Senate GOP tax bill slashes local government aid

Republicans in the Minnesota Senate have released a tax bill that would slash state aid to cities and counties, while allowing local officials to pursue their own sales tax revenue.

The measure would gradually phase out a statewide business property tax. But missing from the bill was an earlier GOP promise of a corporate income tax cut. It also doesn't include any of the income tax relief favored by House Republicans.

Republicans have consistently pledged to erase the projected $5 billion state budget deficit by cutting spending, not raising taxes.

State Sen. Julianne Ortman, chairman of the Senate Taxes Committee, said her bill fulfills that pledge by cutting money the state spends on local government aid and other programs designed to hold down property taxes -- by 22 percent.

"Minnesota raises sales and income taxes, and those folks that pay the sales and income taxes are paying higher rates to fund the $3.5 billion in property tax aids and credits in this budget," said Ortman, R-Chanhassen. "It's paid as a subsidy to local government, and in our view we have more government than we can afford."

Cuts to local governments total about $640 million for the coming two-year budget period. That's similar to reductions included in a GOP-budget bill that Gov. Mark Dayton vetoed last month.

The new Senate plan does not include a controversial phaseout of local government aid for Minneapolis, St. Paul and Duluth, which is part of the tax bill moving through the House.

Another difference is that Senate Republicans want to allow cities or groups of cities to impose a half-cent sales tax, if voters approve. Ortman said the move would give local officials more flexibility.

"We have a lot of folks asking us every year for permission for that local option sales tax, and we're trying to carve out some parameters by which they can do that one their own," Ortman said. "They don't have to come to the Legislature to ask for permission to do that. Again, strengthen their relationship with local folks. And then I think it has another advantage to it, and that's that it will promote working on a regional basis. It will allow folks to work jointly and raise regional option sales taxes."

Since the beginning of the session, Senate GOP leaders have said their top priority was helping businesses to create jobs. Their initial bill included corporate income tax cuts and a rollback of business property taxes.

Only the property tax piece made it into the tax bill, but state Sen. Geoff Michel, R-Edina, said that could still help grow jobs.

"The instant property tax relief for small businesses, for job creators this year, this session, sends a strong message," Michel said, "that even in a time when you're not making income in a tough economy, that we're going to try to open up the state for doing business."

The Senate plan also omits income tax cuts that are a central feature of the House tax bill. Instead, it includes $44 million in property tax refunds for homeowners, and a phaseout of the state tax on seasonal property. There's also a new tax exemption for military pensions.

Democrats said the bill is a big disappointment, and they argue it breaks the GOP promise of no tax increases. Senate Minority Leader Tom Bakk, DFL-Cook, said the cuts in aid to cities and counties will drive up local property taxes.

"This bill just continues down that same old path: 'Local governments are the problem. We're going to cut aid to them. We don't care how much property taxes go up,'" Bakk said. "And we object to that."

DFLers also are concerned about cuts in the renter's tax credit, which they say will harm many low-income families.

Both the Senate and House tax bills contrast sharply with Dayton's budget, which relies heavily on an income tax increase for the state's top earners.

The Senate Taxes Committee will take public testimony on its bill Thursday, with a final vote expected by the end of the day Friday.

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