04-14-2011 Charter Packet - Laserfiche WebLink

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LEAGUE OF MINNESOTA CITIES CONNECTING & INNOVATING SINCE 1913 Levy Limits: Update, Talking Points, and Basic Mechanics Updated July 2010 New and Critical information 1. The Governor continues to express his ongoing support for levy limits as a way to protect homeowners and proposed permanently extending current law levy limits in his supplemental budget. In that proposal, however, he advocated for new limits on authority to levy back for aid and credit cuts. The Senate tax bill and the House property tax committee bill both contain language to create a new minimum for the inflationary adjustment for levy limits. 2. According to current law, levy limits on cities with populations over 2,500 are in place for taxes payable in 2011. 3. The maximum levy increase is generally equal to THE LESSER of 3.9 percent OR the change in the implicit price deflator for state and local government—the inflation measure. In recent years, the IPD has grown extremely slowly. For payable 2010, cities covered by levy limits were only allowed to increase their levies by 0.83%. 4. Levy limit cities will be able to levy back for 2010 LGA and MVHC reimbursement that was unalloted or cut in the supplemental budget in their 2011 levies. Cities will also be allowed to levy for their 2011 MVHC reimbursement losses with their 2011 levy. Talking Points/Budgeting Challenges 1. The likely allowable increase under levy limits for 2011 will be extremely small. 2. Cities continue to face cost pressures for things like health care and pension benefits for employees, energy, and fuel costs. The housing slowdown and foreclosure crisis have hurt city property tax bases and added enforcement costs. Levy limits make it harder to deal with these fiscal realities. 3. City officials are frustrated by levy limits for many reasons. They take away local control from city officials. An across-the-board levy limit ignores unique local circumstances. Levy limits replace local accountability with the state's judgment about the appropriate level of local taxation and local services. 4. Local elected officials are in the best position to judge what the city property tax levy should be and whether or not it should grow or shrink over time. A one -size fits all solution in the form of levy limits is not good policy. 5. Local officials are very cognizant of the strain that the economic downturn has placed on families and businesses in their communities. Regardless of levy limits, city councils are not eager to ask their property tax payers to bear a greater tax burden. Mechanics of calculating the limit 1. The levy limit is a certain percentage over the city's previous year levy and local government aid (LGA). In this way, levy limits are actually more of a revenue restriction 145 UNIVERSITY AVE. WEST ST. PAUL, MN 55103-2044 PHONE: (651) 2811200 FAX: (651) 281-1299 TOLL FREE: (800) 925-1122 WEB: WWW.LMC.ORG