3-13. Estimating and Setting the General Fund Property Tax Rate in a Challenging Economic and Political Environment. ( 103-4) Background: The city manager of Erickson is finalizing the budget proposal that must be submitted to the city council 60 days prior to the July I start of the next fiscal year, FY 20X2. City revenues have held steady the past year, following a recessionary period in which they had declined. Given improving economic forecasts there has been pressure on the city council members to provide pay raises to city employees who have not had raises in the past three years. Constraints and planning factors: The city council does not want to increase property tax rates or fees in FY 20X2. Retail sales and housing starts are projected to increase slightly in FY 20X2 and the assessed valuation on taxable property is projected to increase 5 percent in FY 20X2. Consequently, the city manager has recommended a 2 percent pay raise for all city employees, which is included in the recommended appropriation. The following information is provided as of May 1 of FY 20X1. General Fund Page 104 Assessed valuation, taxable property (projected assessed valuation, beginning of FY 20X2) $4,947,752,800 Estimated expenditures, remainder of FY 20X1 12,786,100 Recommended appropriations, FY 20X2 78,502,900 Required spendable fund balances, beginning of FY 20X3 Actual spendable fund balances, May 1 of FY 20X1 15,223,000 18,250,000 Estimated revenues from all sources, remainder of FY 20X1 11,705,000 Estimated revenues from sales taxes and other non-property tax sources, FY 20X2 66,414,000 General Fund Assessed valuation, taxable property (projected assessed valuation, beginning of FY 20X2) Estimated expenditures, remainder of FY 20X1 Recommended appropriations, FY 20X2 Required spendable fund balances, beginning of FY 20X3 Actual spendable fund balances, May 1 of FY 20X1 Estimated revenues from all sources, remainder of FY 20X1 Estimated revenues from sales taxes and other non-property tax sources, FY 20X2 $4,947,752,800 12.786.100 78,502.900 15.223,000 18,250,000 11,705,000 66,414,000 PEARS Analysis and estimation of required property tax rate for FY 20X2: After analyzing the preceding information, constraints, and planning factors, respond to the following questions. (Keep in mind, however, that the city council may impose further changes to the budget as a result of the several budget hearings that will be held over the next two months.) a. What amount of estimated revenues is required from property taxes for FY 20X2? (Hint: Make your calculation using the format shown in Illustration 3-6.) b. What tax rate will be required in FY 20X2 to generate the amount of revenues from property taxes calculated in question a? c. Assuming the property tax rate for FY 20X1 was $0.20 per $100 of assessed valuation of taxable property, will the tax rate calculated in question b violate the city council mandate of no increase in taxes? If so, how would you justify the rate calculated in question b. since the city council will likely be sensitive to adverse public reaction to an increased tax rate?