A proposed 6.5 percent tax levy increase for the 2022 Rochester city budget is being offset with federal funds and new construction.

Rochester City Administrator Alison Zelms said the recommended $84.8 million tax levy was reduced by $1.4 million by using a portion of the nearly $17.5 million the city is expected to receive through the American Rescue Plan Act.

“We’re not putting the entire amount toward revenue mitigation, because all that would do is push this decision farther, farther and farther,” she told the Rochester City Council on Monday afternoon as she presented her budget recommendation.

RELATED: Federal recovery funds could buy down future Rochester tax increases

The current proposal calls for using nearly $6.3 million through five years to slow the rate of increase needed to fund city services.

Newsletter signup for email alerts

Without it, the proposed 6.5 percent property tax levy increase would have been approximately 8.1 percent.

Zelms said part of the challenge comes from last year’s decision to freeze the property tax levy, which actually reduced tax bills for many city residents and businesses.

The difference is the result of new construction and shifting property values that occurred last year.

“They are absorbing more of the levy,” she said of properties tied to new development or improvements that increase the market value and related tax.

This year, the city is estimating a 4.5 percent increase in market value, with more than a third of that attributed to new construction, which will help reduce the overall tax rate.

Zelms said providing another flat levy in 2022 would require cutting the proposed budget by $5.3 million.

“The only way to do that would be some additional significant reductions,” she said. “Reductions for city services means less service, so that means levels of service would have to change in order to make those expenditure reductions for the foreseeable future.

“You’d have less hours at the library, or you’d have less police on the street, or you’d have a higher potential response time in fire, because you don’t have the personnel or resources to provide the level of services people have come to expect.”

Council member Shaun Palmer noted an $800,000 budget cut would be required to reduce the property tax levy increase by 1 percentage point.

“If you know where you can get $800,000, go ahead and make those recommendations to cut,” he told his fellow council members.

What happened: The Rochester City Council reviewed the city administrator’s proposed 2022 city budget.

Why does this matter: The proposed $494.4 million is a $22.4 million increase compared to the city’s 2021 spending plan and would require a 6.5 percent property tax levy increase.

What's next: The council will continue discussing the budget, along with the city’s proposed 2022 capital improvement program during a study session next week.

The council will continue discussing the budget next week, and Council President Brooke Carlson asked for a better picture of how the proposed levy increase will affect property owners.

“I think just as far as transparency and ensuring as people reflect on this discussion they have a real sense of what it might mean for their families,” she said.

Zelms said preliminary estimates indicate a $275,000 home that doesn’t see an increase in estimated value would face a $25 a year increase. If the home saw the average increase in market value, it would see a $68 increase.

She said a more detailed look at the potential impact to individual taxes would be provided as budget discussions continue.