Minnesota House Democrats, who spent the weekend in northern Minnesota, found out that cities with state aid cuts were stretching services or raising property taxes.
"The big debate this year is talking about revenue," Rep. Paul Marquart, DFL-Dilworth, said in an interview Sunday. "We know in fact the state has said no new taxes over the last eight years that property taxes have gone up over $3 billion."
As a result, property taxes are now the No. 1 source of revenue for state and local government, at about $8 billion a year, said the ranking Democrat on the House Tax Committee.
Property taxes now account for 32 percent of state and local revenues, while the income tax accounts for 29 percent and sales tax 21 percent.
Marquart said from 2002 to 2010, property taxes have increased 72 percent overall -- 85 percent to homeowners, 46 percent to businesses and 115 percent to farms.
"The problem with that is as we raise a regressive property tax, it really hits rural Minnesota because you have a larger number of seniors on fixed incomes and farmers and small businesses that really get hit," he said. "You create disparity; you widen the disparity between rural Minnesota and the metro area."
The reason for that is because rural Minnesota has a lower property tax base than the metro area suburbs, he said. Raising property taxes 1 percent will gain more money in the metro area than in rural Minnesota.
"We believe the key is maintain Local Government Aid and aids and credits," Marquart said. "Local Government Aid is the great equalizer. It's so that whether you live in Bemidji or Crookston or Park Rapids or wherever, that you can get roughly the same law enforcement service and street service as someone in any other part of the state, a wealthier part of the state."
Since 2003, LGA has been cut $1 billion from legislatively certified levels and total cuts to cities and counties since 2003 is $1.7 billion, he said. "That's been a huge factor on why we've seen these property taxes go up."
Marquart was joined by Deputy Minority Leader Debra Hilstrom of Brooklyn Center and Rep. Ryan Winkler of Golden Valley, a Bemidji native. Rep. John Persell, DFL-Bemidji, joined the group for an interview Sunday in Bemidji.
They held roundtables on the impact of LGA on property taxes Saturday in Grand Rapids and in Crookston and Park Rapids on Sunday.
For every $1 cut in LGA, property taxes go up 50 cents, Marquart said, citing a state Revenue Department study. "The other 50 cents is in identifying efficiencies, or decreased services or whatever."
He said the group heard from a senior couple that their Social Security has been frozen for several years, the value of their house has been going down but their taxes are going up. They said they were worried if they could stay in their home.
That's also a huge concern in the Bemidji area, Persell said.
Minnesota mayors, including Bemidji Mayor Dave Larson, met Wednesday with Gov. Mark Dayton to tell him the importance to maintain LGA. He does just that in his budget.
House and Senate Republicans released their budget targets on Thursday and said it will be up to legislative committees to carve out exact spending cuts. But the Senate GOP plan calls for nearly $800 million in cuts to tax aids and credit spending, the pot of money where LGA is.
"When pressure builds on rural Republicans to choose between Republican leaders in St. Paul and their community back home, that fault line determines the future of the session," Winkler said.
Rep. Dave Hancock, R-Bemidji, has said he supports only the budget raised by current revenues and will not support new taxes. He also supported the earlier spending cut bill that reduced LGA and was vetoed by Dayton.
That bill would have cut Bemidji's LGA and property tax credits by $677,556.
"All the more important to educate the folks here about what it really means," said Hilstrom.
"We've been keeping track of what folks have been saying to us," she said. "Local mayors tell us to keep LGA, and most folks say if LGA is cut, some other form of revenue needs to be found. ... They know that they're depending on money from the state, Local Government Aid, to keep their services."
Some cities have eliminated their police departments and say that fire departments are next, Hilstrom said.
Republicans plan to finalize their budget in two weeks. Hilstrom said the DFL will push for hearings on the budget, and are going out into Minnesota to hold their own.
"That budget bill is going to be such an ugly duck that it's going to speak for itself," Persell said.
"Quite frankly, (LGA) is the lifeblood to these rural Minnesota cities," Marquart said. "The regional centers like Bemidji it is vitally important. But the smaller cities around them would just shrivel up without LGA."