Local taxes come from local governments (don't blame GOP)

  • Article by: JULIANNE ORTMAN
  • Updated: September 20, 2011 - 9:18 PM

The Legislature is not to blame -- the GOP has worked toward needed reform.


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Legislators in St. Paul don't propose or pass local property tax levies. Residential property taxes go up or down based primarily on local spending decisions and the valuations of properties in each community.

Cities and counties will pass their 2012 budgets in December, acting independently to set spending levels appropriate for their respective communities.

Yet we keep hearing the warning from the DFL (repeated by the media) that property taxes are going up because the GOP Legislature refused to pass Gov. Mark Dayton's income tax increases.

It's worth dispelling the myths behind this message.

Myth 1: The state cut local government aid to cities and county program aid to counties.

The truth is that LGA and CPA payments were maintained at 2010 levels through 2013 -- no increase, no decrease.

In 2009, Gov. Tim Pawlenty made unallotments that reduced LGA and CPA from $768.6 million to $591.3 million for 2010. The DFL-controlled Legislature adopted Pawlenty's reductions for 2010-11, but made them temporary.

Given the deficit, it was never reasonable for any city or county manager to budget for a 2012 increase in aid. Dayton and the Legislature approved 2012-13 payments at the same levels as 2010-11.

Back in 2010, as now, some at the Capitol assumed local officials would dramatically raise property taxes. In reality, property tax levies across the state went up just 1.9 percent from 2010 to 2011 -- the smallest increase since 2002.

For the most part, local leaders in 2010 chose to reduce spending rather than raise taxes in response to reductions in state aid. There is no reason to believe they are any less concerned now about exercising fiscal discipline.

We simply have more government than we can afford -- at all levels of government.

Myth 2: Reforming the failing Homestead Market Value Credit program will force an increase in property taxes.

Eliminating the program was proposed and supported by the League of Minnesota Cities, the Association of Minnesota Counties, the Minnesota Inter-County Association and the Association of Metro Municipalities.

Their proposal was the subject of many hearings at the Capitol and was passed in the final 2011 budget solution because the credit program wasn't working.

In its 10 years of existence, the program, a chronic victim of roller-coaster deficits, was fully funded only once. In nine of 10 years, the state required counties to include a credit on residential property tax statements but failed to fully reimburse local government for the cost.

The state's failure to pay for the credit caused budget uncertainty for local governments and left local officials holding the bag for the state's empty promises to taxpayers.

The 2011 reforms repealed the credit and replaced it with a new exclusion of value, replicating the benefit of the credit to homeowners almost exactly.

 To buffer any residual impact, the 2011 budget solution included a $30 million expansion of the state's property tax refund program, which provides direct relief to homeowners whose property taxes are high relative to income.

The impact of reform will vary slightly by jurisdiction, but only local leaders can decide how much to spend and how much to tax local property owners. It's disappointing to hear some local leaders trying to blame the Legislature for the results of their own legislative initiative and their own budget decisions.

Myth 3: Cutting the state's tax aids and credits to local governments forces them to increase property taxes.

The real question that legislators grappled with all session was this: Just how much can the state afford in subsidy payments to some cities and counties? These subsidies represent almost 10 percent of state general-fund spending. And what a tangled web!

The state collects sales and income taxes across the entire state, only to turn around and give subsidies to local governments in some cities and not others.

More than half of Minnesotans live in cities that don't qualify for LGA, yet the state will spend $1.18 billion on LGA and CPA in fiscal years 2012-13.

More problematic is the fact that these subsidies get sent to cities and counties, who often spend the money rather than redirecting it to taxpayers for property tax relief.

This is an important principle of GOP-led tax reforms: Property tax relief should be paid directly to taxpayers, not to cities and counties. This strengthens the relationship between voters and local leaders by improving transparency.

Taxpayers should know who makes taxing decisions, why they are paying the tax, and exactly how their money is being spent.

All elected leaders should remember that these funds aren't ours; they belong to residents. In this troubled economy, families and businesses are struggling to make ends meet.

Government should only raise sufficient funds to pay for demonstrable needs -- not wants -- and should allow Minnesotans to keep as much of their hard-earned income as possible.

* * *

Julianne Ortman, R-Chanhassen, is a member of the Minnesota Senate.

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