Council pencils in its budget strategy

On Tuesday night, city officials laid out a plan to overcome a projected $1.2 million revenue shortfall and balance Red Wing's 2011 budget.

But support for the plan is shaky, as council members were split over several key provisions - proposals to add new gas and electric franchise fees and to raise Red Wing's property tax levy 2 percent.

Furthermore, while the provisions probably would pass a council vote, they appear to lack the support needed to overcome a likely mayoral veto.

"It appears the mayor is the only thing standing between the business owners and the residents and a tax increase," Red Wing Mayor John Howe said in a statement to the R-E.

Howe said he would "seriously consider" vetoing both the proposed levy increase and new fees if they are approved by council.

Four council members voiced support at Tuesday's budget workshop for raising the levy 2 percent - Lisa Bayley, Ralph Rauterkus, Dan Bender and Jerry Cook.

Four members also supported the proposed fees - Mike Schultz, Dean Hove, Dan Bender and Carol Duff.

But it takes five council members to overrule a mayoral veto.

While council members did not take any official action Tuesday, city officials had hoped they would come up with a complete budget plan to be approved at the Dec. 13 meeting.

The preliminary plan would also tap into the city's cash reserves and raise the storm water utility fee by $1 per resident.

@Sub Heads:New fees

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Proposed gas and electric franchise fees could add $210,000 to the city's coffers next year under the latest projections, according to a city memorandum.

The gas fee would add 75 cents to residents' utility bills, while the electric fee would add $1, according to the memorandum.

It's unclear how the fees would affect businesses' costs, although they too would be billed. Council member Jerry Cook argued the fees should be capped so as not to harm businesses that use large amounts of gas or electricity.

Fees also could be applied to non-profits that don't pay property taxes. Fees are less likely than property taxes to be affected by the state Legislature, Schultz said.

Fees also have a downside, however, Bender said. Namely, they would hit the poor the hardest.

"Clearly the most regressive tax you can have is to increase a franchise fee for people who can barely pay it now," Bender said.

Still, he voiced support for the fees, as he did for the entire proposed budget plan. Bender said the plan takes a balanced approach.

@Sub Heads:Levy hike

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A 2 percent levy increase would boost a $125,000 home's tax bill by $3.42 - from $569 to $572, according to a city memorandum. The increase would add $253,202 to the city's coffers.

In previous budget workshops, Schultz and Hove have been adamant about keeping Red Wing's property tax levy flat.

But Rauterkus and others have argued that keeping the levy flat this year would only force city officials to make a bigger tax hike in coming years.

@Sub Heads: High cash reserves

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Even with the new fees and a higher levy, the city would still need to tap $445,000 from its cash reserves, which are often referred to as a fund balance.

Minnesota cities are encouraged by the state to keep cash reserves equal to 50 percent of their annual budget. This money is used for cash flow purposes and serves as a rainy day fund.

Red Wing's reserves are around 80 percent of its annual budget. Hove said the city's reserves are high because they have put off projects and cut some services.

There was a consensus among council members that it would be prudent to spend down the reserves to help out with next year's revenue shortfall. City Finance Director Marshall Hallock said that would be okay, but cautioned city officials not to go to that well too many times.

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