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Coalition of Greater Minnesota Cities says LGA needs to be in campaign talk

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Candidates need to describe how they will solve a $5.4 billion state budget deficit -- hopefully without raising property taxes by cutting state aid to cities, says the Coalition of Greater Minnesota Cities.

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"The candidates for governor now have to come clean," Tim Flaherty, lobbyist for CGMC, said Monday in a briefing. "If you're one who wants to eliminate it (Local Government Aid), then we want to show the impact to the community - less public safety, more cuts in services and much higher property taxes."

State aid to cities, or Local Government Aid, has been cut each budget year by Rep. Gov. Tim Pawlenty, despite saying as a candidate he would preserve the aid and hold down property taxes.

The Minnesota Department of Revenue shows that property taxes have increased from $4.02 billion in 2002 to $6.98 billion in 2009.

""If people want to vote for that, it's their choice," Flaherty said. "We want it out on the table - what are the cuts, what are the tax increases and what are the impacts of those things."

Lawmakers, when they left St. Paul last month, balanced the current biennium budget, mostly by ratifying the unallotments made by Pawlenty a year ago that the Minnesota Supreme Court declared unconstitutional. But they left unsolved a potential $5.4 billion deficit in the next biennium -- nearly twice the size of the deficit handled this session.

"We want to push for answers from these candidates about -- even if they support Local Government Aid -- how much do they support it in view of the $5 billion to $8 billion deficit," Flaherty said.

Four of the five major party candidates support LGA, he said, with Republican Rep. Tom Emmer seeking to eliminate LGA, or at least change the distribution formula to gain more aid for the suburbs.

Candidates should delineate how they would solve the huge deficit -- with specific cuts and specific tax increases, Flaherty said.

Steve Peterson, senior policy analyst for Flaherty & Hood, the CGMC's lobbying firm, said 92.5 percent of the state's expenses are in health and human services, K-2 and higher education, property tax credits and aids and public safety.

"Of the remaining $2.9 billion, there is $1.1 billion in debt, and we have to pay our debt," Peterson said. "You have $1.77 billion left for everything else the state does -- state government, natural resources, economic development, ag, transportation, energy, environment."

Peterson says when candidates talk about reforming the Department of Employment and Economic Development, or environment and natural resources agencies, it comes out of the latter.

To talk serious budget reduction, K-12 education needs to be discussed, which has been off the table, Peterson said, or health and human services, which has been on the table but cuts affect the poorest and the elderly. Property tax aids and credits need to be on the table, but that leads to higher property taxes. Cutting higher ed means higher tuition. And public safety has been off the table.

The top 15 state programs spent 85 percent of the state's money, Peterson said. K-12 education tops the list with 32 percent or $12.53 billion. LGA is ninth at $1.15 billion for the biennium, or 3 percent.

Pawlenty, during his eight years, has sought to cut LGA each year. In 2010, LGA and market value credit cuts will be 29 percent less of certified amounts for 2010. With LGA and the credits amounting to 3.4 percent of the 2010-11 general fund budget, the current LGA and market value credit cuts amount to 8.3 percent of the general fund budget, or 16.8 percent, not including school funding shifts.

"The public should not vote for anybody this year who doesn't have some answers about this $5 billion deficit," Flaherty said. "If they can't tell us what they're going to do, we shouldn't be voting for them."

All parties need to be asked, Peterson said, as tax increases push4ed by the Democrats alone won't solve a $5 billion deficit.

In most cases, allowing cities to raise local sales taxes 1 percent instead of receiving LGA won't help much, Peterson said. In many cases, the city tax rates and revenue disparities would grow by as much as 250 percent if the sales tax were allowed.

"Some cities, because they have such a strong tax base, if they had a 1 percent sales tax, they would actually have no sales tax whatsoever," Peterson said. "Cities without strong retail would see an increase in property taxes, and would increase the disparity among communities."

"LGA is there to reduce disparities among communities," Peterson said. Cities receiving LGA have a net tax capacity of 41 percent while tax capacity for non-LGA cities (mostly the suburbs) is 28 percent. "So there's already a gap."

But if LGA were eliminated and cities levied it back on property taxes, net tax capacity for those cities would jump to 61 percent, Peterson said. "Sixty-five percent of LGA goes to greater Minnesota because we have 25 percent of the tax base," he said.

Bemidji's 2010 net tax capacity rate is 40 percent, Peterson said. Bemidji would have to raise its property tax levy 80 percent to offset the total loss of 2010 LGA.

"We want answers from these candidates about what they're going to do with this $5 billion to $8 billion problem, and where does local aid fit into that picture," Flaherty said. "People are going to demand that."

Flaherty says he remains optimistic that the 2011 Legislature will keep LGA at the level prescribed -- $527 million.

"We understand they will have to raise state revenues to do that, but we think that is the best thing to do right now is go ahead and raise those state revenues," he said. "Which ones and how much should be up to them."

CGMC has supported sales tax increases, income tax increases, when it's needed, such as in a recession. "It's only going to make the recession worse to keep cutting services, cutting personnel. When they cut public sector jobs, school jobs, and schoolteacher jobs has a ripple effect in the private economy that's very negative."

