The legislature continues to fill in the details on their budget-balancing plans. The tax committees’ contributions to resolving the budget shortfall came this week by cutting the state’s aids to local governments. The state provides aids to local governments with two goals: so that all areas of the state have the resources to provide basic levels of service and so that property taxes are lower than they otherwise would be.

On Tuesday, the House tax committee passed HF 2077, which makes $105 million per year in reductions to aids to local governments. In the 2010 calendar year, the cuts are divided evenly between cities and counties, each being cut $52.5 million. These cuts are on top of the $200 million in cuts that counties, cities and townships experienced earlier this year through unallotment. The proposal further cuts counties by another $37 million, cities by $63 million, and townships by $5 million per year in the 2011 and 2012 calendar years.

Rep. Lenczewski, the bill’s author and chair of the tax committee, describes the key outcomes of the bill as:

• There will be no increases in property taxes in 2010 due to these cuts in aids (those property tax levies have already been set.)
• The cuts are significantly less than in the Governor’s budget. (The Governor’s proposal cut local aids by $250 million in 2010 and $450 million per year in 2011 and 2012.)
• The impact in 2010 is pretty close to evenly divided between the metro area and Greater Minnesota.

On Wednesday, the tax portion was added to HF 1671, the supplemental budget bill with the cuts to housing, public safety, higher education, economic development, state government, and all other parts of the budget except for K-12 education and health and human services.

On Thursday, the Senate followed much the same process, passing $106 million in cuts to aids to local governments, which was attached to SF 3223, the Senate’s supplemental budget bill. The Senate’s package of cuts to aids to local governments is fairly similar to the House’s. Their total dollar figure is $871,000 higher, because they chose to take out a cut to counties through PILT payments in the environment portion of SF 3223 and instead make that cut in the tax target.

In both the House and Senate, the bill authors expressed their concerns about the impact these cuts will have on local government services and the relationship between the state and local governments. Senator Bakk acknowledged that the state has not been a great partner with local governments over the past several years, and noted that there will be higher property taxes in the future as a result of these choices.

Representative Lenczewski also noted that she was proud to be able to put this bill together without making cuts to the property tax refunds that the state provides directly to Minnesotans – these refunds are commonly called the Circuit Breaker (for homeowners) and Renters’ Credit. These credits are critical tools for helping people whose property taxes are high in relation to their incomes and addressing some of the regressivity in the property tax system. The Minnesota Budget Project has long argued for the crucial role of the Renters’ Credit, and we thank Representative Lenczewski, Senator Bakk and the members of both tax committees for their strong commitment to the Renters’ Credit.

We are expecting floor votes on these bills early next week and even conference committee action before the legislature takes their Easter/Passover break on March 29.

-Nan Madden

Filed under: Budget Proposals, Taxes