Property tax levies climb despite increased state aid

By Tom Steward | Watchdog Minnesota Bureau

ST. PAUL, Minn. — Minnesota legislators boosted the local government aid program for cities by $80 million in 2013 and sold it as a slam dunk toward lowering property tax levies.

“I would expect we’ll see local government officials … delighted to take the additional resources that the state provides and use that to reduce the property tax burden, because they hear about it just as much as we do here,” Democratic Gov. Mark Dayton said at a July 2013 news conference.

The state’s top revenue official sounded a more cautious note on the likelihood of state aid buying down the tax levies.

“We’ll see how they do it,” said Myron Frans, commissioner of the Minnesota Department of Revenue at the same media event. “It’s up to the local officials. It’s their job to set local levies and the amounts.”

The windfall resurrected the debate over whether local government aid pays down property tax levies or amounts to a down payment on future local levy hikes, which, in turn, pay for increased government spending fueled by the state payments.

As it turned out, more local governments than not — 482 out of 863 Minnesota cities — jacked up local property tax levies in 2014 anyway. Despite a total infusion of $508 million in state aid, property tax levies for business and homeowners increased by 1.6 percent statewide, about the rate of inflation.

It’s just more evidence of the “flypaper effect” theory, which holds that government money sticks where it lands, according to the Minnesota Center for Fiscal Excellence.

“There’s a tendency to market aids as property tax relief or potential property tax relief. The point we’re trying to make is, look, this stuff can make a dent but local governments will spend this money. That means higher spending, and higher potential cost structures in government,” said Mark Haveman, MCFE executive director. “When push comes to shove, ultimately the property tax is always going to be the place that governments are going to go for their primary source of revenue support.”

More Minnesota taxpayers can expect sticker shock in 2015 with preliminary property tax levies averaging 4.6 percent higher statewide on truth-in-taxation forms. The increase escalates local property tax collections from $1.95 billion in 2014 to $2.05 billion next year. The preliminary local levies could still be adjusted lower before the end of the year.

A Watchdog Minnesota Bureau analysis of preliminary 2015 property tax levies filed by all 863 Minnesota cities shows:

• 667 cities increased their proposed property tax levy (149 by double digits)
• 172 cities remained at their current property tax levy
• 24 cities cut their proposed property tax levy

One of the few cities to cut its 2015 levy was Belgrade, which leveraged a $30,000 increase in local government aid into helping reduce the small Stearns County city’s property tax levy by 10.4 percent.

“LGA (local government aid) was part of it, but some of our expenses have gone down, too,” said Tesa Tomaschett, Belgrade city clerk. “We had a couple of long-term employees retire. Therefore, some of the salaries have gone and a couple of our bond payments are done.”

While local government aid plays a critical role in ensuring access to services, it does not constitute a “magic bullet” for holding down property taxes, in Haveman’s view. He cites soaring local property tax levies after a buy-down under the Ventura administration.

“The problem is that the relationship between property taxes, aids, and local spending is a lot more complicated than this. To put it simply, a dollar of aid provided does not turn into a dollar of property tax not levied,” argues Haveman in a recent blog post.

“While some of the new aid dollars undoubtedly translated into property tax relief, it is certainly true that some of the aid increase did pay for increased county, city, township, and school district expenditures,” wrote Jeff Van Wychen, director of tax policy and analysis for the policy group Minnesota 20/20, citing an overall decline in total statewide property taxes.

Lobbyists already plan to urge legislators to bump up local government aid payments further in the 2015 session. The issue tops the wish list for the Coalition of Greater Minnesota Cities, which seeks a funding increase of $45.5 million.

“If the state spends money on property tax relief during the 2015 session, it should prioritize an increase in LGA above other property tax relief programs,” a policy position document on the CGMC website says.

MCFE suggests two options to hold down property tax levies — mandatory limits or, better yet, greater citizen involvement.

“This starts at the ground floor with understanding why your own property tax bill looks like it does and knowing why it is changing,” writes Haveman. “With respect to controlling levy growth, this alternative may lack the political drama of efforts to pump millions more into property tax aids every legislative session, but over the long run it will be a lot more effective.”