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Annexation concerns: City Council adopts 21.9 percent preliminary levy increase

The Bemidji City Council has decided to move forward with annexation while recognizing that the decision carries financial burdens.

"The reality is the revenues simply do not match the expenditures we anticipate for annexation," said City Manager John Chattin.

The city of Bemidji, per its orderly annexation agreement with Bemidji and Northern townships, is facing in 2010 the first of three potential annexation phases. The agreement, signed by all three entities in 2004, makes available for annexation certain parcels in the two townships in 2010, 2015 and 2020.

The City Council on Monday voted unanimously in a work session to move forward on annexation in 2010, but decided to begin that process after April 1.

It will take about 60 days before the annexation process is complete, according to City Attorney Al Felix, which means the affected properties would enter the Bemidji city limits in early June.

While the city is first given the opportunity to begin annexation proceedings Jan. 2, waiting until April 1 will ensure that the city will not be responsible for the added costs of winter road maintenance.

The added cost of annexation led the council to also unanimously adopt a preliminary levy increase of 21.9 percent, which would amount to a $59 increase to the owner of a $100,000 home.

The recommendation from city staff to proceed with annexation came with a caveat: If the City Council was not willing to levy back in 2010 the losses in Local Government Aid in the last two years, annexation would not be possible.

"I simply don't know how we would do it," Chattin said.

Bemidji lost more than $450,000 in LGA in 2008 and 2009. However, due to those losses, the state lifted levy limits for 2010, allowing for a one-time opportunity to levy back to taxpayers those dollars lost through unallotment.

The annexation discussion was a continuation of sorts of an Aug. 10 work session at which the council voted 4-3 to eliminate the city's community development director position by the end of 2009. Then, Councilor Jerry Downs said he was not comfortable with a 22 percent levy increase and instead suggested a 19.9 percent increase.

Councilor Ron Johnson Monday pointed out that the preliminary levy could always be lowered up until December.

In the meantime, the city plans to meet with both Bemidji and Northern townships and also wait to hear if there are further LGA cuts expected from the state for 2010.

The overall cost of annexation is not precisely known.

A spreadsheet details the expected annual expenses as follows:

- $49,300 a year in expected overtime and supplies needed for the streets department.

- $12,000 for expanded police needs for the community service officer.

- $65,000 for additional police patrol coverage.

- $10,000 for seasonal park employees.

- $13,000 for storm water maintenance.

- $5,000 for refuse overtime and supplies.

While the costs may seem to be heaviest for the police department, the larger impact will be on the streets department.

In addition to the overtime needed for routine road maintenance, many of the new 7 miles of roadway will require improvements, totaling an estimated $1.7 million in five years.

However, the annexation agreement does not give to the city all the initial tax benefits from what would be new city properties.

Instead, the city would get a percentage of the tax increase. In 2010, the city would not receive any of the property taxes from the annexed property, but then would receive $3,500 in 2011, $58,000 in 2012, $115,000 in 2013, $176,000 in 2014 and then the full $241,000 in 2015.

Without the full tax benefits, the city will struggle to meet the increased service demands of annexation, said Bemidji city staffers Monday.

Public Works Director/City Engineer Craig Gray said the city's five snowplow drivers already are driving 110 lane miles per snow event.

"That's more than I've ever heard of," Gray said.

However, despite the challenges, Chattin said he believes annexation is the right decision for the city.

"No one on staff believes that the financial picture a year from now, two years from now, is going to be any prettier than it is today," Chattin said.

Mayor Richard Lehmann noted that officials from the city and the two townships worked diligently for several years to agree upon the annexation plan.

"If we don't do it, I think the council is throwing out a lot of very, very good work," he said.

While the council ultimately voted unanimously for moving ahead with annexation, some councilors suggested that perhaps there was room for further compromise by the two townships.

"It seems to me we put the cart before the horse," said Councilor Jerry Downs.

Downs said the governmental units possibly hammered out an agreement before taking into consideration the financial ramifications facing the city.

"This is the part we should have done first," Downs said.

Gray, however, said that the 2006-2007 years had a better financial outlook. The streets department then had more funding than it does for 2010, Gray said, noting that most streets departments see at least a 2 percent budget increase annually for fuel.

Even just a few years ago, Gray said, there was more funding available to take on larger projects and he would not have been so hesitant about the possibility of annexation.

"It wouldn't have concerned me," Gray said.

Algoma Park

One of the specifics that will be discussed during the future meeting between the city and the two townships is the future of Algoma Park.

Algoma Park, in Northern Township at the intersection of Minnesota Avenue Northwest and Algoma Street Northwest, is included in the properties slated for annexation in 2010.

But Chattin said that he has heard from some township officials that they expect compensation from the city.

"We don't have any money to purchase the park," Chattin said.

The park itself would require about $10,000 annually for maintenance.

Also, the park requires updating, according to city staff. The park boasts two tennis courts, a basketball court, horseshoe pits, picnic areas, a volleyball court, baseball field and picnic area.

But the courts don't have a play surface, and there are no nets on the tennis and volleyball courts. The basketball court is missing a backboard and the benches and picnic tables are in need of repair.

Staff has estimated that about $30,000 is the "bare minimum" for the cost of equipment needed to upgrade the park. The figure does not include installation and repair costs.