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At Issue: Innovating property taxes

Published (4/3/2009)
By Sonja Hegman
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Preaching on the platform of reform, Rep. Paul Marquart (DFL-Dilworth) said his plan to solve the state’s property tax system might take a “leap of faith.”

“We can’t go down the same road again,” said the House Property and Local Sales Tax Division chairman. “I don’t see this getting better any time soon, and we can’t keep shifting taxes and using one-time money.”

Marquart presented his division’s report, HF2020, March 30, March 31 and April 1. Approved by the division, it now moves to the House Taxes Committee where it will be considered for the omnibus tax bill. It has no Senate companion.

“This (report) has little or no property tax increases,” Marquart said. “I think taxpayers are going to breathe a sigh of relief.”

“You did significant bold reform,” said Rep. Ann Lenczewski (DFL-Bloomington), House Taxes Committee chairwoman. “This is a plan that survives.”

But with $250 million in aid cuts, some might not like the plan.

“Cities and counties don’t want this to happen to them,” Lenczewski said. “They are in a really tough spot and expected to do heavy lifting for the state. We don’t want to make cuts, but I think there’s been an effort to create flexibility.”

Among other things, local government aid and county program aid growth appropriations would be frozen at amounts paid in 2009.

Local option sales tax

In March, Marquart came forward with a plan to give counties a revenue option to offset cuts to county aid. The provision, included in the division report, would give counties the option to impose a half-cent local option sales tax.

“Counties will have to take a serious look at their revenue options. We have too many long-term things working against us,” he said.

Lenczewski has said this would be part of the foundation for the omnibus tax bill.

This portion of the bill would raise more than $100 million this biennium and $200 million next biennium. It would save some state cuts anticipated to local government aid, which is often used to pay for essential services, like police.

“I still have heartburn about the local option sales taxes,” said Rep. Morrie Lanning (R-Moorhead). “There’s no perfect solution to what we’re facing. I look forward to discussions on this in the tax committee.”

The half-cent sales tax option could be adopted by a majority vote of a county’s commissioners. The tax could be overturned in a countywide referendum that would take place if the greater of 10 percent of the county’s registered voters or 500 people called for one. This is a change from the 5 percent and 300 people in the original draft of the bill.

Currently there are 23 cities with a local option sales tax. Any cities in counties that passed the half-cent increase would lose their local option sales tax, Marquart said. Counties would then be obligated to fund projects that had been funded through the city tax. Only three cities could be exempted from the elimination: Minneapolis, St. Paul and Duluth.

Counties that impose the tax would not be able to levy back cuts to county aid through property taxes, unlike counties that do not impose sales tax.

Marquart said that 26 other states allow this authority for counties and 20 states have a higher sales tax than Minnesota.

Working groups

Marquart created three working groups to focus on mandate relief, measuring the performance standards of local governments and creating benchmarks for evaluating property tax proposals.

Three bills were drafted from the working group meetings and are included in the report.

HF1195, sponsored by Lanning, would, among other things, eliminate property tax levy limits, impose a two-year moratorium on new maintenance of effort (MOE) requirements on local governments, and provide a mechanism for cities and counties to reduce their library spending MOE requirement. It would also establish a Legislative Commission on Mandate Reform to make recommendations to the Legislature on reforming or eliminating other local government mandates. It would expire in 2013. It has no Senate companion.

HF1201, sponsored by Marquart, would establish a Council on Local Results and Innovation to develop minimum standards for measuring the performance of local governments. The council would be charged with establishing approximately 10 measures to evaluate efficiency and effectiveness. The standards would be voluntary; however, cities and counties that choose to adopt them would be eligible for per capita reimbursements and be exempted from levy limits and truth-in-taxation hearing requirements.

A companion, SF1603, sponsored by Sen. Rod Skoe (DFL-Clearbrook), awaits action by the Senate State and Local Government Operations and Oversight Committee.

Rep. Denise Dittrich (DFL-Champlin) sponsors HF1261, which would create benchmarks, critical indicators and principles for legislators to use when evaluating property tax proposals. It would also establish a property tax working group. There is no Senate companion.

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