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City tax levy set : Perham among a minority of MN cities expected to decrease property taxes

Property taxes will be going down in Perham next year, thanks to increased funding and a sales tax break from the state.

City councilors on Monday approved Perham’s 2014 levy and budget, with a final certified levy decrease of 1.06 percent over last year, the same amount the city preliminarily proposed in September.

It will be the first time in at least a decade that the city has not raised its annual levy.

What that 1.06 percent decrease will mean for individual Perham residents will vary, depending on the value of their homes and businesses.

According to City Manager Kelcey Klemm, the owners of a single-family home with a tax value of $120,000 will see about a 6 percent reduction in their city property taxes next year, provided the value of their home stays the same. That would mean a savings of about $35, with a total payout of $507.97.

Businesses will also see about a 6 percent decrease in city taxes, as long as the value of the business stays the same.

City taxes, however, only make up about one-half of a homeowner’s total tax bill. Another third goes to the county, and most of the rest to the local school district. With Otter Tail County expected to raise its tax levy by more than 3 percent, and the school district levy to jump by about 9 percent (these numbers are still preliminary), “the overall tax bill could still go up for people” in Perham, according to Klemm.

The increase could be even more for businesses, which pay an additional state tax.

But the news could have been worse for Perham taxpayers, if the city had raised its levy, too.

While -1.06 percent may not seem like much of a drop, without increased Local Government Aid, or LGA, from the state, along with a new sales tax exemption, it’s very likely Perham’s property taxes would have gone up.

Klemm said the extra $124,000 Perham is getting in LGA is being put to several uses, with most of it going into the city’s general fund and toward debt service payments, and with smaller amounts allotted to the Economic Development Authority, library, fire department and capital fund.

“We are reducing the 2014 levy because of the increase in LGA,” said Klemm, adding that, without the increase to help keep the budget balanced, “we probably would have seen a significant increase in our levy.”

The other key factor in the decrease, the sales tax exemption for cities, goes into effect on Jan. 1, 2014. In his presentation to the city council, Klemm said the exemption will save the city roughly $33,000 per year. Most of those savings will be in the city’s water and wastewater fund.

More good news for the city is that its tax capacity is growing again. After two years of negative increases, Klemm said the county is predicting a 5 percent growth in Perham’s tax capacity next year, a sign of overall growth within the community.

The decrease in the city levy and increase in tax capacity puts Perham at a 54 percent tax rate – right in the middle to lower-middle range of rates among Otter Tail County communities.

The city’s decreased levy also puts it in the minority among other cities in the state.

While not all city property tax levies are finalized yet and could still go down, preliminary numbers released in November showed that 63 percent of cities in Minnesota were planning to increase their levies, despite the bump in LGA and the sales tax exemption. 

Marie Johnson

Marie Johnson joined the Perham Focus more than five years ago, and has since worn many hats as writer, editor and page designer. She lives in rural Frazee with her husband, Dan, their one-year-old son, Simon, and their yellow lab, Louisa. 

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