Governor's budget hits Minnesota cities and counties

The state of Minnesota doles out about $3 billion dollars every two years to cities and counties, using income, corporate and other taxes to help buy down property taxes on homes and businesses.

It's a little less than 10 percent of the state's general fund budget.

"It is not preordained that every time a governmental entity gets a reduction in funding that they must increase taxes. There are other options."

For a couple of reasons, it's one of the first things that gets squeezed when the state has to tighten its belt.

First, no one sees the money directly. At its most visible, it's one of just dozens of things listed on annual property tax statements. There's almost never a check in the mail.

The other reason this gets squeezed? Cities, can get the money in other ways: raise taxes on homes, businesses and apartments.

That's what's happened in the past, as cities raised their levies at two and three times the rate of inflation or even more after aid cuts in 2003 and 2004.

In the last five years, county aid alone has declined about half a billion dollars, according to Jeff Van Wychen, a tax analyst with Minnesota 2020, a think tank founded by former DFL legislator Matt Entenza.

"Adjusted for inflation, for example, cities have lost about 45 percent of their local government aid, in inflation ajudsted dollars, per capita," Van Wychen said. "Total aid to counties, adjusted for inflation is down about 25 percent. There's no way that local government aids can absorb another large aid cut without having property tax increases."

Gov. Pawlenty proposed slicing another 15 percent over the next two-year budget from inflation-adjusted tax and local government aids.

And when property taxes go up as a result, residents may find their city services have less to offer.

Jim Miller, executive director of the League of Minnesota cities, an association of local governments around the state, says services will have to change.

"I don't know of a mayor or a council member in the state of minnesota that's going to say, 'Well, we have call kinds of options, but lets for the fun of it cut the police department,' Miller said. "Only as a very last result will citizens see diminishment in those critical services. Having said that, things like hours of recreation centers or the availability of soccer fields or even hockey rinks might be seriously affected by these sorts of things."

But Gov. Pawlenty reacted testily to the suggestion that he was just shifting the state's financial problems to property tax payers.

He cited a 3.9 percent property tax cap passed by the Legislature last year. Taxes actually rose more than that, but even critics think it helped.

Pawlenty also said that he thought local officials need to rethink their priorities in a time of unprecedented economic crisis.

"It is not preordained that every time a governmental entity gets a reduction in funding that they must increase taxes. There are other options for many of those governmental organizations," Pawlenty said. "And if you look at the behavior of some of these local units of government, some of them do a fantastic job. Others not so much. We've got county boards in this state, who on the very day that they are complaining about reductions in state aid, they are voting themselves and their employees a pay raise when nobody else in Minnesota is getting a raise."

All told, Pawlenty expects Minnesota to cut more than half a billion dollars from local government aids in the next two years.

That's about a quarter of more than $2 billion dollars in cuts he wants to make, adjusted for inflation.