Cities and counties planning next year's budgets find that they can't go to property taxpayers to maintain public services, as the 2008 Minnesota Legislature capped what they can raise.
Democrats say local governments might have to cut services or let roads go unless state aid is increased to make up the difference. Otherwise, they'll seek in 2009 to repeal the levy limits, which are in place for three years.
But Gov. Tim Pawlenty, who insisted on the levy limits in session-ending budget negotiations, says local governments as well as the state must learn to live within their means.
To repeal levy limits "is yet another item in the unstoppable train of bad ideas that will get passed into law if the Democrats take control and are able to override my veto without sufficient votes from Republicans," Pawlenty said during a campaign event in Bemidji on Monday.
"We fought like the dickens in the last few years to get a property tax cap," the Republican governor said. "I'd like to put it in the Constitution. I'd like to have the people of the state of Minnesota be able to vote on it like they do in many other states to say we're going to cap how fast property taxes can go up on anybody's house or business in a given year."
Pawlenty said the DFL-controlled Legislature wouldn't put it on the ballot "because they're afraid of it."
Instead, the property tax cap is statutory -- put in state law -- which a future Legislature could change.
"For three years, levies can't go up more than 3.9 percent," Pawlenty said. "We wanted 3 percent, but we compromised at 3.9 percent, which by the way is about twice as fast as the private economy is growing."
Exceptions to the levy cap were made for "important things" such as police and fire, he said. "If anybody tells you that the cap is unreasonable, tell them to go fish because the rest of the economy is growing anywhere near that fast."
He noted that several high-ranking Democrats a week earlier in Bemidji said they would repeal the levy limit if Local Government Aid for cities or County Program Aid for counties isn't given inflationary increases.
The Democrats "want to go back to the days of 6, 9, 12, 15 percent levy increases," Pawlenty said, looking at a partisan crowd gathered in Bemidji Regional Airport's conference room. "I don't know about you, but I don't know many Minnesotans who think that's a good idea."
Placing a levy limit on local governments "was not our first choice, although Minnesota is no stranger to levy limits," House Speaker Margaret Anderson Kelliher said last week in an interview while she was in Bemidji.
"It really was the governor who wanted it," she said, adding levy limits wasn't a priority of either the House or Senate. "And when the governor wants something, governors have a history of getting the things they want, at least partially.
"And with that, we really still feel that local control and local decision-making is one of the most important things," Kelliher said. "A levy limit starts to impinge on that, and can really affect that relationship of the local control versus the state telling locals what to do."
She said it "was very clear to us when we were talking in the end of negotiations that if the Local Government Aid inflationary increase cannot be followed through on because of budget reasons or any other reason, that that then is an opening for everyone to renegotiate the whole levy limit issue, because we are not able to hold up our budget end of that deal, then we have to give some flexibility."
The "us" Kelliher referred to included Senate Majority Leader Larry Pogemiller, DFL-Minneapolis, Senate Taxes Chairman Tom Bakk, DFL-Cook, and House Taxes Chairwoman Ann Lenczewski, DFL-Bloomington, she said.
Pawlenty also defended the use of locally approved property tax referendums for schools, simply because the state can't afford to pick up the full cost.
"In terms of the state's portion of school funding, at the peak of the Minnesota Miracle, 60 percent of the total for K-12 came from the state," the Republican governor said. "We're now well above that. We're at an all-time high three or four years ago, and it's receded a few points from that."
He referred to the Minnesota Miracle of the 1970s in which the state assumed more K-12 funding from local property taxes, and created a state sales tax to pay for it.
"The state is providing, as a percent, more of the K-12 funding than almost any other time in modern history, including the peak of the Minnesota Miracle," Pawlenty said.
The levies, however, were to be used for capital expenditures such as new school buildings, but not to be relied upon to fund classroom costs, he said.
"In terms of operating referendums, I don't think you want to have school districts to have to rely on them substantially, but I do think you want to leave some local option in the system because there's local preferences," he said.
Asked about the ability of a property-poor school district to get voter-approved operational levies, Pawlenty said the state equalizes them to a point with funding. "Focusing on more fully or additionally equalizing levies so that the playing field is level -- in other words, a dollar levied in one district is the same or similar to a dollar levied in another district,."
The state shouldn't take that option away from local school districts, he said. "It shouldn't be the main funding source, but I think it could be used as a supplement."
Equaling levies "is a good goal," Pawlenty said.
Bakk, however, says the current levies are way out of whack, that the gap is growing in Minnesota between wealthy districts which can vote extra money to poor districts that struggle and can't provide funding.
"We're generating huge disparities in neighboring districts, because for a whole bunch of different reasons, some districts can pass excess operating levies and others can't," Bakk said last week while he was in Bemidji.
Different demographics and tax capacities plus the number of season recreational properties that aren't on the tax rolls help define whether a referendum will pass, Bakk said.
Bemidji School District voters will face that issue Nov. 4 as they will be asked to extend an existing operating levy of $501 per student.
Bakk said many rural levies fail because of a large amount of non-taxable public land and a high number of people on fixed incomes, such as senior citizens.
"We've got a lot of seniors with pretty meager pensions, some with none," he said. "It isn't right that they have to sit down at their kitchen table the day before the vote and decide to pick their school or other things that they really need."
That's not a good choice, Bakk said. "And we're creating huge funding disparities. If we don't correct this, there's going to be a lawsuit because I don't care if you're from Hallock or Bemidji or Eagan ... a young person should have the same kind of opportunity to get a good start in life."
While Bemidji worries about continuing a $501 per student levy, some metro suburbs have $1,500 per student levies, Bakk said. "Some districts it's really easy to pass. ... If we really care about developing a workforce and making sure the young people get their start on life, this whole notion that we're going to fund schools with voter-approved levies is wrong."
The governor, he said, "is wrong about this. He is just wrong, that when it comes to funding schools the only way you can get money there is if people vote for it."