Nearly $7.5 million of the federal recovery funds the City of Rochester expects to receive could be used to keep tax increases down for five years.

“This doesn’t include adding expenses,” Deputy City Administrator Aaron Parrish said of the proposal to use the funds to decrease future levies.

The city used $2 million from its reserve funds last year to avoid a property tax increase, and coming back from that would likely spur a 8.23% increase next year with an anticipated reduction in state aid and reduced local lodging tax collection.

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City Administrator Alison Zelms said the potential increase reverses some 2020 and 2021 pandemic spending cuts, but it doesn’t necessarily restore all cut funding. She said future budget discussions will determine how funding returns to cover costs of some city policies.

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“When we make one-time revenue adjustments for what is an ongoing expectation, we have to either be able to build back in the revenue that supports those expenses or decide what is the appropriate level of service is appropriate,” she told the Rochester City Council on Monday.

She added that the potential long-term adjustments will be considered as the city works on its 2022 budget.

What happened: The Rochester City Council discussed a proposed plan for the nearly $17.5 million the city is expected to receive through the American Rescue Plan Act.

Why does this matter: The proposal would spend a portion of the money on decreasing future tax increases and address a variety of proposed city projects and programs.

What's next: City administrators will continue working on proposals, which will eventually be presented to the council for final approval.

Parrish said using a portion of the nearly $17.5 million the city will receive from the federal American Rescue Plan Act will help reduce potential impacts to property owners.

Under the preliminary proposal reviewed Monday, the projected 8.23% increase would be reduced with nearly $2.9 million, which could reduce the levy increase by 3.5 percentage points. It would reduce the potential levy increase to 4.73%.

Future budgets would use other federal funds to continue to buy down levy increases based on anticipated city needs while also reducing budget challenges.

The remaining $10 million in anticipated federal funds for pandemic recovery, along with $5 million saved through use of previous federal support, will be used to address a variety of community needs, including housing, economic recovery and facility needs.

“We are coming to you today without a lot of detail,” Zelms told the council as Parrish outlined potential spending.

The largest potential spending would be $6 million to offset future costs of a proposed $20 million district energy plan. Parrish said the funding would either reduce the need to borrow funds or offset increased utility fees.

“This represents an opportunity to minimize future costs that the council will have to be thinking about,” he said, adding that the proposed district energy system will be considered an economic driver aimed at attracting new business.

With another $2.5 million proposed to cover costs related to deferred facility maintenance throughout city buildings and $800,000 for energy conservation efforts, council member Nick Campion said more details are needed to justify the spending on facilities and infrastructure projects.

“It feels like a really significant portion of the recovery funding is going to that,” he said, adding that the city should look at how it can provide citywide support for recovery efforts.

Council President Broke Carlson said she’s hoping the final plan results in a mix of internal government support to stabilize the budget, as well as programs aimed to help people and businesses in the community.

“We clearly have flexible resources to do so,’ she said.

Parrish said the city’s $17.5 million is only a portion of potential local support that will be seen through the federal American Rescue Plan. Olmsted County is receiving $30.7 million, and several targeted programs will help in other areas of the community, including business and other supports.

“There’s a local conversation about how we can tap in and navigate people into those resources,” he said.

The preliminary proposal for the city funds includes spending $1 million for affordable housing and affordable living projects, $500,000 for programs that could address housing and food needs in the community, $500,000 to support workforce development projects and $500,000 to re-engage downtown.

Parrish said specific programs haven’t been defined, but the goal is to gauge council interest before a more detailed spending plan is generated.

“This is a starting point for the conversation,” he said.