State dollars to fund county government services have fallen well short of keeping pace with inflation, while county property taxes have grown more rapidly than the rate of inflation. Like other levels of local governments, Minnesota counties have been compelled to simultaneously cut spending and increase property taxes in response to large state aid cuts.
Counties receive undedicated dollars from state government in order to hold down property taxes. These undedicated dollars are divided between state aids and property tax relief credits. From 2002 to 2008, undedicated revenues that Minnesota counties receive from the state have declined by over $50 million dollars even without adjusting for inflation. After adjusting for inflation in the cost of government purchases, the decline is approximately $180 million.
Undedicated aid comprises only about one-quarter to the total aid that counties receive from the state. The remainder consists primarily of dollars dedicated for transportation and the cost of services that counties are mandated to provide under state law. Most of these mandated costs are in the areas of health care, social services, and corrections.
The dedicated dollars that counties receive from the state have stayed essentially flat since 2002, despite the fact that inflation in county purchases has reduced the purchasing power of the dollar by 24 percent. In constant 2008 dollars, the dedicated revenue that Minnesota counties receive from the state in 2008 is approximately $330 million less than it was in 2002.
This comes as no surprise according to Olmsted County Commissioner Paul Wilson, President of the Association of Minnesota Counties, “Our current situation is the result of two conflicting philosophies in St. Paul. The state wants counties to continue to be their administrative arm and carry out state mandates, but at the same time state aids to counties to carry those mandates out are continually being reduced.”
Total state aid to Minnesota counties is over one-half billion dollars less in 2008 than it was in 2002 after adjusting for inflation. Approximately two thirds of this aid loss came from dedicated aids, while the remaining third came from undedicated aid.
The estimated one-half billion dollar plus aid loss is adjusted to reflect the state takeover of selected court administration costs. If not for this adjustment, the aid loss indicated above would have been even greater.
From 2002 to 2008, Minnesota’s population grew by over five percent. In addition, during this period the state shifted responsibility for incarcerating short-term felony offenders to counties and mandated that counties pay ten percent of the medical assistance costs for nursing homes stays in excess of 90 days for people under age 65. During a period when the state’s population was growing and the state was shifting more costs on to county government, annual state aid to counties declined by over one-half billion dollars.
Joe Mathews, Policy Analyst for the Association of Minnesota Counties, challenges the practice of shifting the cost of state mandates on to local government and local property taxpayers “Taxpayers don’t always realize that the discussion about shifting state costs to local governments isn’t only about who writes the check. This is a conversation about whether the property tax is the appropriate source of funding for things that should be a state-wide priority,” commented Mathews.
Despite large cuts in state aid, growth in county property taxes over the last six years has been modest. The chart below compares the per capita change in state aid and county property taxes from 2002 to 2008 in constant 2008 dollars per capita.
In constant 2008 dollars, state aid to Minnesota counties declined by $118 per capita from 2002 to 2008. Less than one quarter of this aid loss has been recovered through property tax increases.
Despite growth in county property taxes, real per capita county revenue has fallen by just over 12 percent over the last six years based on Department of Finance projections. The growth in county property taxes and the large decline in county revenue is the direct result of state aid reductions. Since 2002, real per capita state aid to Minnesota counties has fallen by 30 percent.
In recent years, Governor Pawlenty and others have proposed a state law that would restrict growth in county property tax levies, as if the property growth was due to profligate county boards. These levy limits would do nothing more that make an already steep decline in county revenue even worse, thereby further eroding funding for the county services upon which the public depends.
Since 2002, county revenues have declined far more rapidly than state government revenues. That being the case, it would be hypocritical for the governor or legislature to propose new restrictions on county revenue.
The real solution to growth in county property taxes is simple and has nothing to do with arbitrary state-imposed limits on county revenue. In an effort to adhere to a “no new tax” policy, state leaders have reduced state costs by cutting aid to county governments and by shifting state costs on to counties. Nothing short of the cessation of these ill-conceived policies will halt the increase in county property taxes or the shrinkage in the public dollars needed to fund county services.