Xcel valuation drop prompts a late, steep decline in local tax base

Dec. 7—MANKATO — A large reduction in the taxable value of Xcel Energy property delivered a hit to Mankato's tax base, forcing some late cuts to the city's budget.

The budget, nearly $300,000 smaller than anticipated three weeks ago, received unanimous approval from the City Council Monday night after no residents offered any questions or comments following the annual budget hearing.

"This is 10 months in the making to get to this point," said Parker Skophammer, director of administrative services, during his budget summary.

In the ninth month, though, Skophammer and City Manager Susan Arntz had to make some substantial adjustments after learning about a state-imposed reduction in the tax base of about 1.3%.

"It was a big surprise to us as an organization," Arntz said. "We were disappointed to find out that kind of information this late."

Cities and counties approve an overall levy amount each December, deciding exactly how many dollars in property taxes will be collected on their behalf. How — and from whom — they're collected is based on a complicated formula that includes the taxable market values of all the individual parcels of property within the jurisdiction and the percentage of that value that different classifications of property must pay under state law.

So when Xcel's taxable market value was reduced by the state, everybody else in Mankato would have had to pay a bit more in city taxes if not for the $296,000 in budget adjustments. The cuts represent nearly 40% of the roughly $800,000 in additional property tax revenue the city was expecting to collect in 2022.

"If we were a smaller organization, I'm not sure how easy that would have been to navigate," Arntz said.

The changes include a smaller contingency fund in the city's general fund (a $77,000 reduction), delays in hiring 1.5 positions ($61,000), a cut in funding for preparations for the invasive tree-killing emerald ash borer ($77,000), a further reduction in expenses for lobbying ($3,300) and cuts in money set aside for future equipment and facility replacement at city parks and in the Public Works Center ($77,000).

Most property valuations are set by county assessors, who are required to assign valuations near the level where similar properties are selling in the marketplace.

As some types of property rise in value (like Mankato homes are currently) and others decline (like many retail stores), the tax base changes. The values of numerous properties aren't finalized until late in the year, but the county can typically make projections by mid-summer, said Michael Stalberger, who oversees assessments and property tax collections for Blue Earth County. Those projections can help elected officials better understand the impact on property owners as they craft the next year's budget.

Updated projections are made in the fall in time for Truth in Taxation statements to be sent to every property owner — the documents that lay out the anticipated impact of proposed city, county and school district budgets on individual property tax bills. But the tax base can still change based on late applications for property tax discounts, such as those provided for owner-occupied homes or homes of veterans with disabilities, Stalberger said.

Utilities are handled differently, with valuations determined at the state level rather than by county assessors. And changes in the taxable values of those utility properties are not reported to the county until late in the fall.

"It appears a rather large value/parcel of utility property in the city was 'retired' for this upcoming payable year," Stalberger said. "There were other utility properties from that same company that saw additional reductions resulting in a majority of the reduced tax capacity."

Utility values are often stable from year to year, and the projections provided to the city were based on that trend continuing.

"We normally do not see significant reductions in utility properties so our formulas for our preliminary data that we provide in the summer rely on the previous year's utility values," he said.

Attempts by The Free Press to get more information from the state Department of Revenue about changes in Xcel's property values were unsuccessful.

The late change in the tax base will also have an impact on property taxes paid to Blue Earth County and the local school district. Without budget reductions by the County Board, for instance, properties across the county will be billed a bit more next year than the projected tax payments on the Truth in Taxation statements. Except for Xcel Energy, which will be billed less.