Apocalypse Not – Thanks to Local Control

Back in 2010, the League of Minnesota Cities commissioned researchers at the U of M's Humphrey School to examine the future of city budgets in Minnesota.  The resulting projections of impending doom were stunning even by today’s norm of headline-grabbing disaster forecasts.   Those researchers projected if no changes in city services and funding were made, Minnesota cities of every size and in every region would be broke by 2015.   According to the report, the analysis was based on three key assumptions: LGA funding would be essentially flat, services remained at current levels, and "no property tax levies were raised."

We expressed objections to the study methodology and its conclusions at the time centering around that last assumption which struck us as fundamentally nonsensical.     Why would any examination of future city budgets treat the cornerstone of city government finance in this manner?  Especially when city governments have the complete authority to raise levies at whatever level is needed to finance their budgets.   

Be that as it may, 2010-2017 hasn’t exactly been the Old Testament’s “seven years of plenty” for city governments.   Certified local government aid payments are now $93 million (22%) above their 2010 levels, but most of that stemmed from one very large post-“Great Recession” restoration of previous LGA cuts.    News reports tell us since 2010 cities have cut services, pursued service redesign, and sacrificed needed capital investments all to balance their general operating budgets.    But the LMC/Humphrey Institute’s dystopian forecast of municipal finance has failed to materialize thanks to the local property tax.   Since 2010, certified city levies have increased by $420 million (23% or 3% per year).     And yet, according to the Department of Revenue’s latest residential homestead property tax burden report, property tax claims on homeowner income are at a decade low.

This legislative session has featured a lot of voices expressing grave concern about the loss of local control and efforts to strip local governments of their power.    So it’s incredibly ironic that the most important dimension of local control – reliance on the property tax -- is seen by so many of these same advocates as a problem to be addressed rather than a policy to be embraced.    City governments have at their disposal the most essential and important ingredient of local self-determination -- the unconstrained, unobstructed authority to tax to meet their residents' needs and expectations.     The power to tax without a meddling parent government setting limits is the foundation of self-rule. 

City officials do face a challenge thanks to public confusion, frustration, and distrust about local property taxation.   This suggests that they -- and other advocates for local control -- should do everything in their power to make the property tax more understandable and acceptable to the public.  At a minimum, this requires city governments to communicate to taxpayers just how their levy was derived, what costs have gone up and why, and how all these moving parts affect taxpayers' property tax bills.    This also includes advocating for an end to the state general tax and restoring the property tax as a local-only revenue source -- rather keeping the tax and crossing fingers that the parent will use some of that money to increase their allowance.

Local control of property taxes makes the projections of fiscal doom in the LMC/Humphrey School report a non-starter.  Failing to dispel public confusion and distrust about property taxes is far more likely to turn that forecast into a reality.