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The changing picture of
Minnesota finance
Purpose of this report
This report consists
of history and charts. The purpose is to
provide credible, fact-based illustrations of the effect "no new taxes"
policies have had on Minnesota state finances between 2002 and 2006.
All financial information in this report is based on June 2006 numbers
provided by the Minnesota Department of Finance's "Price of Government"
report, available online from the Dept of Finance.
The
9 charts
below illustrate why fees and
property taxes are soaring throughout Minnesota.
History: "No new
taxes" in Minnesota:
Political gimmick has weakened state and local finances
2002: A
Special interest group takes control of Minnesota finances
Governor Tim Pawlenty, State Auditor
Patricia Anderson, and several legislative candidates sign a "no new taxes"
pledge. The pledge is controversial because it caters to a special interest group funded by wealthy conservatives rather than
to the best interests of the citizens of Minnesota. Read the Cato Institute's piece
on the misguided thinking behind "no new
taxes" here.
2003:
State Auditor Pat Anderson sets up the "no new taxes"
agenda
A month after taking office, State
Auditor Patricia Anderson issues a report recommending historic cuts to
local government aid, "softening
up the opposition" for the Governors controversial
2003 "no new taxes" budget proposal. Pawlenty spokeswoman
Leslie Kupchella says that the governor "agrees
overall with the results he's seeing in the report."
Minnesota Public Radio says
A report from Republican State Auditor Pat
Awada (Anderson) concluded that local government aid could be trimmed by 43
percent without affecting essential programs or prompting local property tax
increases.
Not included in Patricia Anderson's
"essential programs" are things like public health, parks, and libraries.
The League of Minnesota Cities
is harshly critical of the report, testifying that it uses
faulty methodology and suspect data to reach
sweeping conclusions.
Nevertheless, the no new taxes agenda is largely implemented with the help of a wide Republican majority in the state
House of Representatives, most of whom are also pledge signers who refuse
to compromise. The Governor dismisses critics as "victims du jour."
Unprecedented shifts, gimmicks,
and other questionable financial maneuvers are implemented as the
administration struggles to meet the demands of the special interest pledge.
relabeling taxes as fees
spending the $1.2 billion tobacco fund
borrowing heavily from future taxpayers (bonding)
shifting revenues and expenses from one year to the next
The bond rating house Moody's
raises concerns at these questionable maneuvers.
Minnesota loses its AAA bond rating and property taxes, fees, and
tuition begin to soar.
Charts: the
effect of "no new taxes"
Top
History
Property
tax
Aid
cuts Fees
Tuition
School
property tax
A
property tax grab?
Changing
picture
The most noticed and wide-spread
effect of giving state fiscal policy over to the dictates of a special
interest group has been an explosion in property taxes.
There are
several reasons this is not smart fiscal policy. It tends to ignore
disparities in income and economic capacity, so it unfairly burdens seniors,
people on fixed incomes, young families, and people living in smaller, less
developed communities with lower tax bases. These are some of the
reasons Rebecca has worked to develop & promote permanent property tax relief.
What is driving
property taxes up so steeply?
Top
History
Property
tax
Aid
cuts Fees
Tuition
School
property tax
A
property tax grab?
Changing
picture
The cuts to Local Government Aid recommended in
early 2003 by State Auditor Patricia Anderson were indeed "sweeping."
Using "faulty methodology and suspect data,"
she advocated for cuts of 43%, much larger than those eventually
enacted. Her recommendations included classifying such things as
libraries, parks, and public health as "non-essential" and targeting
them for large aid cuts,
arguing that this would not prompt local property tax increases.
However those cuts, combined
with large cuts in block grants to counties for implementing state programs,
caused large increases in property taxes.
As you can see, when Anderson and Pawlenty took
office, state aid and property taxes made up roughly equal shares of local
government revenue, but that is no longer the case. As state aid was
cut, taxes began to rise. Local government costs have been shifted
onto property taxes. The average of total revenue from state aid and
property taxes has remained remarkably constant - within 1/100th of 1% over
5 years.
Picturing it then and
now
The relationship between state aid cuts and property tax
increases can also be illustrated by looking at how local governments got
their revenues in 2002, and how they are getting them in 2006, as the
following comparison chart shows.
