Waseca is unusual among Minnesota cities: It is beginning its fourth year without an increase in the city’s property tax levy, and it has held the line on taxes without cutting employees.
Mayor Roy Srp, who is proud of those accomplishments, says that reductions in city services affect a community’s quality of life and that citizens notice. But cutting personnel starts to fray the very fabric of a city.
“Employees are woven into the community,” said Srp. “Communities need sustainability and city employees, the police, the fire department, all are part of how we get and keep sustainability.”
It’s no wonder that Srp is among the many mayors around Minnesota who believe the sustainability of their communities is in jeopardy as the state comes to grip with a $6.2 billion budget deficit. Some legislators are suggesting that a significant share of the cost-cutting will be at the expense of local governments and property taxpayers.
“We had a barebones budget before (the budget crisis) started,” said Srp. “What can we expect now?”
Big worries by many local officials
That’s the question being asked by many local government officials who have cut their budgets deeply, only to see local property tax bills continue to skyrocket. They worry that their cities no longer will be able to offer the services and amenities at a cost that attracts and retains residents and businesses — if they are able to offer them at all — and that they will have to lay off public workers and add to the economic woes of their communities.
But many other Minnesotans are asking: Does the 40-year-old programs of intergovernmental transfers and property tax subsidies still make sense? Taxpayers who have their property taxes subsidized directly through property-tax refunds or indirectly through direct payments to local governments and the market value homestead credit don’t see the full cost of government services. That insulates city councils from accountability.
In the next biennium, Local Government Assistance (LGA), property tax refunds and market value homestead credit are projected to cost about $2.8 billion, a tempting pot of money for legislators who want to protect spending on education and health and human services.
Advocates acknowledge that LGA isn’t perfect. “But no one has put up a policy that is better,” said Tim Flaherty, who lobbies for the Coalition of Greater Minnesota Cities. “So the question is, ‘How much of rural Minnesota will disappear without LGA?'”
Several reform outcomes sought
Certainly, some legislators are simply looking for places to cut spending with the least political fallout. Most critics, though, aren’t urging that aid to communities or subsidies for property owners disappear completely. But they do want reforms that will direct more assistance to individuals on the basis of need, will make the cost of government services more transparent, will impose more accountability in programs that now have a disconnect between those who benefit from public services and those who actually foot the bill and will encourage greater innovation and collaboration among local governments.
Some cutting is inevitable. But the goal should be reform, not just less spending. Here’s what I think reform could look like:
First, LGA should continue, even if the amount is reduced. “The state has handcuffed communities and made them dependent on LGA,” said Jack Geller, a professor at the University of Minnesota-Crookston and one of the state’s most respected voices on public policy affecting rural communities. “Communities can’t all of a sudden, abruptly, shift gears.”
Second, changes should be incorporated into broader tax reform. Public funds would be used more efficiently if more property tax subsidies went directly to individuals on the basis of need, rather than to communities. The local citizens could then choose to spend those dollars on local government services, but the governments would have to make the case, with transparency and accountability.
Third, more aid should be directed to reform and long-term needs. Mark Haveman, executive director of the nonpartisan Minnesota Taxpayers Association, has two suggestions: Create an innovation fund. (While many are calling for more sharing of services among governments, for example, there often is a cost to such collaboration.)
And fund larger capital investments.
Fourth, give local communities more flexibility and fewer mandates. Critics often complain that local officials haven’t been willing to make the tough decisions. Yet, so often, spending decisions are taken out of their hands. Take for example, labor negotiations. Many public employees have the right to demand binding arbitration (in some cases, a trade-off for not being allowed to strike). Edina police, for example, were recently awarded a 3 percent increase in both 2010 and 2011, far above the city’s 0.5 percent offer. Not only will it add $173,000 to the city’s 2011 budget, it sets a precedent for other city labor contracts.
This isn’t to suggest that the public would be better served if police went on strike. Rather, it’s a reminder that legislators should trust mayors and city council members to run their cities. Instead, too often they impose expensive requirements on city governments, provide no funding beyond LGA and limit the amount local governments can tax.
A three-year sunset on all unfunded mandates imposed by the state on local governments would give the Legislature, local officials and others time to decide which mandates are worth keeping, which ones the state should pay for and which ones should be allowed to go away at the end of the three years.
LGA is a vital program to many Minnesota communities. But it also is a 40-year-old program. It’s time to look to the future rather than protecting the past. And as Bill Blazar, senior vice president of the Minnesota Chamber of Commerce said, “We need to be every bit as bold today as they were in 1971” when LGA was created.
Tom Horner was the Independence Party candidate for governor in 2010. Previously, he was a principal in the public affairs firm of Himle Horner Inc.
