Budget negotiations may focus on tax relief

Gov. Pawlenty's proposal to rein in rising property taxes involves two main strategies. Individual homeowners could receive direct relief through a system of tax credits and refunds. There is also an increase in state aid to local governments, which rely on property taxes for a majority of their funding.

Revenue Commissioner Ward Einess says Pawlenty did the most he could with the limited money available for property tax relief.

"With the resources we had, $150 million in permanent property tax relief, I think the governor did an incredible job of getting at the problem areas of the system," he said.

Part of the money would help lower tax bills by providing homeowners with tax credits based on the assessed value of the home. Another portion provides refunds to individuals based on income.

Pawlenty has also proposed an annual $10 million increase in aid to local governments. Einess says property taxes are expected to increase about 6 percent for an average-valued home. He says the governor's proposal would cut that increase in half.

But to some advocates for cities the plan comes up short.

"The budget is heavily anti-rural," said John Sundvor, with the Coalition of Greater Minnesota Cities. Sundvor says Pawlenty's proposal to increase aide to local governments is a fraction of their goal. Sundvor is also unhappy that Pawlenty wants to cap property tax increases in 87 cities and counties. The cap would be roughly the rate of inflation. The limit would apply to cities and counties that receive more than a third of their general fund revenues from the state. Sundvor says that unfairly targets rural parts of the state.

"You're basically saying 'if you're a city and you have enough money, you can do anything you want. But if you're a struggling city in rural Minnesota, we're going to tell you how to do it.' We've got a governor from the Republican Party, the party that preaches local control, practicing centralized government," Sundvor said.

Pawlenty has also put some strings on the extra funding for St. Paul and Minneapolis. He's recommending that any new aid to those two cities be targeted to public safety.

Pawlenty says city leaders complained in past years that state budget cuts have forced them to make cuts to police and fire departments. He says he wants to ensure the new money is targeted to public safety programs.

"We've heard the concern about public safety being such a priority and they always entangle the LGA debate by saying, 'We can't do what we want to do in public safety because of LGA money.' Well now we're giving them LGA money and we're challenging them to put it where it's most important: public safety," the governor said.

The mayors of Minneapolis and St. Paul object to the governor's current proposal, complaining that it's micromanaging their budgets.

In addition to health care and education, property tax relief is expected to be one of the major sticking points in budget negotiations between the governor and state lawmakers.

Legislative leaders on both sides of the aisle say Pawlenty's proposal doesn't go far enough. Rep. Denny McNamara, R-Hastings, says voters told him that they wanted to see property tax relief soon.

"There's a real opportunity for us to do something there and I would say that was one of the frustrations that our caucus had," McNamara said. "We wish there would have been more tax relief because that's really in response to what we heard folks say."

Rep. Paul Marquart, DFL-Dilworth, called Pawlenty's proposal "woefully inadequate." He says he'd like to see twice the amount of property tax relief that Pawlenty proposed.

But Marquart, who chairs the House Property Tax Relief Division, likes Pawlenty's plan to increase money to local governments.

"He put that on the table so now the governor and the House and the Senate and the governor will have increases in local government aid on the table at the end," Marquart said. "Certainly how much is going to be the debate."

Committees in both the House and Senate will continue to hold hearing on their own proposals on property tax relief.

Ward Einess, the revenue commissioner, says he's optimistic that the governor and both legislative bodies will reach an agreement.

"For the most part, I'd say 70 to 80 percent of the levers that we're all pulling, are the same levers. It's just a matter of how much we're pulling each lever," Einess said.

Lawmakers and the governor have to reach agreement on which levers to pull, and how hard, by May 21.

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