A taxing dispute

Nothing is simple about calculations for Brainerd's tax rate or levy.

Crow Wing County reports that getting the correct numbers takes multiple calculations with a complex worksheet. Brainerd City Council member Bob Olson and Brainerd resident Jeff Czeczok said the formula is simple math and they accused city staff members of providing inaccurate information used in council budget talks.

The issue appears to revolve around the city's tax rate and who has the correct formula used to determine what it will be.

The city Tuesday approved a preliminary 2008 tax levy of $3,982,796 on a 4-3 vote. Council members Olson, Kevin Goedker and Kelly Bevans voted against.

A city determines its budget, and after considering revenues (such as local government aid, fees and construction) then uses a tax levy to make up any difference.

At the Tuesday meeting Olson, and in subsequent correspondence Czeczok, claim the city staff provided inaccurate tax rate and tax levy information to the council.

City staff reported the preliminary 2008 levy of $3,982,796, and its proposed tax rate of 44.68 percent is an increase of 4.86 percent from 2007's tax rate of 42.68 percent. At Tuesday's meeting, Olson provided his own numbers by dividing the tax levy by the preliminary tax capacity. He said the math was a simple formula and he disputed numbers staff provided, saying his figures showed a tax-rate increase of more than twice what the city staff was claiming to reach the proposed levy.

A levy request of $3,982,796 divided by a tax capacity of $8,490,532 equals a tax rate of 46.909 percent, not 44.68 percent, Olson said.

Thursday, Olson said he stands by his numbers as they are based on what City Administrator Dan Vogt provided. If the numbers are wrong, Olson said it's because Vogt failed to provide all the information about the variables the city staff was using in its calculations.

Olson based his calculations on a sheet city staff provided to council members for a budget session. Olson was unable to attend the session.

At Tuesday's meeting, Theresa Goble, Brainerd finance director, questioned if Olson was taking into consideration such things as tax-increment financing districts, JOBZ parcels and rural service districts, which all alter the tax capacity and thus the tax rate. Rural service districts give people who live within the city limits but don't have city services a reduced tax rate.

"The bottom line is the calculations are not simple math in determining the city of Brainerd's tax rate," Goble said Thursday.

In an e-mail to individual council members, Czeczok said Goble's excuses at Tuesday's meeting were "a smoke screen to buy time and confuse the council." The TIF zones, the JOBZ zones and the rural service districts are only used in the calculations by the county, Czeczok said.

Not true, said Kathi Sharp, Crow Wing County taxpayer services supervisor.

Sharp said the city is responsible for adjusting the tax capacity for TIF districts, but the county will assist cities. Getting through the information is so complicated that the county began providing Brainerd with a worksheet to help the city calculate the numbers. That started about eight years ago, when TIF districts and rural service districts came into play. Sharp said calculating Brainerd's tax capacity and rate is the most complex of any city in the county as it has the greatest number of variables. Brainerd is the only city in the county with both JOBZ zones and rural service districts.

Sharp said she didn't see errors or issues with the preliminary figures the city was setting forward.

Olson used a letter from the League of Minnesota Cities organization to support his calculations and simple formula strategy. Olson said he was referred to a new employee at the league to answer his questions and used the figures Vogt provided. He had nothing else to go by, Olson said. And, saying he and Vogt don't get along, Olson never called the city staff to clarify the numbers when he was looking into why there were differences in his calculations and the city's. He instead called the league for additional information.

Rachel Walker, manager of policy analysis at the League of Minnesota Cities, talked to Olson a few times last week. She recently spoke to Goble as well. Walker sent Olson a letter with the calculations he asked her to make. The letter answered the math questions as to what the levy would be if the tax capacity was a certain number and the tax rate was a specific number.

Reached at her St. Paul office Thursday, Walker said the numbers she used did not consider TIF districts or JOBZ zones. Those adjustments are all used to determine taxable tax capacity, Walker said.

Walker said her numbers did not take into account any of the adjustments that have to be considered for the tax rate. The city's job is to certify the tax levy, with that information going to the county, which takes into account the adjustments, Walker said.

"The only things a city sets is the levy, they do not set a (tax) rate," Walker said. The county sets the tax rate.

