Minnesota 2020 has repeatedly demonstrated that cuts in state aid to local governments have compelled these local units to increase property taxes as they are cutting budgets.  Since 2002, county, city, and school district property taxes have soared at the same time that real per capita and per pupil school revenues have fallen.

Townships have not been immune to state aid cuts over this period either.  In 2010, the township share of the “market value homestead credit” was cut by approximately $5 million statewide.  The cut was imposed by reducing the township’s credit by 3.66% of their certified levy, subject to various caps.  These cuts were initially imposed by the Governor in his July 2009 unallotment and subsequently incorporated into House File 1671 (chapter 215), which became law in April.

The one-year cut in township budgets was bad enough.  To make matters worse, the same amount that was cut in 2010 will continue to be cut in future years.  For example, the 2010 market value homestead credit cut for White Bear Township—the largest township in the state—was $97,000.  Each year in perpetuity (until the law is changed), White Bear Township will have its market value credit reduced $97,000.

The market value homestead credit cuts undermine accountability in two ways.  First, it will allow the state to claim credit for property tax relief to homeowners that it is not actually giving.  For example, the property tax statements of homeowners in White Bear Township for 2010 reflect aggregate state paid property tax relief of $105,000.  In fact, the total amount of state paid relief actually received by the Township will be only $8,000. The property tax of White Bear Township homeowners will not increase as a result of the credit cut, but White Bear Township will be left with a $97,000 hole in its budget.

Second, the cut will compel townships to levy more than they actually need in anticipation of the credit reduction.  As with all credits, the amount of the market value homestead credit is actually built into a jurisdiction’s property tax levy. The problem for the foreseeable future is that townships will not receive the full amount of the credit.  For taxes payable in 2011 and thereafter, townships will have to increase their levies by the amount of the market value homestead credit cut in order to obtain the full amount they actually need.

For example, assume that the amount of revenue needed by White Bear Township for 2011 is $2,565,000 (the amount of the Township’s certified levy in 2010).  In order to get $2,565,000, the Township will have to levy $2,662,000—$97,000 more than the Township actually needs—because the township will not actually receive $2,662,000 because of its $97,000 credit reduction.

Oh, what a tangled web we weave.  Townships will have to certify a levy that is greater than they actually need in order to generate what they do need.  Residents will see their property taxes go up—not knowing that all or some of that increase is not going to pay for increased spending, but to make up for a cut in state paid property tax relief.  Fiscal transparency and accountability is thus undermined.

Cuts in aids and credits to local governments are the state’s way to avoid the need for a state tax increase by shifting its budget problems on to Minnesota local governments and property taxpayers.  Expect more of this type of policy shenanigans until the state puts its fiscal house in order.

5 people like this post.

Unlike

The House and Senate budget reconciliation conference committee have worked out a preliminary compromise on aid and credit cuts to Minnesota counties and cities for 2010 and 2011 (corresponding to state budget years FY 2011 and 2012).  The understanding among those who have been following the budget negotiations at the Capital is that the Governor’s office has signed off on these agreements.  If the conventional wisdom is correct, these aid cuts will become part of a budget balancing bill that will address a portion of the projected budget deficit.

The good news is that the preliminary compromise will avoid the massive $445 million cut to 2010 county and city general purpose aids and credits (including unallotments) proposed by the Governor; the 2010 cuts will instead be based on the House’s budget proposal, which is very close to the Senate’s proposal.  The aid and credit cuts under the proposals from the House, Governor, and Senate were summarized in a March 23 Hindsight post.

The bad news is that the 2010 county and city cuts under the House proposal (including unallotments) will still be approximately $300 million–or about 31 percent of total county and city aids and credits.  Since 2002, local governments have cut their budgets more than state government.  Under the preliminary compromise this trend will continue.

It should be noted that the aid and credit cut compromise is preliminary and has yet to be formally approved by the budget reconcilation conference committee, much less passed by the full House and Senate and signed into law by the Governor.  Nonetheless, it currently represents the “best guess” as to what county and city general purpose aid and credit cuts will be.

Given that a meaningful revenue increase is apparently “off the table” during the current legislative session, the House and Senate negotiators have done a reasonably good job protecting property taxpayers and public services from the impact of the more draconian cuts proposed by the Governor.

However, property taxpayers and local governments are still not out of the woods.  The topic of cuts to K-12 education and health & human services (HHS) has yet to be addressed.  Deep cuts in these areas could translate into further reduction in school funding, more shifting of HHS costs to counties, and higher property taxes.  Continued pressure should be placed on the Governor and legislature not to solve the state’s budget mess on the backs of local governments and property taxpayers.

9 people like this post.

Unlike

The Governor, House, and Senate have laid their cards on the table regarding cuts to 2010 aids and credits.  The House and Senate are proposing to cut a combined total of about $300 million (31%) from county and city general purpose aids and credits.  These cuts are deep by any standard, except in comparison to the cuts proposed by the Governor.  The Governor’s budget would chop a whopping $445 million (45%).

The plans proposed by the Governor, House, and Senate all adopt the 2010 aid and credit unallotments proposed by the Governor last July.  The Governor makes huge additional cuts on top of the unallotments, while the House and Senate make relatively modest cuts.  The tables below show the total 2010 general purpose aid and credit cuts—including unallotments—for all Minnesota counties and cities being proposed by the Governor, House, and Senate.  (City aid and credit cuts are the same under both the House and Senate plans.)

Find county-by-county details on 2010 County Program Aid (CPA) cuts below.
2010 CPA cuts – MN2020

And more details on 2010 Local Government Aid (LGA) cuts for specific Minnesota cities below.
2010 LGA cuts – MN2020

The total cut in 2010 county aids and credits is $192 million (53.1%) under the Governor’s budget, $119 million (33.1%) under the House budget, and $120 million (33.3%) under the Senate budget.  The 2010 cuts for cities are $253 million (40.9%) under the Governor’s budget and $180 million (29.3%) under the House and Senate budgets.  Counties will also be affected by budget cuts in other areas, such as health and human services, corrections, and payments in lieu of taxes for DNR-owned state land; the impact of these additional cuts is not shown in the tables.

The percent cut in 2010 aids and credits vary significantly from jurisdiction to jurisdiction.  For example, the City of Afton will lose 100% of its 2010 aids and credits under the Governor’s budget, while Milaca will lose “only” 31.5% of its aids and credits.  However, because of previous cuts and due to the fact that Afton is a relatively high property wealth community, it was receiving only $25,465 in total 2010 aids and credits.  Milaca, which has about the same population as Afton, will lose $231,351 in 2010—about nine times more than Afton.  When comparing the aid cuts in different communities, both the percent loss and the dollar loss should be considered.

The 2010 aid and credit cuts will be particularly hard for counties and cities to deal with, given that they are already nearly a quarter of the way through their budget year and given that the total real per capita revenue of both levels of government has already dropped significantly since 2002.  Furthermore, the option of increasing 2010 property taxes to make up for the aid loss is off the table, since levies for 2010 have already been set.

Budget cuts are inevitable given the massive state budget deficit and the Governor’s refusal to consider a revenue increase to deal with even a portion of the problem.  However, given that local governments have already cut their budgets more than state government, there is no need to inflict more pain than necessary on counties and cities.  The House and Senate aid and credit cuts—as steep as they are—are far more fair than the draconian cuts proposed by the Governor.

10 people like this post.

Unlike