A closer look at whats driving property taxes

Cam Winton recently wrote to the Journal asking about my decisions regarding property taxes. I appreciate the opportunity to let folks know my highest priority has been to address the underlying problems that have been driving property tax increases.

That’s why I work to address the broken state/city fiscal relationship, and why I work to reform the city’s closed pension funds: because those are the two biggest drivers on your property taxes.

I also hear from you that you value your city services — you want the police to come quickly when you call 911. You want firefighters there when your business is burning or your partner is suffering a heart attack. You want well-maintained streets that are plowed quickly in a snowstorm.

It is balancing property tax burdens with maintaining those city services where real choices must be made. We must never pretend, in a haze of smoke and mirrors, that problems don’t exist or that hard choices don’t have to be made.

Anyone who has attended the annual Ward 13 budget meeting since 2005 (this year on Nov. 17) is aware of the challenges cities face. Property tax law changes at the state in 2003 placed a disproportionate property tax burden on households relative to commercial properties. The State has been cutting Local Government Aid (LGA) on a regular basis since 2003. The housing market has stalled and we are in the midst of a historic recession.

These are not excuses. This is the reality in which budget decisions must be made in Minneapolis.

There are some incorrect assumptions regarding the proposed 2011 budget in Mr. Winton’s letter. First, the budget proposed to the Council by the Mayor does contain cuts. Lots of them. It proposes a cut of 80 positions for a savings of roughly $5 million. This is in addition to the more than 400 positions we have reduced since LGA cuts began in 2003.

Second, while the City does indeed have an overall budget of $1.3 billion, the vast majority of those dollars are not discretionary and do not come from the property tax levy. For example, the revenue in the water fund can only be used for water-related purposes. Discretionary dollars — dollars that pay for police and fire services and road repair as well as other services – come from the General Fund.

The General Fund is funded through LGA and property taxes. In 2003, the City was certified to receive $118 million in LGA, representing 36 percent of the General Fund. In 2010, that fell to $64 million, or 15 percent of the General Fund.  

The only tool the City has at its disposal to make up for those lost dollars — and the services they provide — is property taxes. As a result, property taxes now represent 45 percent of the General Fund compared to 25 percent in 2003. Even so, property tax increases for basic services have not come close to replacing lost LGA.  

The Mayor’s proposed budget calls for a 6.5 percent property tax increase — all of it for pension obligations. Our pension obligations are in state statute and we are required to pay them. In the absence of these obligations, the Mayor would have requested a 1 percent decrease in the levy.   

BET Member Carol Becker did say she’d rather have a 0 percent increase (who wouldn’t?) and make up the difference in cuts. I asked her for, and expected to hear, real examples of how many police officers she thought should be laid off, how many miles of road should be unreconstructed, how many potholes should be unfilled. Instead, Becker proposed a) selling the Target Center — an unrealistic option even before the economic downturn and b) a series of ideas that require legislative approval including pension reform — which the City is already working on, and to which I in particular devote a great deal of time. We will continue to work on any good idea, but we cannot balance the 2011 budget based on actions the Legislature may or may not take. Neither can we balance the budget based on buyers of the Target Center who may or may not materialize. No responsible city fiduciary would use potential future revenue as a basis for current budgetary decisions.

To actually maintain key services in a time of declining resources, we must make real choices. One example is my on-going work at the City to reform our closed pension funds in a way that is fair to retirees and taxpayers.

I do this because I understand the budget pressures the City faces are the same budget pressures you are facing, and I do not believe continued property tax increases and service cuts are sustainable for our families and neighbors. That’s why I work hard to address the real roots of our challenges and invite you to join me in that work.

City Council Member Betsy Hodges represents Ward 13. She can be reached at  betsy.hodges@ci.minneapolis.mn.us or 673-2213.