“LGA Smackdown,” part 2


Friday’s Star Tribune carried an op ed entitled “LGA Smackdown.” As framed in the op ed, in one corner was Governor Pawlenty, who was quoted in his radio program insisting that state aid cuts were not the cause of rising property taxes in Bemidji. In the other corner was Bemidji Mayor Richard Lehmann, who countered that Pawlenty’s claims constituted “a drive by rant…based on a questionably loose interpretation of facts.”

Pawlenty argued that Bemidji’s LGA has been cut only slightly from 2000 to 2009; let’s assume that’s correct. The problem is that Pawlenty makes no adjustment for inflation. The Governor is fond of making the “family by the kitchen table” analogy.  Let’s take a page from his playbook.

Let’s say the family of four had an income of $30,000 in 2000. The same family has an income of $30,000 today. The problem is that everything that the family buys — from gas to groceries to health insurance — has increased in price. This family would be considerably worse off today than they were in 2000 because the real purchasing power of their income would have fallen dramatically.

From 2000 to 2009, per capita state government revenue increased by approximately 30 percent. However, Pawlenty apparently expects the City of Bemidji to get by with a zero percent LGA increase and still not increase property taxes. The Governor is applying a fiscal standard to Bemidji that the State of Minnesota — even under his penurious leadership — has been unable to meet.

The reasonable way of examining state and local government finances over time is in real (i.e., inflation-adjusted) dollars.  Using the same measure of inflation recommended by Pawlenty’s Senior Policy Advisor, increases in real per capita property taxes in Bemidji since 2000 have been insufficient to keep pace with real per capita cuts in state aid. The result is that the real per capita revenue base of the City of Bemidji has declined over this period despite property tax increases.

If we examine state aid to Bemidji during Pawlenty’s tenure as governor, it becomes apparent why Mayor Lehmann is upset. From 2002 to 2009, Bemidji’s state aid (including both LGA and the homestead credit) declined by $190 per capita in constant 2009 dollars (a 44 percent drop); Bemidji recouped this loss through equal measures of budget cuts ($94 per capita) and property tax increases ($96 per capita). Thus, Bemidji residents were compelled to pay higher property taxes at the same time that real cuts were made in the City budget.

And so goes Pawlenty’s property tax shell game. In order to solve the state’s budget problems, Pawlenty disproportionately cut the revenue of counties, cities, and school districts, thereby compelling local governments to cut budgets and increase property taxes, while he sits back and sanctimoniously postures as a “fiscal conservative.”

A true fiscal conservative would address Minnesota’s budget crisis honestly through a balanced mix of spending cuts and revenue increases, rather than by dumping a disproportionate share of the state’s fiscal mess on to the backs of Minnesota local governments and property taxpayers.

Postscript: If the Governor’s July LGA unallotment is struck down as unconstitutional and Bemidji receives the full aid amount certified for 2009, the real per capita decline in Bemidji’s LGA from 2002 to 2009 will be $174 per capita (40 percent).