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LGA decline stands out in report

March 10, 2011
By Per Peterson

State Sen. Gary Kubly criticized former Gov. Tim Pawlenty and the current Republican majorities Wednesday in light of the Minnesota City Finances Report for 2009 that highlights a significant decline in revenue cities receive in state aid and corresponding increase in property taxes.

Kubly, DFL-Granite Falls, said Pawlenty went against his "no new taxes" pledge with cuts to Local Government Aid that resulted in $3 billion in property tax increases for every Minnesota homeowner and business owner.

Kubly also called the Republican-controlled Legislature's proposal to erase the state's $5 billion budget shortfall that includes cuts in aid payments to local governments and would result in an additional $322 million property tax increase "the wrong direction for middle-class families. The Department of Revenue tells us for every dollar cities lose in LGA they recover 67 cents of that with an increase in property taxes. That's led to a $3 billion increase in property taxes over the last so many years."

Gov. Mark Dayton has proposed to erase the deficit with a new permanent top income tax bracket of 10.95 percent - a proposal Republicans have rejected because of potential negative impact the move could have on the state's business climate. Dayton recently withdrew his proposal for a 3 percent temporary surtax on the state's top earners after Minnesota's projected deficit shrank from $6.2 billion to $5 billion.

The auditor's report showed how cities are relying more on property taxes to meet financial needs while reducing expenditures and revenues. The amount of revenue cities received from intergovernmental sources like Local Government Aid decreased from 30 percent in 2000 to 26 percent in 2009. During this timeframe, the amount of city revenue received from property taxes increased 14 percent - from 23 percent in 2000 to 37 percent in 2009.

The report also showed that Minnesota cities have cut their spending by 8 percent between 2000 and 2009 to make up for these cuts in state aid and found that the largest areas of city expenses are road maintenance and public safety - making up about half of most cities' budgets.

"I think it points out how smaller communities depend on LGA and what they are really losing out on if that gets whacked again," Kubly said. "When we were on the bonding tour the year before last we were in a community about the size of Granite Falls and a man from the city said they had three projects but he only discussed two of them. We said, 'what about this third project you submitted paperwork on,' and he said it was for the police department but the council met the other night and decided to disband the police department so they didn't need that one. So people are giving up some pretty essential services already."

Dayton has proposed $1.5 billion in state funds so local governments can avoid aid cuts, and says any Republican-backed cuts will result in local property tax increases.

Marshall Mayor Bob Byrnes said the city of Marshall has a history of budgeting conservatively but that there "is a purpose for LGA, not only the need that we have to control property taxes, but there's also the fairness issue for providing essential services regardless of where you are in the state."

Byrnes said rural Minnesota relies more on LGA than wealthier suburban communities. He said aside from general fiscal issues that come up because of losses in government aid, there is also a public policy issue at play when it comes to equitability throughout the state.

"Unfortunately, there tends to be more of a need in greater Minnesota, more so than in the suburban communities," he said. "People can choose to live wherever they want and we would hope Marshall has the amenities and affordability so people could choose to live in a community like Marshall or others in greater Minnesota. Suburban communities will argue that they have higher property taxes than greater Minnesota, but their valuations are much higher also."

Dayton met Wednesday with two dozen mayors and city leaders at an event arranged by the Coalition of Greater Minnesota Cities, the Associated Press said. The mayors say over the last decade they've had to reduce employees and cut that things like road repairs and infrastructure improvements have suffered.

Republicans say they'll release a budget proposal later this month.



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