Minneapolis, St. Paul property tax hikes shine light on lagging state aid

Looks like this fall's Minneapolis and St. Paul campaigns won't be just about policing after all. Not with property tax increase proposals shooting like Roman candles from mayoral offices last week.

Minneapolis Mayor Betsy Hodges — a candidate for re-election this fall — might have drawn a few ooh-aahs for her 5.5 percent proposed increase, were it not for the breathtaking proposal the same day from her lame-duck St. Paul counterpart, Mayor Chris Coleman. He bravely stood before his fellow taxpayers and said that to make up for the loss of the city's right-of-way assessment, recently found to be unconstitutional, the city levy needs (gulp!) a 23.9 percent boost. His recommended increase would be 4.9 percent but for the demise of the assessment, he explained in a tacit plea for mercy.

He soon saw that candidates for governor get none. DFLer Coleman had barely stopped speaking when the GOP-allied Minnesota Jobs Coalition blasted him for "failed 'leadership' " and "out-of-control spending."

Before voters decide whether that's a fair shot, they should know this: If the state's local government aid (LGA) spending had kept pace with inflation since 2003, St. Paul would be receiving $48 million more this year from state taxpayers than it's getting now. That's more than twice the amount needed to replace the lost assessments. In fact, it would be enough to cut St. Paul's 2017 property tax levy by 42 percent.

A similar fiscal story can be told in Minneapolis, Duluth and regional centers throughout the state. Lagging LGA has been a big contributor to two decades of property tax hikes.

The progressive North Star Policy Institute this year tallied that on a per-capita basis, LGA shrank 64.5 percent from 1990 to 2017. Though property taxes on average rose 44.3 percent per capita during the same period, total Minnesota city revenues are down 8.9 percent since 1990.

This year, the Legislature added $15 million per year to LGA's outlays. But the total is still $30 million below the program's 2002 appropriation — and that's without considering what 15 years of inflation has wrought.

Take the comments of two Republican gubernatorial candidates, state Rep. Matt Dean and Hennepin County Commissioner Jeff Johnson, at a July 19 forum in Waconia. These two Republicans don't think very highly of today's LGA, but not because it has atrophied.

"It's confiscatory. It takes money from you and it gives it to somebody else," Dean told the exurban audience. Who else? "You see your tax dollars come out of your pockets and go into the cities of Minneapolis and St. Paul."

Johnson piled on: "The point of local government aid when it was first instituted was to help mostly smaller, rural cities to provide basic services like fire and police, maybe snowplowing, those sorts of things," he said. But now, "the formula has changed so dramatically, the bulk of the [LGA] money goes into the biggest cities that have plenty of tax base to do it. So they're not spending on police, and fire, and snowplowing. They're spending it on hundred-thousand-dollar drinking fountains and all the other silliness that goes on in both Minneapolis and St. Paul."

Permit an interruption for a fact check:

• LGA was never intended only for smaller, rural cities. On the contrary: It likely would not have become law in 1971 if it had not explicitly helped Minneapolis and St. Paul. Their leading legislators, Nicholas Coleman of St. Paul (the mayor's father) and Martin Sabo of Minneapolis, were among the architects of the Minnesota Miracle deal that included LGA. As a 1978 State Planning Agency report explained, LGA was considered a fairness measure for the central cities relative to the metro suburbs, which fared better as state aid to schools dramatically increased under other provisions of the landmark legislation.

• Minneapolis and St. Paul don't receive the bulk of LGA outlays. Next year, they are due to receive 27 percent. Their share has been dropping since the latest formula change was enacted in 2013. (Go to http://tinyurl.com/state-LGA to see how your city will fare.)

• There are no $100,000 drinking fountains in Minneapolis or St. Paul. Former Mayor R.T. Rybak's 2008 proposal for 10 public art fountains at $50,000 apiece was eventually scaled back to four amid intensifying ridicule as the Great Recession deepened.

• It costs a lot to run cities whose populations more than double each workday. In St. Paul, the annual police budget totals $110 million, nearly the equivalent of this year's entire property tax levy. LGA sends St. Paul $62 million this year.

Back to July 19: Johnson went on to say that he thinks LGA should be distributed based on "a need to provide basic services. … We should only allow it to be used for that."

Dean, who voted in 2015 for a tax bill that would have cut LGA to Minneapolis and St. Paul by more than half, said last week that he doesn't have an alternative LGA plan to offer. He sees LGA as helpful to greater Minnesota as "they try to preserve their way of life." For Minneapolis and St. Paul, he said, his priority would be "improving their economic capacity," not sending them more LGA.

I found a way to get a rise out of the mild-mannered mayor of St. Paul. Just share the Republican candidates' remarks with him.

"That's complete baloney!" Coleman said. "The idea that you're going to pit one part of Minnesota against the other and have this state do as well as it should is the most dishonest thing I've ever seen presented." He said that the notion that created LGA 46 years ago is still true: "Minnesota is only as strong as its communities around the state. Trying to pit them against each other is exactly the wrong direction."

Restoring LGA to at least its 2003 level is a "major tenet" of Coleman's campaign for governor. It's no coincidence that it's also the goal of the Coalition of Greater Minnesota Cities. For years, Coleman has been the coalition's most visible metro ally at the State Capitol, even as the coalition has pushed for an LGA increase for Minneapolis and St. Paul as well as their own hometowns.

Theirs has been a durable if not yet very productive alliance, as this fall's proposals for higher property taxes will attest. But the real fruit of their partnership may come to maturity in 2018.