City Council - workshop

here to discuss a very exciting topic, tax levies. So you'll recall from our prior discussions on this truly exciting topic is that the City of Republic assesses taxes on real property but not personal property, and we have three property tax levies. So the first one is a general operating tax levy, and that tax levy is part of the general fund. Parks and Rec, we have a Parks and Rec tax levy, which helps to fund the parks fund. and then Street Lights, which is a small tax levy which funds the street fund. So as per the Missouri Constitution, the city may revise its tax levies on an annual basis to allow for inflationary pressure and inflationary assessment growth that occurs in the city during the year. However, there are some caveats specifically driven by the Hancock Amendment. The inflationary growth factor uh... will be limited to the assessed growth but after eliminating the seth value of new construction and newly added territories in the current year so we'll talk a little bit more about that during the example go through uh... but once we go through that process the permitted growth rate then for the tax levy year-over-year is based on the smaller of The actual percentage increase during the year of the assessed valuation If it happens that the assessed valuation year over year is a negative number, then you assume a zero. Or the consumer price index, which is provided by the Department of Revenue for the, actually for the state auditor provides that number to us, or 5%. So the most it's ever gonna be is 5%. The least it's ever gonna be is zero. But additionally, the city can tax new construction and newly added territories, even though they're excluded from the calculation that we used to devise the new tax rate. They're excluded from that process, but once that new tax rate is determined, then we can apply that tax rate to the new construction and newly added territories that have been identified in the valuation process from the various county clerks. The best way to see this is through an example. We've used this example in the prior years. Once again, tonight we're going to use the general operating example for this year, and then just recognize that the same process would occur both for parks and rec as well as for streets. The first thing to do is the two county clerks provide the information to us, as well as that information then is validated and verified by the state auditor. The assessed valuation for the current year is $445,899,686. Once again, that assessed valuation for this year includes new construction as well as newly acquired territories. What we're trying to do is we're trying to compare a common basket of real property that occurred in the city in 25 to that same common basket in 26. and so in order to do that we have to back out of the excess valuation but to back out the new construction and improvements and newly added territories that have shown up in our assessed valuation for the city of republic in 2026 so if you do that the adjusted assessed value for this current year is 417 million 708 204 so that's the total gross minus the new construction and newly added territories gets us to this adjusted uh uh assessed value so think of that as as the base those those That valuation for those real properties, those real properties existed as a base in 25. So we're comparing apples to apples. We're comparing the same homes, the same real property in 25 to the same real property in 26. And we're looking at what has been the change in the assessed valuation year to year. So, if you look at the assessed valuation for 25, the prior year assessed valuation was $425,431,580. So, if you compare the adjusted assessed valuation for 26, so that's the base in 26, to what existed in twenty five we actually saw a degradation or a shrinkage if you will and assess valuation year-over-year to the tune of one point eight one five four percent so at this point in time uh... because of the negative number we're going to assume is zero percent increase in the assessed valuation of those base properties twenty five to twenty six so once again remember The rule is it's the smaller of the actual change, the CPI or 5%. So right now we're looking at 0% increase in the revenue that we can generate in the city from the properties that were common in 25 and 26. So that's the next step. The next step down, if you'll look, is to calculate the max revenue on prior year assessed value. So we know the prior year assessed value was 425 million, 431, 580. last year's tax levy per one hundred dollars of assessed valuation was point three nine eight five so if we take the assessed value from the prior year times the tax rate from the prior year we can calculate the maximum revenue allowed in sort of that base portfolio of real estate, if you will. So the most money that we can generate this year on that base, but the base real estate that was common in 25 and 26 was $1,695,345. So once again, if we move on and go back to our metric or our algorithm that said calculate the permitted growth rate, select the smaller of, the actual growth, the CPI, which is provided by the state auditor for this year was 2.7% or 5%, we're gonna be living with 0% growth as permitted in terms of the calculation going forward. The next step in this process is if you look at the second section down, calculate the total revenue permitted in the current year. In the current year, we know the maximum allowed revenue that we've already calculated from Step number three above was 1,695,345. And we know that we can have 0% increase in terms of revenue in 26. So that number times zero is that number. It's 1,695,345 is the maximum total revenue allowed in the current year for the base real estate portfolio. We'll deal with the new construction and newly added territories later, but for those things that are common year over year, we can generate $1,695,345. So now it's time to calculate what that rate would be. So if you calculate the new rate, if you look at the total revenue permitted in the current year, we just talked about it, $1,695,000, et cetera. But we also know that the total adjusted assessed value for this year is 417, 708, 204. That number is smaller than the assessed value of that portfolio from last year because we had what? A degradation in assessed value. So at this point in time, we're gonna solve for the new tax rate and basically we're gonna take the revenue that's allowed and we're