Pawlenty’s county cuts will lead to higher property taxes

Since last December, Governor Pawlenty has unilaterally cut state investment in Minnesota’s counties by $144 million using his unallotment authority.  After the 2010 unallotment announced in June, general purpose state aid to counties in 2010 will be nearly 20 percent less than the amount certified to counties in 2008 and nearly 29 percent less than the 2002 aid amount.  And this is before taking into account inflation and growth in county population.

The executive unallotment authority allows the governor to unilaterally reduce general fund expenditures whenever “probable receipts for the general fund will be less than anticipated, and that the amount available for the remainder of the biennium will be less than needed” (i.e., a deficit exists).  By refusing to compromise with the legislature, the governor ensured that a deficit would exist, thereby allowing him to use the unallotment authority to cut spending without meaningful legislative input.

In 2002, statewide general purpose aid to counties* was $231.4 million.  With an impending state budget deficit, 2003 county aid was cut by $73.5 million relative to the 2002 level and slashed by another $46.3 million in the year after that.  While some reduction in county aid was inevitable given the size of the state’s budget deficit during the FY 2004-05 biennium, the scale of the cuts forced deeper budget cuts on counties than state government made.  Thus began a trend by which Pawlenty shifted the state’s budget problems disproportionately to counties (along with cities and towns) and property taxpayers.

Since 2003, aid to counties has fluctuated, although the overall trend has been downward, particularly after the large cuts that Pawlenty imposed using his unallotment authority.  All general purpose county aid after 2003 (with the exception of taconite aid and disparity reduction aid) was received in the form of County Program Aid (CPA).  The total amount of CPA that Pawlenty cut using his unallotment authority — including the 2008 cuts announced last December plus the 2009 and 2010 cuts announced in June — comes to $143.9 million.

The graph below compares 2002 general purpose county aid to 2010 aid after the unilateral aid cuts imposed by Pawlenty.  The percentage aid loss from 2002 to 2010 is shown in (1) nominal dollars (i.e., unadjusted for inflation), (2) nominal dollars per capita, and (3) real (i.e., inflation-adjusted) dollars** per capita.

Based on cuts announced last June, real per capita general purpose county aid in 2010 will be slightly less than half of what it was in 2002.  These aid cuts have not been evenly distributed among counties.  Click here for a table comparing 2002, 2009, and 2010 per capita general purpose county aid (in both nominal and constant 2010 dollars) for all Minnesota counties.  In this table, the 2009 and 2010 aid amounts are equal to the 2009 and 2010 certified CPA amounts minus the 2009 and 2010 unallotments announced by Pawlenty in June.

Most Minnesota counties saw their real per capita general purpose aid decline by over 40 percent from 2002 to 2010 after unallotment.  The graph below shows the percent decline in real per capita aid for the three largest metropolitan and greater Minnesota counties.

The graph below shows the decline in per capita general purpose aid for the same six counties in constant 2010 dollars.

The aggregate decline in real per capita general purpose aid for all 87 Minnesota counties from 2002 to 2010 was $33.  On a statewide basis, the decline in real per capita county aid from 2002 to 2010 amounts to 6.3 percent of the 2009 county revenue base.***  (The 2010 revenue base is not yet known.)

This analysis is restricted to general purpose county aid.  Most of the dollars that counties receive from the state is in the form of categorical aids to pay for mandated state programs that counties administer.  Based on projections from the most recent “Price of Government” report from Minnesota Management & Budget, the total cut in state aid to counties from 2002 to 2010 — including both general purpose and categorical aids — will be $104 per capita in constant 2010 dollars.

There have been two major effects of the cuts in county revenue imposed by the state over the last eight years.  First, county budgets have shrunk.  Total real per capita county revenue is projected to drop by 7.1 percent from 2002 to 2009, which is greater than the decline in state revenue net of transfers to local governments.  This is an indication that the budget balancing measures taken by the state have hit counties harder than they have hit state government.

The second effect of the large cut in county revenue has been significant increases in county property taxes.  From 2002 to 2009, real per capita county property taxes are estimated to increase by 11.4 percent.  (Without adjusting for inflation and population growth, the increase is approximately 50 percent.)  Due primarily to changes in state law, these property tax increases have fallen disproportionately on homeowners.

It should be noted that county property taxes are included in total county revenue.  Despite an 11.4 percent increase in real per capita property taxes, total real per capita county revenue is expected to decline by 7.1 percent.  This happened because the real per capita state aid cuts far exceeded real per capita county property tax increases, so the total real per capita revenue of counties declined.

The cuts in county aid are part of a broader pattern that also involves cities and school districts.  A disproportionate share of the state’s budget problems have been shifted on to local governments, causing property taxes to increase at the same time that funding for local services and infrastructure falls. Responsible state leadership is needed to honestly deal with the state’s fiscal mess rather than merely shifting the problem to counties, cities, and schools.

*For purposes of this analysis, 2002 general purpose aids include regular homestead and agricultural credit aid (HACA), family preservation aid, criminal justice aid, and transit replacement aid; not included are mobile home HACA, taconite aid, and disparity reduction aid.  The 2002 general purpose county aid total is reduced by the amount of the HACA court offset in order to make the 2002 aid amounts comparable to aid amounts from subsequent years; without this adjustment, the nominal decline in county aid from 2002 to 2010 would have been $30 million greater than the amount indicated above.  Beginning in 2004, the various general purpose county aid programs (with the exception of taconite aid and disparity reduction aid, which are excluded from this analysis) were folded into a single aid program referred to as County Program Aid (CPA).  The 2008, 2009, and 2010 general purpose aid amounts referred to in this analysis consist entirely of CPA.

**All inflation adjustments in this report are based on the implicit price deflator for state and local government purchases, which is the appropriate measure of inflation for state and local governments.

***County “revenue base” is equal to the sum of county levies plus general purpose aid.