Pawlenty's budget forecast assumes property tax hikes

Gov. Pawlenty has said repeatedly this year that the state can't afford any tax increases. But his Revenue Department assumes that local governments will raise property taxes if his budget plan becomes law.

The Revenue Department projects property taxes will increase $626 million over the next three years. Revenue Commissioner Ward Einess said the forecast assumes that local governments will raise taxes to offset Pawlenty's proposed cuts in aid.

"Some communities will levy back the entire dollar lost. Some are going to levy back none of it. It's hard to tell," said Einess. "We just do our best to try to forecast, generally speaking, what the property tax impact will be from the governor's budget."

Even though Einess says the numbers are preliminary, Democrats in the Legislature are using the projections to criticize Pawlenty.

"If it's a property tax, if it's a fee, if it's a sales tax or an income tax, they're all taxes and they come out of your pocket the same way," said Sen. Tom Bakk, DFL-Cook, who chairs the Senate Tax Committee.

Bakk said he's not surprised Pawlenty's budget will force local governments to raise property taxes. He said he'd like to see Pawlenty be more honest with the public.

"I'm willing to admit that it's a tax increase. And if the Legislature does something this year that forces local governments to raise property taxes, I think we ought to admit that," said Bakk. "I don't think we should play some shell game with the public that we're not raising your taxes."

"I don't think we should play some shell game with the public that we're not raising your taxes."

Bakk, who is running for governor, said he's also considering some cuts in state aid to cities and counties, but not to the level Pawlenty is proposing.

Since there will be aid cuts, Bakk also said he wants to remove the cap on property tax increases that the state imposed last year on local governments. Pawlenty said last week he's unwilling to remove the cap.

"Most states who have effectively controlled property taxes have property tax caps. We put a reasonable one on in Minnesota at 3.9 percent," said Pawlenty. "It allows local units of government to raise property taxes but it doesn't allow them to go crazy, and we need that kind of discipline if we're going to control property taxes in Minnesota."

Despite Pawlenty's plea, several members of the Minnesota House also want to remove the property tax cap.

Rep. Paul Marquart, DFL-Dilworth, said he's going to release a property tax relief plan next week. Last year, he proposed a plan that would tie property tax relief to a homeowners' income.

Marquart said Pawlenty's budget will only add to the property tax hikes that will come from school referenda, increased market values and inflation. He said the public understands the link between Pawlenty's budget and property taxes.

"And they know that it's state action that's causing that. Whether it's not funding schools properly, or outright cuts to local government aid or county program aid, they know the connection," said Marquart. "When people talk about no new taxes, that's not accurate because property taxes have gone up $3.1 billion in this state."

Both Pawlenty's spokesman and Revenue Commissioner Einess say it's unfair to hold Pawlenty responsible for property tax increases. Einess said local leaders have the final say on whether to raise property taxes, and their constituents might not let them.

"There's just so much uncertainty in the economy, and about the budgets and how people are going to respond and what taxpayers will tolerate as far as levy increases," said Einess. "There's just a lot of speculation around all of these numbers and how people will behave in the current economic environment."

Local government officials have said if they can't raise property taxes, they'll have to consider cutting essential services like police and fire departments to address Pawlenty's aid cuts.

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