Report tells why your property taxes are going out of sight

If your property tax bill is wrecking your budget and sparking rage toward City Hall, you should check a report issued today by State Auditor Rebecca Otto.

Minnesota’s cities spent and collected less money in 2009 than they did in 2008. And that continues a long-term fiscal diet. Between 2000 and 2009, inflation-adjusted city revenues fell 11 percent. During the same time frame, inflation-adjusted spending fell by 8 percent.

While this comprehensive report ends with the year 2009, anecdotal evidence suggests that the trends it outlines continued through last year too.

Source: Office of the Minnesota State Auditor

Less for buildings and equipment

Cities also appear to have shelved a lot of capital improvement projects like buying snowplows and fixing up buildings. The state’s 224 largest cities spent $280 per resident on capital outlays in 2009 down sharply from $371 per resident in 2006.

Source: Office of the Minnesota State Auditor

Leaning on the property tax

Here’s the story on property taxes: While overall city revenues fell, the proportion of the total revenues derived from property taxes grew from 23 percent in 2000 to 37 percent in 2009.

Source: Office of the Minnesota State Auditor

During that same time, the money that cities drew from the state and federal governments dropped from 30 percent of total revenue to 26 percent.

Putting it all together – Minnesota’s cities had less money to spend overall in recent years, but they drew more from the property taxes as funding from St. Paul and Washington, D.C., declined.

Fueling debate in St. Paul

The report lends firm numbers to DFL Gov. Mark Dayton’s argument that state cuts in aid to cities are driving up property taxes – a relatively regressive form of taxation which falls harder on low- and middle-income renters and homeowners. In his proposed budget for the next two years, Dayton would protect aid to local governments.

But many Republicans who control the Legislature insist cities should slim down spending even further at a time when so many residents are struggling with job losses, foreclosures and overall economic slugishness. They also argue that cities are held more accountable for their spending when the money comes from close-to-home sources like the property tax.

Where the money goes

So what do cities do with their money?

The big-ticket item is public safety, accounting for 26 percent of all the money spent by the larger cities with populations over 2,500. Next come streets and highways (21 percent), debt service (18 percent), culture and recreation including libraries and parks (12 percent) and general government (10 percent).

Source: Office of the Minnesota State Auditor

Here are some other highlights from the report:

Current trends

• Collectively, Minnesota cities took in $4.65 billion in 2009.  This represents a decrease of 0.3 percent from 2008 revenues. Total revenues of cities over 2,500 in population decreased 0.2 percent and revenues of cities under 2,500 in population decreased 1.2 percent.
• On the spending side, cities laid out $5.38 billion in 2009. This represents a decrease of 3 percent from 2008. Total expenditures of cities over 2,500 in population decreased 2 percent, while total expenditures for cities under 2,500 in population decreased 6 percent.

Long-term trends

• From 2000 to 2009, inflation-adjusted total city revenues decreased 11 percent.

• During that same time frame, 2000 to 2009, actual revenues derived from property taxes grew 100 percent. When revenues are adjusted for inflation, the 10-year period shows a 41.1 percent increase in property tax revenues.
• Actual total city spending during that time frame grew from $4.12 billion in 2000 to $5.38 billion in 2009, an increase of 31 percent. But when adjusted for inflation, the spending decreased 8 percent over the 10-year period.
• Over the 10-year period, total capital outlays decreased 36 percent.