Officials consider increasing property tax levy to make up for shortfall

It's the time of year when city officials throughout the state decide whether to increase property taxes to balance their budgets, and the budget deal that ended a state government shutdown last month didn't make the task any easier.

The Republican-controlled legislature and Gov. Mark Dayton agreed to freeze Local Government Aid payments at current levels for the next two years. But as expenses continue to rise, local leaders view the frozen disbursement as a cut that will require them to cut local spending and raise taxes to balance the books.

Among those decrying cuts in local aid is St. Paul Mayor Chris Coleman, who last week announced a proposed property tax levy increase of 6.5 percent. Coleman said that his city had sustained another painful funding blow from the state and he blamed the Minnesota Legislature for once again not coming through with sufficient Local Government Aid.

"Repeatedly, cities across Minnesota have warned the Legislature that the continued erosion of local aid doesn't prevent tax increases," Coleman said. "It only increases the burden to property owners, placing particular harm on homeowners on fixed incomes and small business owners."

It could have been worse. Dayton vetoed a Republican-backed tax bill passed during the regular session that would have phased out local government aid for St. Paul, Minneapolis and Duluth. The bill he signed after a special session held LGA for all cities at 2010 levels.

But local leaders point out that those 2010 levels were reduced in the previous session, and the cost of government keeps going up.

"Everything keeps growing," Austin Mayor Tom Stiehm said. "When you maintain something at the same level as last year, that's a cut."

Austin may have to increase local taxes by 14 percent. Stiehm said he doesn't feel good about a double-digit tax hike, but he said Austin ranks near the bottom of the list in Minnesota when it comes to per capita taxes.

"During the 80s and 90s, there were a lot of years when Austin's LGA was increased, where the city went with no increases in their tax increases or minimal increases," he said. "Now as we're losing LGA, we're either going to have to slash services quite a bit, or we're going to have to make that up, and we're trying to do both."

City leaders throughout Minnesota have similar complaints.

Moorhead officials are considering a nearly 20 percent levy increase. But City Manager Michael Redlinger said LGA is only part of the story. Redlinger said the levy increase also makes up for state changes in the homestead tax benefit.

In the past, the state provided a property tax credit and paid local governments to make up the loss. Now the benefit will come in the form of an exclusion that lowers the value of a person's home for tax purposes. That lowers the local tax base and forces local governments to spread the burden over less property, which in turn will force officials to increase taxes for many property owners.

"I know that's going to be played out all across the state in every county and every city, as they determined what the impact is going to be on their homestead property owners," Redlinger said.

Republican legislative leaders question the need for a further tax levy. House Speaker Kurt Zellers said some cities might have pressing needs for additional revenue. But after holding LGA at current levels, Zellers said it's too early for local tax increases.

"I would probably caution them that there's a lot of voters out there that are going to look at that and are going to say 'Why?' " Zellers said. "We heard that over and over again. 'Why are you raising my taxes, and what's it going for?' "

State Sen. Julianne Ortman, R-Chanhassen, said she's disappointed with some of the proposed tax increases. Ortman, who chairs the Senate Taxes Committee, said cities simply have to get used to the idea of getting less money from the state.

"They need to make some tough choices and look for efficiencies, consider consolidation and not just point blame," Ortman said. "They should take responsibility for the management of their city's affairs."

Ortman said she thinks there will still be a need for state aid to make sure all cities can provide basic and essential services, but further discussions are needed on the state's future role in funding local government. She said a legislative study group on property taxes is expected to recommend some changes next year.