A howl arose from property tax watchdogs shortly after Gov. Mark Dayton sent his initial 2016-17 state general fund budget recommendations to the Legislature. It offered cities and counties no increase in state aid and taxpayers no increase in the chief property tax relief program, the homestead credit refund. Dayton had forsaken overburdened property taxpayers, the critics charged.
Dayton’s aides countered that the proposed general fund budget is not all the DFL governor is seeking this year. The $11 billion, 10-year transportation funding hike he’s also proposing has the potential to reduce the use of local property tax dollars for road maintenance and construction, thereby repurposing or reducing property taxes, they said. It also modestly expands local tax bases by altering railroad property taxation.
True? Yes, in many instances. But it is also true that without a change in the distribution of state transportation funds and/or the Minnesota Department of Transportation’s local cost-participation requirements, a surge in transportation spending could increase the costs borne by cities — particularly smaller ones — and hence add to their property tax levies.
Minimizing that downside risk for local governments is among the challenges the 2015 Legislature and Dayton should tackle as they consider what to do about an increasingly inadequate transportation system.
And while there are numerous reasons for state government to boost transportation spending, holding down property taxes ought not rank high among them. State policymakers have more effective tools with which to clamp down property tax growth.
The experience that West St. Paul is having with the reconstruction of Robert Street is illustrative. Robert is a state highway, but state funding to date is expected to cover only $5.6 million of a $31 million project slated to begin this summer. The city’s expected share of the cost is $11 million. West St. Paul is asking the Legislature for a rare single-project appropriation of $8 million, in the hope of bringing its share of the costs down.
“If we don’t get extra help, the Robert Street project is either going to push back all our other local capital projects for years or be on the tax levy,” city manager Matt Fulton said. The projected hit on an average-value home in the city would be $138 per year for 15 years, he said. Fulton says more state funding for transportation is sorely needed, but so are changes that reduce the local costs of projects such as the Robert Street rebuild.
The share of state gas tax receipts that flow to cities and counties was fixed via a constitutional amendment in 1956 — when Minnesota’s population was 3.2 million and far fewer cities were home to more than 5,000 people. It’s a prime example of the hazard associated with fixing such formulas in the hard-to-amend Constitution. Today’s population is 5.4 million, and the 9 percent of gas tax receipts the Constitution directs to cities of more than 5,000 is spread thin and flows much more in the direction of the metro area than voters in 1956 could have anticipated.
Smaller cities are omitted entirely from the formula, though state law directs counties to steer a portion of their 29 percent gas tax share to small cities. The Legislature has also provided money for local roads and bridges via the general fund and general obligation bonding.
But the local participation MnDOT requires when state highways are improved within small cities can still be onerous, said Anne Finn of the League of Minnesota Cities. That cost often includes improvements in sewers, utilities and access roads that are not eligible for state financing.
Last summer, St. Paul Mayor Chris Coleman rallied about 20 of his mayoral counterparts into the “84 Percent Coalition,” so named because 84 percent of Minnesota’s city streets are financed locally. The cost of maintaining those roads has become “a major challenge for cities across the state” that would be only modestly eased by raising the state’s gas tax, Coleman said last week. His advice to state politicians who want to assure that property taxes don’t climb because of transportation costs: Direct more state transportation dollars to cities.
To their credit, Dayton and Sen. Scott Dibble, the Senate DFL transportation leader, are listening. Dayton has directed MnDOT to reassess what it calls its “cost participation policy” to minimize local government costs. Legislation Dibble is sponsoring would make the same directive. The Minneapolis DFLer said he is also interested in giving local governments tax options other than the property tax for financing the local share of highway projects.
Meanwhile, House Republicans have said they’re willing to pump $200 million in state general fund money over the next four years into local roads and bridges. That’s a one-time drop in a $6 billion bucket of state road needs. But we’ll take it as a sign that the new House majority is also interested in holding down transportation’s toll on property taxpayers, and we’ll hope for a more substantial House GOP transportation bid soon.