent coming from residential homesteads and 31 percent from commercial and industrial.

The city’s total tax levy has steadily increased every year since at least 2005, to varying degrees each year. The increases have tended to be less and less over the years, however, with an increase of 8.59 percent in 2005, compared to a one percent increase in 2013, which was the smallest increase in eight years.

Overall, Perham’s tax rate in 2013 was 58 percent. This is more than rates in Ottertail (27 percent), Wadena (47 percent) and Fergus Falls (51 percent), and less than rates in Battle Lake (77 percent), Pelican Rapids (81 percent), New York Mills (81 percent) and Parkers Prairie (97 percent).

Tax rates in surrounding townships tend to be lower, Klemm said (Perham Township’s tax rate is about 15 percent, for example), due to a greater number of services being provided in cities versus townships.

Klemm’s report points out that the city’s four “enterprise funds” – gas, liquor store, water and sewer – help keep the overall tax rate down in Perham. In 2013, these funds contributed nearly $358,000 to the city’s general fund and capital fund, resulting in a direct reduction of the required tax levy. Without these funds, Klemm said, the city’s tax levy would be 31 percent higher than it actually is, bringing it to a rate of 77 percent.

Looking ahead to 2014, Klemm said there’s both good and bad news for the city budget.

The “good news” is that there will be an increase in local government aid (LGA) of $123,000, and there’s a new sales tax exemption for general government, which will save the city some money. Perham’s enterprise funds also continue to perform well, which will help keep the levy down.

The “bad news” includes increases in the city’s debt levy due to future capital improvement projects, possible increases in personnel costs, especially for insurance, and decreases in economic development interest earnings.

How all this will play out and ultimately impact taxpayers next year still remains to be seen, Klemm said. That will depend on whether Perham’s tax capacity increases (meaning there are more tax dollars to go around, which helps keep individual property taxes down), decreases (in which case individual property taxes are more likely to go up), or stay the same.

While Klemm said he doesn’t expect a decrease in tax capacity in 2014, “we won’t know for sure until later this year.”

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Marie Johnson
Marie Johnson (formerly Nitke) came to the Perham Focus after several years as the Education and Arts & Entertainment Editor at the Herald-Review of Grand Rapids, Minn. She lives in rural Ottertail with her husband, Dan, and their spunky yellow lab, Louisa.
(218) 346-5900 x228
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