Property tax increases = less money for local services?

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If you are like most Minnesotans, your city property taxes have increased significantly over the last six years. Additionally, you likely live in a city that has less money to spend on public services than it did six years ago.

What’s wrong with this picture? Logically, property tax increases should translate into more-not less-city revenue. The “higher property taxes equals less local services” paradox is bought to you courtesy of “no new tax” state leadership that has mastered the art of shifting the state’s budget problems on to the backs of local governments and local property taxpayers.

City property taxes have certainly increased in recent years, although not enough to replace cuts in state aid. After adjusting for inflation in the price of city purchases; state aid to cities declined by $446 million from 2002 to 2008, while city property taxes grew by $306 million. This resulted in a net revenue loss of $140 million that cities must recover either through increases in fees, special assessments, et cetera or through reductions in city services and infrastructure investments.

The graph shows the percent change in real per capita city revenues over the last six years based on projections from the Minnesota Department of Finance adjusted for inflation and population growth.

Eleven percent growth in real per capita city property taxes was not sufficient to offset a 36 percent reduction in state aid to cities. The net result after factoring in other changes in city revenues is an eleven percent decline in the real per capita dollars available to pay for the functions of city government.

The bottom line: dramatic cuts in state aid have caused both property tax increases and a reduction in money needed to pay for police and fire protection, city streets and infrastructure, parks, libraries, and other city services.

This is the price that Minnesota citizens are paying for the “no new tax” mentality that has dominated the state’s fiscal policy since 2002. We have managed to avoid increases in state income, sales, and gas taxes only by cutting the dollars that the state shares with local governments, thereby causing property tax increases and cuts in funding for local government services.

The trends apparent in the statewide data highlighted above are replicated in individual cities across the state. The other charts examine the revenue base of the four largest Minnesota cities: Minneapolis, Saint Paul, Duluth, and Rochester. “Revenue base” refers to the sum of city property taxes and state aids, including property tax credits.

Click here to go to the charts.

The four largest cities differ in terms of the magnitude of the aid cuts they experienced. However, all four cities have one thing in common: each experienced property tax increases at the same time that funding for city services was declining.

Minnesotans have historically had a positive return on their investment of tax dollars. Higher taxes and fewer services do not make sense and shouldn’t become the norm in Minnesota.

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