New tax cap has loopholes
DETROIT LAKES - As the Becker County Board enters its budgeting process for 2009, it does so with the knowledge that the Minnesota Legislature has curtailed its ability to fund that budget by imposing a three-year property tax cap.
In the final hours of the 2008 legislative session, lawmakers acceded to the wishes of Gov. Tim Pawlenty and approved a bill that will hold county property taxes to an increase of no more than 3.9 percent over the next three years.
Pawlenty, in a press conference held shortly after the measure passed, said it would have "a very positive effect on containing and limiting property taxes in Minnesota."
But according to County Administrator Brian Berg, the bill contains so many exceptions to the 3.9 percent cap that commissioners are left scratching their heads about what the levy limits will really mean to taxpayers.
Besides the normal exceptions to the levy limit, such as voter-approved special levies, bond (i.e., debt) payments and amounts required to correct errors in the certified levy, there were also several others, including:
- Matching fund requirements for federal or state grants that exceed requirements in place in 2001.
- Reasonably and necessarily incurred expenses to prepare for or repair the effects of natural disasters.
- Funds for lake improvement districts.
- Increased employer pension contribution rates.
- Jail operation or maintenance costs that are the direct result of a rule, minimum requirements, minimum standard or directive of the Department of Corrections or as part of a regional jail.
- Repayment of state or federal loans for transportation projects as long as the project is not a local government initiative.
- Court administration costs.
- Funds for a storm sewer improvement district.
- Funds for a police or fire relief association.
- Funds for a city or county humane society.
- Abatements under Section 49.1815 (of the Minnesota tax code).
"What do these levy limits mean for the county?" Berg asked. "I'm not sure."
The 3.9 percent cap will be applied to the county's general fund taxes, but after these exceptions are taken into account, the overall increase for taxpayers could be significantly higher than that, he added.
"I think it was a tool for the state to say, 'We imposed a levy limit,'" Berg said, allowing them to "take the monkey off their backs" while at the same time providing so many exceptions that they can come back later and say, "There it goes again -- counties can't control their spending."
One of the biggest problems with the cap, he added, is that the state has continued to mandate the counties' "maintenance of effort" in funding certain programs -- public library system support, mental health services, employment and training programs, sliding fee child care, chemical dependency treatment, etc. -- while curbing its own obligations for funding them.
Initially, the bill passed by the Legislature included language that would suspend the counties' "maintenance of effort" obligations for the years in which the levy limits were in effect. However, a few days after the legislation was passed, the Senate and House leadership decided that it had been a mistake.
A May 30 letter sent out to county board chairs throughout Minnesota, signed by Finance Commissioner Tom Hanson and Human Services Commissioner Cal Ludeman, states: "This (MOE suspension) provision was not agreed to by the administration or legislative leaders. It was inserted at the suggestion of a lobbyist who indicated similar language had been used during previous periods of levy limits. This assertion was not correct...
"Governor Pawlenty, legislative leaders and tax committee chairs have agreed that this provision will be repealed, retroactive to its date of enactment, in the early days of the 2009 legislative session."
"In these tight economic times, suspending the minimum MOE provision would have helped us greatly," Berg said. "It seems they want to cut spending, which is not a bad thing. But I'm wondering if it's fair to mandate that counties continue to perform functions the state has been paying for, and yet restrict our ability raise the revenue to do those tasks.
"I'm sure from their point of view, they think they're reducing their budgets -- but they don't realize what a burden they're putting onto local governments when they eliminate (state) funding and then require that function to be performed (with county funds)."