Sharp said there will be adjustments to the raw data, which the county provided to the city so city officials could put preliminary information together for the council. Adjustments, like changes in TIF districts or new homestead applications or assessor corrections, may continue through the year's end.

Taking the 2007 tax rate and applying it to the estimated tax capacity for 2008 doesn't take changes in rural service districts or JOBZ zones into consideration, Sharp said.

Even the worksheet the county designed to help the city is complicated, Sharp said. Once the city sets its budget and tax levy, the county will figure out the rate, she said. Olson said he isn't sure what the correct numbers are now, but if city staff members were considering a number of calculations, all those should have been listed on the sheet the council used for its budget workshop.

If the simple calculations are all that go into it, Goble pointed to Olson's Sept. 4 memo in which he noted that he was providing the correct information in simple math. For that calculation, Olson took known numbers to help make his point. He took the 2007 tax capacity number of $8,241,083 and multiplied it by the 2007 tax rate of 42.689 percent to get the 2007 tax levy dollars of $3,518,015.

But Goble points out the actual 2007 certified tax levy, which is a known number not an estimate, was $3,509,766. The county confirms that number as correct. The difference - $8,249 - between the actual levy and numbers created by Olson's formula should have been the first clue that the simple formula doesn't work, Goble said.

Olson said that when he saw that difference, he figured the city had made an error in its 2007 calculations. In previous years, he had not had the time to check out the numbers in such detail, he said.

In Czeczok's e-mail to council members Bonnie Cumberland and Goedker, Czeczok said he was disappointed that the council members did not challenge figures given by Goble. Czeczok also sent the e-mail to the Dispatch in an envelope with Olson's return address.

"The two of you, along with the other four should be ashamed of yourselves for sitting back and accepting whatever staff blows your way," Czeczok wrote to the council members.

Council members were contacted and asked if they thought they were being misled by the city staff in regard to the financial data for the budget talks.

"I don't think we are being misled," said council member Lucy Nesheim, adding that Goble explained the differences at the council meeting. Mayor James Wallin said he did not feel misled in any way and that the city has professional people working for it, including a financial director who has been outstanding.

Olson and Czeczok are not taking all the factors into account, Wallin said.

"I think they are going to have egg on their face and I think they are going to have to make a public apology," Wallin said.

Olson is chastising without having all the facts and is showing poor leadership as an elected official, Wallin said.

Goedker checked the math and went back to look at previous years. He said Olson's numbers are correct using the simple math and that would mean the council's numbers have been wrong every year since Goedker joined the council. Goedker said he believes challenging government is good and that if information is incorrect, that concerns him, but a closer review should be made before jumping to conclusions and making accusations. Czeczok's e-mail was abrasive to council and staff, Goedker said.

"At this point I don't want to take any sides but it definitely warrants reviewing," Goedker said.

Council President Kelly Bevans voted with Olson against the preliminary levy Tuesday.

"I believe we are getting accurate, timely information from our city staff," Bevans said. "We never know the exact tax capacity numbers until January. That's why we vote on a dollar figure, not a rate. It can't be done at this point because we don't know those numbers."

The rate always comes after the county sets the tax capacity, and that information is ready by early 2008, Bevans said.

"I would prefer to take the calculations from the finance department over Alderman Olson," Bevans said. "I just believe the finance department, with their years of experience working with the county, will give us the right percentage."

Reached at home Thursday, Czeczok said he still has questions as to whether TIF, JOBZ zones and rural service district calculations pertain to the preliminary levy numbers.

As for Goedker's description of his e-mail as abrasive, Czeczok didn't deny it. If the League of Minnesota Cities had included an asterisk noting that variables needed to be considered and that straight, simple math may not be the only calculations for the city, Czeczok said he would never have raised the questions about the finance director or sent the e-mail. Czeczok said that when he wrote the e-mail, he believed it was correct at the time.

"If I'm in error I can admit that and move on," Czeczok said.

Olson wanted to know why all the variable information wasn't provided to the council in which elected officials make the final decisions.

"That wasn't done."

RENEE RICHARDSON may be reached at renee.richardson@brainerddispatch.com or 855-5852.