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Locals wary of property tax cap

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Gov. Pawlenty
Gov. Tim Pawlenty made property tax caps one of his priorities during budget negotiations this year.
MPR photo/Tom Weber

Gov. Tim Pawlenty has been pushing for a cap on property tax increases for years, and this year he finally got his way.

"This is going to have a very positive effect on containing and limiting property taxes in Minnesota as we go forward," Pawlenty said at a news conference Monday.

And for years, Gary Carlson, from the League of Minnesota Cities, has been lobbying against the cap.

"We have a long-standing opposition to any sort of state-imposed limitation on property taxes," Carlson said.

Carlson said city governments are perfectly capable of weighing the costs and benefits of a tax hike. And they don't appreciate the Legislature tying their hands.

"Our city council members and mayors live in the communities with the residents that have to live with those decisions," Carlson said. "And I know for a fact that most of our city officials find it to be a difficult decision to raise property taxes."

But difficult decision or not, they have been raising them. Carlson said city property tax levies have gone up an average of 8 percent a year in the last few years. Now the increase will be capped at half that.

St. Paul raised its property tax levy by 15 percent in December. And it's staring down a $13 million deficit for next year. Mayor Chris Coleman is no fan of the cap, but he said the city did get some help from the state this session.

"First of all, obviously, we're happy that they put some additional local government aid into the formula," Coleman said.

Local government aid is money the state gives some cities and counties to help with their budgets. To soften the blow of the property tax cap, the Legislature put an extra $64 million into that program. Six million of that will go to St. Paul, covering almost half of its budget gap. So, Coleman gives the property tax package a mixed review.

"I'm a believer and I think the governor has expressed in the past that he believes in local control, but it's kind of: 'a half a loaf is better than none," Coleman said.

Minneapolis Mayor R.T. Rybak released a statement saying Minneapolis will be able to balance its budget in spite of the cap. The statement suggests Minneapolis will try to take advantage of some of the exemptions the Legislature made to the levy cap. There are nearly two dozen of them, including one that would allow local governments to surpass the cap to pay for public safety.

Rybak said in the statement that he is "glad to see progress from the Legislature and Gov. Pawlenty on property tax relief."

Jim Mulder, who heads up the Association of Minnesota Counties, is far more critical.

"We think that in this first year, it's bad," Mulder said. "We're really concerned about the second and third year is that it could be horrendous."

Mulder's big concern is about local government aid. He is worried that if the state faces another big budget deficit next year, that money will be right back on the chopping block.

Many county services are mandated by law, and simply can't be cut. Mulder said that means any cuts will have to focus on three areas: county road maintenance, environmental services and health programs.

"It might be some prevention programs. It might be providing shots for flu, or even in-home health services for people who need those kinds of services," Mulder said.

Hennepin County Commission Peter McLaughlin said the 3.9 percent cap comes at a bad time.

"We were already looking at layoffs with anticipated increase in property taxes that was higher than that," McLaughlin said.

McLaughlin said part of the problem is: At the same time the economy is squeezing the county budget, it's also increasing demand for its services.

"We're in businesses that tend to increase during a recession, whether it's uncompensated health care from people who lose their health insurance coverage, or people who are out of work or lose their homes," McLaughlin said. "We're the place where people knock on our door and ask for help when they're in trouble."

The League of Minnesota Cities' Gary Carlson worries cities might balance their budgets by delaying maintenance on their infrastructure. And Carlson warns that will end up costing more over time.

"It's easy to not seal-coat a street for one year and save that money," Carlson said. "But in the long run, that road may require a full upgrade much sooner because it has not been maintained as rigorously as it has in the past."

But the effects on local government services are only half of the tax cap story. Governor Pawlenty points out that along with a program that gives tax rebates to low income homeowners, the cap will provide $460 million dollars in property tax relief over the next three years.