Cities relying more on property taxes for revenue, state auditor reports
State auditor reports 102 percent increase over 10 years
By Bill Salisbury
Updated: 01/14/2010 11:04:01 PM CST

In what State Auditor Rebecca Otto termed a "troubling trend," Minnesota cities over the past decade became more dependent on property taxes as funds from the state and federal governments provided a smaller share of their revenue.

The auditor's 2008 City Finances Report, released Thursday, showed that between 1999 and 2008, the property-tax revenue cities collected grew 102 percent, compared with a 10 percent increase in revenue from other governmental sources.

During that same period, the proportion of revenue that cities derived from property taxes grew from 24 percent in 1999 to 35 percent in 2008, the report showed. Their share of funding from the state and federal governments decreased from 32 percent of total revenue to 25 percent.

"If this trend continues, it will further increase the reliance on property taxes as a source of revenue," Otto said in a statement. "With the foreclosure crisis and the tight economy, this trend is troubling."

The problem isn't that cities are spending more. The report showed that, when adjusted for inflation, total city revenue and expenditures decreased 7 percent between 1999 and 2008.

With the state and federal governments facing fiscal problems, Otto said policymakers will consider cutting aid to cities, which would result in more pressure on local officials to raise property taxes. She said she plans to warn the Minnesota Legislature about the impact such cuts would have on economically squeezed homeowners as well as on cities.