An important component of the governor’s budget proposal is the decreased support to local communities. Substantial cuts in Local Government Aid (LGA) and County Program Aid (CPA) will likely lead to cuts by county and city governments along with property tax hikes.
Property taxes have been steadily increasing during Governor Pawlenty’s time in office despite his attempt to sell himself as a fiscal conservative on the national stage. The State Auditor’s piece in the Star Tribune last week exposed this reality and the problems associated with this budget solution.
The collapse of the housing market is one of the main reasons the economy is in dire straits. Increasing property taxes will hamper the recovery of the housing market in Minnesota. “Property tax levels are an ongoing concern for Minnesotans,” warned State Auditor Rebecca Otto in a press release regarding her Minnesota City Finances Report, “if this trend continues, it will further increase the reliance on property taxes as a source of revenue. With the foreclosure crisis and a tight economy, this trend is troubling.”
Troubling is an understatement. FirstAmerican CoreLogic, a real estate information company, recently released figures on the negative equity in the Twin Cities. Being in negative equity means borrowers owe more on their mortgages than their home is worth. 16.9 percent, or 75,483 residential properties in the Twin Cities, were in negative equity in the fourth quarter. This means that nearly one in five home owners in the metro are barely avoiding foreclosure.
The inevitable property tax increases are a result of the governor’s refusal to fix the budget deficit using a balanced approach at the state level — an approach that looks at new revenue, as well as cuts, to balance the budget. The property taxes will hamper recovery in the housing market and the overall economy. As can be seen from the recent data, it is obvious the housing market is not stable and needs more time to recover.
The volatility of the housing market should be respected and not tested in a budget solution. It would be irresponsible to force city and local governments to choose between public safety programs and increasing property taxes. The Governor and Minnesota’s legislators need to find a solution to the budget deficit with the public interest in mind, not partisan rhetoric.