"No new taxes"
rhetoric drives massive fee increases
Top
History
Property
tax
Aid
cuts Fees
Tuition
School
property tax
A
property tax grab?
Changing
picture
In the drive to adhere to the rhetoric
of the "no-new-taxes" pledge, revenue has also been shifted onto other
forms, such as "fees." Ronald Reagan once said that another way to
spell "fee" is T-A-X. Nearly every fee you can imagine has been
increased - some very substantially.
Once again, the problem is that this is regressive
- meaning it is unrelated to a person's ability to pay. Regressive
taxes and fees are also less efficient means of generating revenue - and
much less transparent.
Family wallets hit hard by "no new taxes" tuition
hikes
Top
History
Property
tax
Aid
cuts Fees
Tuition
School
property tax
A
property tax grab?
Changing
picture
In addition
to all those new fees under the "no-new-taxes" policies, families are spending
55% more to send their children (or job-changing mom and dad) to Minnesota
's public colleges and universities.
Making
college less affordable expands the achievement and economic gap between the
haves and have-nots, and makes Minnesota less competitive both economically
and culturally.
School Property taxes nearly double
Top
History
Property
tax
Aid
cuts Fees
Tuition
School
property tax
A
property tax grab?
Changing
picture
Aside from the financial problems of local
governments, the "no-new-taxes" policies have caused large increases
in school property taxes.
Like increasing tuition, increasing school property
taxes tend to be unrelated to the ability to pay. People who live in a
community with a low tax base that does not have a lot of high-value
commercial property will be hit harder by this shift of education funding
onto local property taxes. This disparity is exactly why the
legislature moved in 2001 to reform property taxes. That reform has
been largely undone by "no-new-taxes".
The other problem with this shift is that it relies
heavily on schools going out for voter-approved levies, a funding mechanism
that is highly inefficient because it involves a school district spending
time and resources trying to pass levies to fund basic needs instead
of directing those same energies to educating our children. This is
combined with thousands of hours of community volunteer time raising tens of
thousands of dollars to promote a levy - time that should be spent on other
community needs - just to pass basic education funding. This
inefficient cycle must be repeated sometimes annually.
Finally, this approach tends to divide communities,
as seniors cannot afford and tend to oppose property tax increases, while
younger families need basic education for their children.
Picturing it then and now
As in local government, the relationship between aid cuts and school
property tax increases can be illustrated by comparing where schools got
their revenues in 2002 to where they get them now.
A
"property tax grab"?
Top
History
Property
tax
Aid
cuts Fees
Tuition
School
property tax
A
property tax grab?
Changing
picture
Advocates of the no-new-taxes policies
embraced by State Auditor Patricia Anderson and Governor Tim Pawlenty have
argued that spendthrift local governments and school districts are refusing
to live within their means after the state tightened their belts for them,
and that there is a consequent "property tax grab," which they propose
to address by property tax caps.
But as the above chart shows, even after historic property tax increases,
both local government and school district revenues have actually fallen as a
percent of personal income, while state revenues have
grown.
What's
wrong with this picture?
Top
History
Property
tax
Aid
cuts Fees
Tuition
School
property tax
A
property tax grab?
Changing
picture
Overall, the effect of the "no-new-taxes"
policies of Governor Tim Pawlenty and State Auditor Patricia Anderson has
been to make Minnesota a more regressive state. The following chart shows in
a single compelling image how our state and local finances have shifted
since they took office.
As you can
see, state taxes have indeed remained relatively flat. To achieve
this, aid to schools and local governments has been cut significantly.
Fees, tuition, local taxes, local fees, and school property taxes have all
increased.
Conclusion
Top
History
Property
tax
Aid
cuts Fees
Tuition
School
property tax
A
property tax grab?
Changing
picture
Bad fiscal policy by the adherents of "no new taxes" at the state capitol has made state and local finances far more
regressive. Because of this, state and local governments are less able to
respond quickly to changing economic conditions, and so are financially
weaker. Overall, Minnesota finances have moved away from a "One
Minnesota" approach and toward an "every man, woman and child for him or
herself" philosophy that will have negative long-term economic and quality
of life impacts across Minnesota. |
