11-13-2002 Council Agenda - Laserfiche WebLink

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IMPROVING FISCAL FUTURES 2 3 FF -1. State -Local Fiscal Relations (GC) 4 5 Since the 1970s, services provided by Minnesota cities have been largely funded through 6 a combination of property taxes, state aids, and state property tax relief programs. This system of 7 municipal finance has evolved to ensure that municipal services can be funded without excessive 8 local tax burdens, 9 10 In 2001, the Legislature enacted significant changes to the property tax system. With 11 those changes, the state increased its funding participation for schools while city operations 12 received less funding. On average, cities are now more reliant on property taxes to fund their 13 operations, although some cities are now more reliant on state aid. The changes to the state aid 14 distribution were necessary to more evenly distribute tax relief across the state. 15 16 With the budget crisis that now confronts the state, further review by the Legislature and 17 possible changes to the municipal finance system appear likely. This could ultimately translate 18 into further reductions in state aid to cities and, therefore, a further increased reliance on property 19 taxes to fund city operations. 20 21 Any changes to the state -local fiscal system should meet the following goals: Reduce tax burden disparities among communities and between cities and adjacent 24 townships. 25 ® Compensate cities and their taxpayers for overburden and tax exempt property. 26 • Compensate for state - imposed mandates. 27 ® Provide sufficient funding to address these principles. 28 ® Respect the decision - malting authority of local officials. 29 30 FF -2. LGA Data Issues (GC) 31 32 Issue: The release of 2000 Census data has highlighted a problem with one of the 33 variables used in the local government aid (LGA) distribution formula. The pre -1940 housing 34 percentage statistic used as one proxy measure of each city's need is derived from sample data 35 collected in the "long- form" survey. For individual cities, this statistic appears to significantly 36 fluctuate and may not accurately estimate the actual age of housing. 37 38 Response: The Legislature should identify a replacement source for data to measure 39 the amount of housing. The formula should continue to use the 1990 Census data until a 40 more accurate replacement data set can be identified. 41 42 FF -3. LGA and Market -Value Homestead Credit Cuts (GC) Issue: City reliance on state aids and funding for property tax relief programs means that 45 the state's budget deficit could become a local budget problem if funding for these programs is 1