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February 26, 2011

Our View: Reform key to future of Local Government Aid

The Free Press

— The future of small-town Minnesota, of outstate cities, will depend on Minnesota legislators’ ability to think creatively about funding critical assets in times of shrinking revenues.

The first question however, that all legislators, urban, suburban and even rural, need to agree on is: Is outstate and small-town Minnesota an asset worth preserving? It’s not always a slam dunk. Several outstate legislators campaigned on cutting local government aid “largesse” to outstate Minnesota. Though, in fairness, some have moderated their view now that they’ve seen the numbers.

Of course, those of us who live in outstate Minnesota have many reasons to believe these towns are state assets. Test scores of small town schools are generally higher than average. Crime is lower than average. People tend to be friendly, volunteer more on average and be involved in their churches, their community and the various nonprofit organizations.

In essence, much of small-town Minnesota and outstate can be considered what Garrison Keillor might call places where people are “above average.”

Still, the system of Local Government Aid that has been set up 30 some years ago, and modified some since then, may need major revisions in the context of other government programs.

Local Government Aid makes up only about one-third of the $3.4 billion of expenditures in the Minnesota budget categorized as “property tax relief programs.” Many suburban communities benefit from the $1 billion in direct property tax refunds and $500 million in the property tax relief program called market value homestead credit.

While much of the focus on cutting government spending has been focused on the direct aid of LGA, other relief programs have flown under the radar. Most don’t understand that the so called “market value credit” program has for years poured billions of state dollars into property tax relief for Twin City suburbs, some of them very property wealthy. We don’t see the Minnesota Chamber of Commerce calling for cuts in these “tax expenditures,” even though the are “reverse earmarks.”

These inequities are the kind of things that allow a $2 million commercial property in Wells to pay almost $10,000 a year more in property taxes than the same sized business in Burnsville. As LGA has been cut, the disparities and overall property taxes have grown. LGA has been cut by 45 percent in inflation adjusted dollars since 2002.

So now is the time for legislators to look at real reform. And if the Minnesota Chamber is going to be  against LGA funding, they need to be offering solutions for the inequities described above.

And the Legislature must consider reform of taxes and tax expenditures, which are, de facto spending by the state. Tax expenditures are tax breaks that cost the taxpayers money. For every dollar some business gets in a sales tax exemptions, the average Minnesotan must pick up. For every property tax break someone gets in Burnsville, folks in Wells must pay extra.

The whole system seems a bit piecemeal. Over the years we have created a patchwork for funding government services that has created imbalance throughout the state. We need to take advantage of this crisis to examine overall funding mechanisms and create more equitable funding of baseline services.

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