Dear George:

Here are a few facts of interest concerning this year's $2,954,000 Budget Surplus:

The greatest combined contribution to the surplus comes from sales, meals and lodging taxes ($1,133,000). Sales, meals and lodging taxes are very sensitive to the strength of the economy. Our budget surpluses in the past two years can rightfully be said to be the result of the city enjoying a vigorous economy.

Interest income from the city's fund balance ($1,162,000) is the second largest source. Council's long-standing policy has been to maintain a 12% fund balance (the "rainy day fund") - some of which is mandated by the State - in order to cushion the city against unexpected shortfalls in revenue or unanticipated expenses. This fund earns interest for the city.

The contribution of the Real Estate Tax to the Budget Surplus is small, only $380,000. A two-cent reduction in the real estate tax would reduce income by more than this amount ($453,736 from a $.02 reduction). The real estate tax is the largest and most stable source of city revenue.

A two-cent real estate tax reduction would result in little actual savings for the average homeowner. For example, the average Belmont homeowner, with an $80,000 assessed market value on their home, would save $16 per year. A Johnson Village homeowner with assessed value of $135,000 would save $27. In contrast, the ten largest property owners in the City (apartment owners, developers, etc.) would gain much larger amounts - some in the range of $10,000 or more. Some argue, perhaps correctly, that returning money to the largest property owners will stimulate the economy of the city. Others prefer that the savings from a tax cut be distributed more evenly across the citizenry.

There have been some interesting tax cut proposals offered during this campaign season. One proposal, offered by John Pfaltz, is to reduce the tax rate for homeowners with assessed home values under $120,000. As assessments rise in people on fixed or low incomes are hit hard with increased taxes, and this idea is proposed as a way to provide relief. However, state law requires that the city tax on assessments of 100% of the market value of the property, and we cannot legally tax at different rates depending upon the value of the home. We can't choose to tax someone whose home is valued at $119,000 at one rate and tax his neighbor whose home is valued at $120,000 at a higher rate.

The city provides tax relief for the elderly and people with disabilities. To qualify, people must not exceed certain limits of income and assets. We should revisit the tax relief ordinance so that these limits keep pace with inflation, or find some other creative and legal means to make the ordinance more progressive.

I thought some of this information would provide perspective on the Budget Surplus, its sources, and the effects of various proposals to cut taxes. I look forward to reading other responses to your call for comments.

Meredith Richards (electronic mail, April 28, 2000)