As Dayton meets mayors, GOP rep. seeks local tax cap

When Gov. Mark Dayton unveiled a two-year budget plan last month, he said his proposal to keep funding for local government aid at $3.5 billion would prevent state-forced increases in local property taxes.

As he prepares to battle the Republican-controlled Legislature over the budget, the Democratic governor meets with a group of Minnesota mayors Wednesday to hear their concerns about state funding for cities and counties.

Republican leaders argue that even if state aid to local governments is reduced, there's nothing automatic about property tax increases because local officials ultimately make that call. One is trying to make sure local officials aren't even tempted to raise property taxes.

State Rep. Linda Runbeck, R-Circle Pines, chairman of the House Committee on Property and Local Taxes, is proposing a two-year freeze of current property tax rates.

"If the governor is insisting on sort of increasing the levels of LGA over last year and over previous years, then maybe we do need to use a hard freeze to tell cities, 'look, we don't really believe there should be any increase in the tax rates,' " she said.

Runbeck's bill allows for voter-approved tax increases and levy adjustments due to annexations. But state Rep. Paul Marquart, DFL-Dilworth said the measure could cause harm to many cities by locking in current tax levies.

"Every city has their own needs," Marquart said. "And if you don't allow at least an increase according to their population growth plus some sort of inflation, they are drastically going to have to reduce the quality of the services that they provide citizens, like the area of law enforcement and fire department and plowing snow off of streets."

With another battle over local government aid looming, some local officials are taking a different approach to stabilize their finances.

Over the past decade, about two dozen cities have gained legislative approval to impose local sales taxes to pay for specific projects. Eight more cities are making similar requests this session, but a proposal from Grand Rapids, originally introduced last session, would break new ground.

Grand Rapids is willing to replace its LGA with a local sales tax, City Administrator Shawn Gillen said.

"The volatility of LGA has gotten to the point to where we cannot operate that way any more," Gillen said. "We can't just stop plowing streets and stop arresting people. We have to continue to do that regardless of the economic times, and it's just been too volatile."

But an approach that would benefit a regional hub like Grand Rapids could cause problems for smaller cities. In Granite Falls, for example, Mayor Dave Smiglewski said his city doesn't have enough retail activity to replace state aid with a sales tax.

"Most folks here are buying their clothing, they're buying their vehicles in regional centers, or traveling some distance to get those," Smiglewski said. "So, we don't have a lot of sales tax revenue to depend on. We just aren't able to afford that swap. It would be a net loss for us, and it would be a net loss for many towns across greater Minnesota."

Opinions are also divided among Grand Rapids-area legislators. State Sen. Tom Saxhaug, DFL-Grand Rapids is the chief author of the bill to allow the city to raise its sales tax, but there's no companion bill in the House.

State Rep. Carolyn McElfatrick, R-Deer River, said she's concerned about the tax increase and hasn't seen much local support.

"It just needed more work," she said. "I just didn't feel it was ready yet, and so that's why I wasn't willing to carry it at this time."

McElfatrick said she shared her concerns with Runbeck, who was scheduled to hear the Grand Rapids proposal Wednesday as part of a joint House and Senate hearing on several local sales tax requests. The Grand Rapids bill is no longer on the agenda.