Y bswenson@bemidjipioneer.com

Candidates need to describe how they will solve a $5.4 billion state budget deficit -- hopefully without raising property taxes by cutting state aid to cities, says the Coalition of Greater Minnesota Cities.

"The candidates for governor now have to come clean," Tim Flaherty, lobbyist for CGMC, said Monday in a briefing. "If you're one who wants to eliminate it (Local Government Aid), then we want to show the impact to the community - less public safety, more cuts in services and much higher property taxes."

State aid to cities, or Local Government Aid, has been cut each budget year by Rep. Gov. Tim Pawlenty, despite saying as a candidate he would preserve the aid and hold down property taxes.

The Minnesota Department of Revenue shows that property taxes have increased from $4.02 billion in 2002 to $6.98 billion in 2009.

""If people want to vote for that, it's their choice," Flaherty said. "We want it out on the table - what are the cuts, what are the tax increases and what are the impacts of those things."

Lawmakers, when they left St. Paul last month, balanced the current biennium budget, mostly by ratifying the unallotments made by Pawlenty a year ago that the Minnesota Supreme Court declared unconstitutional. But they left unsolved a potential $5.4 billion deficit in the next biennium -- nearly twice the size of the deficit handled this session.

"We want to push for answers from these candidates about -- even if they support Local Government Aid -- how much do they support it in view of the $5 billion to $8 billion deficit," Flaherty said.

Four of the five major party candidates support LGA, he said, with Republican Rep. Tom Emmer seeking to eliminate LGA, or at least change the distribution formula to gain more aid for the suburbs.

Candidates should delineate how they would solve the huge deficit -- with specific cuts and specific tax increases, Flaherty said.

Steve Peterson, senior policy analyst for Flaherty & Hood, the CGMC's lobbying firm, said 92.5 percent of the state's expenses are in health and human services, K-2 and higher education, property tax credits and aids and public safety.

"Of the remaining $2.9 billion, there is $1.1 billion in debt, and we have to pay our debt," Peterson said. "You have $1.77 billion left for everything else the state does -- state government, natural resources, economic development, ag, transportation, energy, environment."

Peterson says when candidates talk about reforming the Department of Employment and Economic Development, or environment and natural resources agencies, it comes out of the latter.

To talk serious budget reduction, K-12 education needs to be discussed, which has been off the table, Peterson said, or health and human services, which has been on the table but cuts affect the poorest and the elderly. Property tax aids and credits need to be on the table, but that leads to higher property taxes. Cutting higher ed means higher tuition. And public safety has been off the table.

The top 15 state programs spent 85 percent of the state's money, Peterson said. K-12 education tops the list with 32 percent or $12.53 billion. LGA is ninth at $1.15 billion for the biennium, or 3 percent.

Pawlenty, during his eight years, has sought to cut LGA each year. In 2010, LGA and market value credit cuts will be 29 percent less of certified amounts for 2010. With LGA and the credits amounting to 3.4 percent of the 2010-11 general fund budget, the current LGA and market value credit cuts amount to 8.3 percent of the general fund budget, or 16.8 percent, not including school funding shifts.

"The public should not vote for anybody this year who doesn't have some answers about this $5 billion deficit," Flaherty said. "If they can't tell us what they're going to do, we shouldn't be voting for them."

All parties need to be asked, Peterson said, as tax increases push4ed by the Democrats alone won't solve a $5 billion deficit.

In most cases, allowing cities to raise local sales taxes 1 percent instead of receiving LGA won't help much, Peterson said. In many cases, the city tax rates and revenue disparities would grow by as much as 250 percent if the sales tax were allowed.

"Some cities, because they have such a strong tax base, if they had a 1 percent sales tax, they would actually have no sales tax whatsoever," Peterson said. "Cities without strong retail would see an increase in property taxes, and would increase the disparity among communities."

"LGA is there to reduce disparities among communities," Peterson said. Cities receiving LGA have a net tax capacity of 41 percent while tax capacity for non-LGA cities (mostly the suburbs) is 28 percent. "So there's already a gap."

But if LGA were eliminated and cities levied it back on property taxes, net tax capacity for those cities would jump to 61 percent, Peterson said. "Sixty-five percent of LGA goes to greater Minnesota because we have 25 percent of the tax base," he said.

Bemidji's 2010 net tax capacity rate is 40 percent, Peterson said. Bemidji would have to raise its property tax levy 80 percent to offset the total loss of 2010 LGA.

"We want answers from these candidates about what they're going to do with this $5 billion to $8 billion problem, and where does local aid fit into that picture," Flaherty said. "People are going to demand that."

Flaherty says he remains optimistic that the 2011 Legislature will keep LGA at the level prescribed -- $527 million.

"We understand they will have to raise state revenues to do that, but we think that is the best thing to do right now is go ahead and raise those state revenues," he said. "Which ones and how much should be up to them."

CGMC has supported sales tax increases, income tax increases, when it's needed, such as in a recession. "It's only going to make the recession worse to keep cutting services, cutting personnel. When they cut public sector jobs, school jobs, and schoolteacher jobs has a ripple effect in the private economy that's very negative."

bswenson@bemidjipioneer.com

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