Commentary; Posted: 12/18/02

Cutting local aid will be likely with huge state budget deficit

Don Heinzman

If Governor-elect Tim Pawlenty holds fast to his no-taxes pledge at the state level, every property taxpayer will feel pain at the local level in 2004. To overcome a $4.56 billion deficit without raising taxes, the governor and the legislature will have to reduce aids the state pays to local governments, who either will have to drastically cut services, or raise fees and property taxes.

This deficit is too big to handle by just reinventing delivery of governmental services.

Those who are crying for blood and forcing the Governor to keep a pledge he made to get the Republican Party endorsement last spring, had better reexamine the effects of what cutting $4.56 billion would do to providing essential services in Minnesota.

If, as the governor has asserted, he will protect and perhaps even give an increase to K-12 education, that budget represents 42 percent of the total state budget. The combination of cuts and taxes would have to come from the other 58 percent of the expenditures, most likely in health care and in human services.

Before property taxpayers cry ìfoul,î they need to realize that the Legislature two years ago reduced residential homestead property taxes as an aggregate by 12 percent across the state.

This was done through property tax reform plus the stateís taking over most of the local school property tax. The cost of that tax reform and the stateís assuming the local school property tax accounts for $2.5 billion in new dollars over the next two years.

The basis for reducing property taxes at the local level was to make local officials accountable for raising the property tax. Now, raising the property tax is solely up to the local officials.

Most taxpayers saw a reduction in their property taxes this year which is due to be wiped out for taxes payable next year, particularly with passage of school operating levies, increases in taxable values and increases in levies by cities and counties.

The Minnesota League of Cities anticipates property tax increases will be up 9 percent statewide.

Pawlenty and the Republican-controlled Legislature will be tempted to reduce state aid to cities. Next year, cities are scheduled to receive from the state, $587 million. Of that amount, $117.5 million is slated for Minneapolis and $76 million for St. Paul.

Moreover, some cities, particularly those who are property-poor and receive up to 80 percent of their revenues from the state, could be wiped out. Since they are property poor, they could not levy enough on property to make up for the lost state aid.

If aid to cities is cut, cities will have to raise property taxes to make up the difference or cut services drastically. Their major services are police, fire, streets and parks for which they cannot charge fees or higher fees for services. If half of the LGA were cut, fire, police and street services would be decimated.

To be sure, all levels of government will have to slim down, cut spending, reduce reserves, risk cash flow problems and lay off personnel, but make no mistake, if the no-tax-increase mentality wins, local property taxpayers will lose. They will end up paying more for fewer services.

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