Property tax cap: A solution in search of a problem

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The facts don’t lie. Large property tax increases are giving Minnesotans sticker shock. In his state of the state address, the Governor trotted out his perennial solution to the problem of increasing property taxes: cap them. Unfortunately, his proposed remedy is a solution in search of a new problem.

Since 2003, real per pupil state aid to Minnesota school districts has fallen by thirteen percent. Increases in school property tax have not been sufficient to replace state aid cuts, so total school revenue has declined. From 2002 to 2008 (corresponding to fiscal year 2003 to 2009), real per pupil school revenue in Minnesota has declined by nearly three percent, at the same time that state and federal mandates and the number of special need students were increasing.

A cap on property taxes would only exacerbate the loss of revenue for school districts. If the Governor is serious about holding down property taxes and ensuring that public schools are adequately funded, he should address the real cause of property tax increases: continually eroding state aid.

The same is true for counties and cities. Real per capita county and city property taxes have indeed increased, but the increase has been less than cuts in state aid. Bottom: due to state aid cuts, property taxes are increasing at the same time that local governments have fewer real dollars to spend on police and fire protection, transportation, and other public services.

Since 2003, state government revenue has grown much more rapidly than local government revenue. In fact, after adjusting for inflation in the price of government purchases, local government revenue has declined while state government revenue has increased. This being the case, it is inappropriate for the Governor to propose new limits on local government revenue.

The Governor and his “no new tax” allies have effectively used property tax relief dollars as a de facto slush fund that the state can tap into to address state revenue shortfalls. Now, the state’s budget problems are on to the backs of local governments and local property taxpayers.

This situation underscores the lack of accountability in Minnesota’s tax system. Local government revenues decline, while the Governor proposes new local revenue restrictions. Meanwhile, state government revenues increase at the same time that Minnesota’s leaders posture as fiscal conservatives. It’s time for state policy makers to acknowledge and address the real cause of property tax increases.