Friday, April 24, 2009

A capital dispute over levy limit repeal
This week, Governor Pawlenty and Senate Tax Committee Chair Tom Bakk exchanged barbs about the property tax impact of their respective state budget proposals. The Governor contended that Bakk's bill would have the effect of increasing property taxes by nearly $900 million, with a little less than half of that attributed to Bakk's proposal to eliminate levy limts on cities and counties. Senator Bakk countered that the Governor's plan would actually increase local property taxes by more than $600 million due to state aid and credit reimbursements to cities and counties. Bakk also believes the estimate of a $415 million property tax increase due to the elimination of levy limits greatly exaggerates the likely pressure on the property tax for counties and cities.

Is Senator Bakk right? Gary Carlson, Intergovernmental Relations Director for the League of Minnesota Cities, thinks so and offers this analysis:

"All of the property tax numbers being bandied about are estimates and originate from a non-partisan working group of House, Senate and Revenue Department analysts. This group annually considers the factors that will likely impact the budgets and property tax levies of local units of government in order to project overall levy increases. The estimation methodology considers recent trends in city and county levies, recent trends in the measure of inflation for local governments, state aid cuts, pent-up pressure due to the fact that levy limits were in place for 2009, and some rough survey information from the largest cities and counties.

Truth be told, no one knows precisely how city councils and county boards will react to the challenges of state aid and credit cuts, a weak economy, a shrinking tax base, and demands by residents for local services. The circumstances faced by city councils are unlike anything that has been experienced in local government since the early 1980s or perhaps since the Great Depression. All of this means that assumptions historically used to project future property tax levies may not be accurate right now. Unfortunately, policy decisions, including decisions on state aid cuts and levy limits, will be based on assumptions."