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Councilmember LeTourneau asked how the Equipment Revolving Fund was established. Finance Director Lund explained how the fund balance was built up and the negative impact of six years of levy limits. She stated another factor is that in prior years, the City received a higher percentage of interest. City Administrator Ulrich stated the City had some good years in having a large surplus that was distributed 10% into the Equipment Revolving Fund, which also helped to build that balance. Chairperson Riley stated this shows up in the budget but the revenue is coming from the Revolving Loan Fund, not from the General Levy. He stated he does not support the five -year budget as drafted, noting the assumption is slow growth of 1 -2 %. Finance Director Lund stated the five -year budget was based on Anoka County's conservative numbers for assessed value. Chairperson Riley stated the expenses are growing faster than 1 -2 %, and it creates a problem when revenue does not keep up with expenses. He stated he does not want a five -year budget that uses that scenario. City Administrator Ulrich stated these are initial assumptions and if the Council wants to drive to a solution, it needs to determine what can be done to create a balanced budget in five years. Chairperson Riley noted the Strategic Plan indicates the Council can only implement what the City can afford so there may be a need for two levels of budget. Finance Director Lund agreed that Strategic Plan items will have to be removed to maintain a tax capacity rate of 43.37 %. She noted this is a "first glance" at what is included in the CIP and it is known that the next step is to make cuts. City Administrator Ulrich stated this scenario had no expenditure restraints and it can be refined to three or four scenarios with a range of Strategic Plan items included /removed. Chairperson Riley agreed it would be helpful to see those scenarios. Councilmember LeTourneau asked when the tax capacity was 23% or 15 %. Finance Director Lund stated in 2008 when the State took over the school portion, the tax capacity increased. Then when the market value homestead credit was removed, it was subtracted from the tax capacity rate, resulting in a lower evaluation and driving up the tax rate. Councilmember LeTourneau supported a conversation on the comfort level for increasing the tax capacity rate over time. Finance Director Lund stated the tax rate is up to the Council and the number they are comfortable with. She noted that other legislative changes may come into play and another Finance Committee / November 12, 2013 Page 5 of 7