Cities could raise property tax to make up for state budget cuts

When Gov. Mark Dayton signed a budget deal negotiated with Republican legislative leaders to end the state government shutdown, city officials in Worthington knew they needed to act immediately.

"The city administrator got a hold of the two staff members that were seeking additional employees -- one of them, a police officer, the other one was in planning and zoning — and told them 'Don't be expecting those positions to be replaced,' " Worthington Mayor Alan Oberloh said.

Oberloh, who takes over as president of the Coalition of Greater Minnesota Cities next month, said he's heard similar stories from across the state. Cities are being cautious because the final budget deal reduced state aid to Minnesota cities.

The budget deal also cut $1.2 million in money that reimbursed cities for a property-tax-reduction program. Many city leaders say the state's move it will force them to raise property taxes next year.

For Worthington, population nearly 13,000, the state aid cut was $530,000, about nine percent of the city budget. Oberloh said the city has to cut spending by that amount before this budget year ends on Dec. 31.

"I don't think there's anything that's sacred," he said. "I think we have to look at all areas. I think there's going to be some serious belt tightening." According to projections by non-partisan state House legislative staff, the budget deal could lead to property tax increases of 4.6 percent statewide. Communities outside the Twin Cities would see the biggest jump, about 6 percent on average. Metro area taxes would rise about 4 percent.

Cities in south central Minnesota could see the biggest increase, about 7.3 percent. Property taxes in the Iron Range and Duluth are projected to rise 7.2 percent, while in east central and southeast Minnesota the hike will be just under 7 percent.

Some Republicans dismiss the staff findings, saying they're based on flawed assumptions. They say the figures are too high. State Sen. Julianne Ortman, R-Chanhassn, said the said the projections assume cities and counties would make up half of any local aid cuts, but that hasn't happened in the past. She citied aid reductions in 2010 as an example.

"Local officials did the responsible thing of not levying back those reductions," said Ortman, chairwoman of the Senate Tax Committee. "They didn't do it."

Local officials have kept property taxes in check. Despite the worse recession in decades and perpetual worries about huge cuts in state aid, local governments have managed to balance their budges without property tax hikes.

But it may be hard for local officials to do so next year.

"We're definitely going to see further pressure on property taxes," said Gary Carlson, inter-government relations director for the League of Minnesota Cities. "This is the fifth consecutive year that we've had some level of reduction in the monies share from the state to the cities." However, the new state budget isn't bad news for every town.

Gloria Mack, city clerk/treasurer in Amboy, population about 500, said the south central Minnesota community escaped a cutback in its state local government aid payment.

"That was wonderful, that was wonderful," Mack said. "That really helps."

The state budget sets this year's local government aid at 2010 levels. Many cities were told late last year that their 2011 payment would increase. When the final budget deal failed to deliver the promised amount, city officials across Minnesota saw expected revenue disappear.

With no cuts in state aid to Amboy, Mack said the town probably can keep services at their current levels next year.

"We try to operate as frugally as we can," she said. "And try to do as many things as we can with what we've got."

State legislators who favor cuts in state aid say Minnesota communities need to tighten their budgets.

"The costs of running local government can be less," State Rep. Linda Runbeck, R-Circle Pines, told the Quad Community Press earlier this year.

In Worthington, Oberloh said his city already has trimmed its budget. He said the state cuts likely mean another property tax increase next year, though he can't put a number on the size of that increase yet. Last year, property taxes increased just over 3 percent.

The city will have to make more spending cuts next year, Oberloh said.

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