19 - Budget Presentation FY 2020-2021

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(TML) has produced an Explanatory Q&A, found on their website, that I would direct anyone seeking further information to review. The reader can also read S132 directly, but I would strongly recommend starting with the TML Q&A first to give you an idea of what it is you are reading in the Act. The Act is rather complicated. The TML Q&A does a very good job of capturing the essence of S132. "At its most fundamental level, S.B. 2 reforms the system of property taxation in three primary ways: (1) lowering the tax rate a taxing unit can adopt without voter approval and requiring a mandatory election to go above the lowered rate; (2) making numerous changes to the procedure by which a city adopts a tax rate; and (3) making several changes to the property tax appraisal process. " The Act produces the following formula when calculating our new Property Tax Rate: "Voter -Approval Rate (No -New -Revenue Maintenance and Operations Rate x 1.035) + Current Debt Service Tax Rate" In short, the City of Paris can only grow its Operational and Maintenance Tax Rate by 3.5% each year without, possibly, triggering a mandatory election (hence the "Voter Approval' terminology). Cities with populations less than 30,000 have an additional threshold called the "De Minimis Rate" that is calculated differently (not shown here), would exceed the Voter -Approval Rate and would give said Cities the ability to raise additional Property Tax without triggering the election. There are reasons for the creation of this threshold, but that can be discussed at another time. In this situation, an election would only be required if the final requested Property Tax rate exceeded both the Voter Approval Rate as well as the De Minimis Rate. It is not recommended that the City of Paris utilize this additional growth created by the De Minimis Rate unless necessary. The Proposed FY20/21 Budget maxes out the Voter -Approval Rate without exceeding it. From professional experience working in the State of Nebraska which has had a "Growth Restriction" as this was called, it is strongly recommended that the City of Paris attempt to utilize this allowed growth each year in order to keep up with the growing costs of performing the Financial Policy as stated above. The costs that the City sees (third party, professional services, benefits, insurance, fuel, etc., basically the private sector) is not limited by this same Legislation, therefore if the City falls behind, it could find itself unable to keep up, thus cutting services. Fortunately, the Legislation is currently written such that a City can still utilize unused growth within three years (if the City utilizes 2.5% of the allowed 3.5% in year one, it can still use that additional 1% within the next three years). After that though, the City forever loses that growth potential, thus the road to falling behind begins. Utilizing the 3.5% growth each year also allows for steady and healthy increases instead of drastic and last minute ones. I am in no way proposing that we arbitrarily increase the budget each year by 3.5% if it is not needed. We have seen examples of some prices going down at times. But if the service calls for this, given the Legislators have already acted on behalf of the General Public by limiting the growth potential, the 3.5%, which is not a lot to work with, would be reasonable to utilize when necessary. For FY20/21, the primary reason for the decrease in Property Tax Rate is the net impact of Valuation increases mixed with the 3.5% growth. The valuation has grown more than the 3.5% would raise, thus a decrease in Tax Rate. The City has the ability to exceed this further via the De Minimis Rate, but that is not recommended at this time. Page 8 of 15