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Pioneer Editorial: OSA: Cut LGA, higher property tax

New information released Thursday by the Office of State Auditor shows that Minnesota cities have been swapping the loss of state aid with higher property taxes.

"Between 2008 and 2009, cities had a decrease in actual revenues collected as well as a decrease in actual expenditures," said State Auditor Rebecca Otto of the report on city finances for calendar year 2009. "Cities as a group also seem to be putting off capital outlay projects. There has been a steep decline in capital outlay expenditures since 2006."

The report shows that the proportion of total revenues derived from property taxes grew from 23 percent in 2000 to 37 percent in 2009. During the same period, revenues derived from intergovernmental sources, such as state and federal aids, declined from 30 percent of total revenues to 26 percent.

During the past decade, state Local Government Aid to cities has steadily declined, while cities have had to make up the difference by cutting services or raising property taxes.

"Cities are relying more on property tax revenues as a percent of total revenues as they receive less state and federal aid over the last 10 years," said Otto, a Democrat. "At the same time, 2009 revenues , when adjusted for inflation, are 11 percent below 2000 levels, and 2009 expenditures when adjusted for inflation are 8 percent below 2000 levels."

Despite arguments from lawmakers that cities have plenty of fat in their budgets, trends show the reverse. Total revenues for governmental funds for all Minnesota cities totaled $4.65 billion in 2009, a decrease of 0.3 percent from 2008. Total expenditures were $5.38 billion in 2009, down 3 percent from 2008. The largest expenditures for cities were for streets and highways and public safety -- the most affected services with the loss of LGA.

Over the 10-year period of 2000 to 2009, when adjusted for inflation, 2009 city revenue levels are below 2000 levels, down some 11 percent. Between 2000 and 2009, actual revenues derived from property taxes grew 100 percent.

Cities, hard hit by past LGA cuts, know that they can't ask for more money with a $5 billion state budget shortfall, but they don't want any further cuts, either. Democrat Gov. Mark Dayton's budget does just that, continuing LGA at 2010 levels. Republicans, however, are eyeing LGA for future cuts.

"As the Legislature and the governor grapple with the state budget deficit, I will share this important information with them" says State Auditor Otto. "A further reduction in Local Government Aid will have an impact on what revenues cities will have to rely upon."

The report puts some numbers to the claim that while lawmakers may hold down state tax increases, their action will only raise local property taxes, a tax that is the most regressive and unfair.