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City property taxes rise in the ‘no new taxes’ era

With property tax payments due this week, Minnesotans are painfully aware that property taxes — including city property taxes — have increased tremendously during the era of “no new taxes,” which officially began with the ascension of Gov. Tim Pawlenty and his conservative allies in 2003. What may come as a surprise is the fact that despite property tax increases, real per capita city, county, and school district revenue has fallen.

This analysis is based on data from the most recent “Price of Government” report prepared by Minnesota Management & Budget and will extend from the last year under a budget set during the Ventura administration (CY 2002/FY 2003) through the last year of the current biennium (CY 2010/FY 2011).  (“Price of Government” data after FY 2007 are not final.)  All amounts in this analysis will be expressed in constant current-year dollars.

This article will address cities. [Three other articles in a four-part series will deal with counties, school districts and local governments collectively. Those articles are being published on Minnesota 2020’s website this week and Monday, Oct. 19].

Real (i.e., inflation-adjusted) per capita city property taxes have increased by 13.3 percent from 2002 to 2009 with another 6.9 percent growth projected for 2010.  In total, city property taxes are projected to be 21.1 percent higher in 2010 than in 2002.

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However, the increase in city property taxes has not translated into an increase in city revenue.  Real per capita city revenue in 2010 is expected to be 10.9 percent less than it was in 2002.  Despite substantial growth in property taxes, total city revenue fell because the property tax increases were not sufficient to replace state aid cuts. After the unallotments announced by the governor in July, real per capita state aid to cities in 2010 will be 44 percent less than in 2002.

From 2002 to 2010, total state revenue directed to Minnesota cities is projected to decline by $156 per capita. The increase in city property taxes will be sufficient to replace about 55 percent of this revenue loss. Consequently, total city revenue from property taxes and state aid is expected to decline by $70 per capita from 2002 to 2010.

Of course, cities receive funds from sources other than state money and property taxes.  Among the other sources of city revenue included in the “Price of Government” report are charges for licenses, fees, special assessments, enterprise revenues, and federal dollars. However, collectively these revenue sources have also declined since 2002.  Consequently, none of the $70 per capita decline in revenue from property taxes and state money was recouped through a net increase in other revenues.

The situation with cities illustrates the practical impact of the so-called “no new tax” policies pursued at the state level. The State of Minnesota has experienced a decline in real per capita revenue since 2002.  The state has been unable to balance its budget through cuts in state spending or through fee increases alone and, with few exceptions, state tax increases have been off the table.  Consequently, the state has balanced its budget by shifting a disproportionate share of the problem on to cities and other local governments.

In the face of a massive loss of state aid, cities have had two options: increase property taxes and cut budgets. They have done both. In fact, cities have cut their budgets far more than the state government has done since 2002.

This is the legacy of the “no new tax” agenda in Minnesota. The state’s budget problems are shifted to cities, thereby compelling city officials to do what state leaders do not have the fortitude to do: increase taxes. At the same time, the state’s chief executive complains about growth in city spending — even though Minnesota cities have been more frugal than state government.

Jeff Van Wychen is a fellow at Minnesota 2020, a progressive, nonpartisan think tank based in St. Paul. This and other articles in his series can be seen on its website.

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Comments (4)

  1. Submitted by Richard Schulze on 10/15/2009 - 10:18 am.

    Arguments that Minnesota should be forced to cut budgets because they have grown bloated and irresponsible are strained, at best. State government spending and employment are no larger today as a share of total economic activity and employment than they were three decades ago. Cuts in state and local government outlays are sure to be a substantial drag on the economy in 2009 and 2010.

    If state and local government along with education and health services benefit significantly from the economic stimulus plan, is it wise for the state to be cutting the very programs that the stimulus is trying to impact?

  2. Submitted by Thomas Swift on 10/15/2009 - 11:51 am.

    During hard economic times, the thoughtful voter will be well advised to be alert to the actions of his, or her elected representatives.

    Tens of thousands of Minnesotan’s have lost their jobs, uncounted more have experienced significant losses in income due to mandatory, non-paid time off and salary decreases.

    Feckless politicians and their paid mouthpieces can be counted on to appear in news articles and other public forums pointing their fingers and squirting tears as they squeeze their already hard pressed constituents to maintain an unsustainable status quo.

    But along with the rabble, adversity shines the light on true leadership in cities and counties lucky enough to have the kind of smart, dedicated leaders that find ways to maintain critical services while sparing their hard working citizens another crushing tax increase.

    Compare the 42% increase in taxes Saint Paul mayor Chris Coleman has levied in his four year tenure against the skillful financial management shown by the Dakota County board of supervisors which allowed them to pass a budget with no increase in taxes this year.

    Witness the mind numbing lunacy of the mayor of Minneapolis as he spends tens of millions of dollars on roof top putting greens while simultaneously trotting across the state with a tin cup.

    You can probably imagine the silence in the city hall of Woodbury as the council worked to craft a budget that makes due with what is at hand and asks for no increased financial sacrifice from their constituents…no tears, no finger pointing, just good financial management and thoughtful leadership.

    Next year, we will again have the chance to consider the actions of the people who wish to lead our communities….I suggest we reward leaders like those in Dakota County and Woodbury and release feckless charlatans like Chris Coleman and RT Rybak to find rewarding careers selling used cars.

  3. Submitted by dan buechler on 10/15/2009 - 02:47 pm.

    Agglomeration, combined statistical area, conurbation, ecumenopolis, eckistics, whatever I again’t. Especioully if I kan’t pronounce it. Build me a wall no one can get over or out of and me kin r fine. Just keep me watch over my black gold or my texas tea like Jethro taught me and rotate them their crops and I be fine. Anyways will be curious to see how this plays out with an aging population.

  4. Submitted by Richard Schulze on 10/15/2009 - 03:33 pm.

    Ah, “the thoughtful voter”….

    Would that be the majority of thoughtful voters that voted to “increase their taxes” in an effort to “increase spending” for clean water and the arts? Or are you perhaps referring to the minority of thoughtful voters that voted against it?

    Or are you thinking of the “thoughtful voters” that constantly revert to name calling and demagoguery in order to make a point?

    I always find it comforting to see what thoughtful and educated voters will do when given the chance to reject the rage and demagoguery in politics. Perhaps these are the voters that you refer to.

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