gonna divide the revenue that's allowed by the total assessed valuation as adjusted in the prior steps above. And so when you do that, because the assessed valuation has actually gone down, in order to generate the same revenue, you have to have a slightly higher rate in order to generate that number. So if you think about the equation, Assessed valuation has gone down slightly, so the rate that generates the same revenue this year as last year has to go up slightly. And as a result, the new tax levy per $100 of assessed valuation, 426 for the general fund, for the general operating, is slightly higher than last year's, and it came out at .4059. So now we've got a new rate for this year and we can apply that new rate for this year against the total valuation or the total assessed valuation for this year. And this is where we can calculate what kind of revenue do we expect to generate off of this new tax rate. And in doing so, we go back now to the total valuation provided by the state auditor and by the various clerks. We go back to that total assessed valuation of 445,899,686 times this new rate. We get to a gross revenue for the general fund of 1,809,765. There are some fees that we pay to both Greene County and also to Christian County to process the tax receipts for us and to forward those on to us. And so the net revenue that we expect for the new tax rate that we're calculating for 26, on a net basis would be $1,755,282. Remember that that money, even though we've calculated that as a tax revenue or a tax rate for 26, that tax revenue will actually cash flow in 27. So this is the money that we've calculated the rate in 26. We've adjusted the valuations in 26, and that money will then, those tax bills will go out to our customers, and we will see that cash flow come through in 27. So I'm going to stop there. Does the math make sense? I know we've gone through this year over year. It can be a little confusing, but at the same time, if you think about it, just fundamentally, if the assessed valuation of a basket of real properties has gone down, then the only way to generate the same revenue this year as last year is you have to raise the rate slightly. So let's talk about raising the rate slightly. So I provided some historical information of what the tax levies by type have been for the last four years. So you can see 23, 24, 25. So specifically look at 25. On the general operating side, we've already used that .3985 per $100 of assessed valuation to calculate the allowable revenue for this year. Remember, it was based on last year's total assessed valuation times last year's rate gave us what we can earn this year, and then we backed into this year's rate of .4059. And then I've circled that just to remind you that's the number that we calculated through the various steps we went through in the prior two pages. And that rate, .4059 per $100 of assessed valuation times the assessed valuation will give us revenue on a gross basis of 1,809,765. Now, we could go back and do the same calculations for parks and the same calculations for streets. I'm sure you don't want to do that. Suffice it to say, we've done the calculations in exactly the same manner, and so the tax rate proposed for Parks and Recreation for this upcoming year, for this year to cash flow next year, is 0.1094 and then also for streetlights is 0.0624. And you can see that in total that the tax rate of 0.5777 is slightly higher than the tax rate we had last year of 0.5672. And why is that? It's because the assessed valuation has dropped slightly 1.82%. So as a result, the rate has to be slightly higher. Our expectation would be that, after we pay fees to both Greene County and to Christian County, we would generate about $2.5 million in property tax, split out the way I've shown you here. questions on tax rates, process, why we do things a certain way. Mathematically, I know at times it seems a little counterintuitive to say, well, you said no growth, but yet we're seeing an increase in property tax revenue. Why is that? Because we can apply that rate against the new construction and the new territory. It wasn't part of the calculation to calculate the rate, but we can apply it So every, so if you think about the difference between 2.3 million last year and 2.5 million this year is all because of a slightly higher rate that we calculated and we can apply that slightly higher rate against what the new construction and the new territory. So the question that you might be asking, maybe you're not, but if you are, how does this impact the average citizen? So if you think about it, as you know, that in the state of Missouri, assessed valuation for residential real property is the fair market value times 19%. I just did a quick calculation and said, hey, what does the fair market value look like for a property that has an assessed valuation of $50,000? Well, the fair market value, if you back into that number, gross it back up to what 19% would be, That would be a house that's worth on the market today about $263,000. So you think about, you got a fair market value of 263 times 19% gets you to your assessed valuation of $50,000. And then that $50,000 is then applied against the new tax rates. So if there was not an adjustment in assessed valuation, if the assessed valuations were equal year over year and we had a slight increase in our tax rate, then the person that owns this home and that has an assessed valuation of $50,000 would expect to see an increase in his property tax bill of $5.24. What happened? Assessed valuations actually went down. So the property that last year was assessed at $50,000, this year would actually be assessed at 49,092.30. That's that 1.8.2% drop in assessed valuation. So if you take that valuation times our new tax rate, you get exactly the same number. as you would have gotten applying $50,000 against last year's tax rate. So as a result, the revenue we expect on that core common 25 and 26 real property, that revenue will be the same. The increase in revenue is coming from the new property. So with that, I'll answer any question about this really exciting topic. It's exciting to me, it's $2.5 million, so, yeah.

Any questions for Mr. Ford? Definitely hear me that time. Okay, thank you, Mr. Ford. Thank you. Wonderful job, and we appreciate your presentation this evening.

That was our only item for the workshop.

Okay, as that was our only item for the workshop this evening, this workshop is now closed.