State of MN Financing Local Government in the 1980's

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Special Report of VRT & CO. Page 3 only was the 1981 -1983 biennium budget "unbalanced ", projections indicated that the State would end its 1979 -1981 biennium (June 30, 1981) with a substantial shortfall. The State took prompt "action" to solve this problem with another "shift ". They with- held payments of local Education Aids at June 30, 1981 totaling $232,499,300. These aids were withheld until after June 30, 1981 and the State was again in "balance ". More important, the State continued to use cash -flow techniques in an effort to solve budget problems. During this process, Minnesota local government units were told /informed (by the State) that they would have to "do their part" to assist the State with its "balancing" problem. This assistance came in the form of decreasing State aids to Minnesota local government at the expense of increasing local property taxes. Increased local property taxes were effectively mandated by the State because of the timing of aid cuts. The State decreased aids to local government (particularly to local school districts) without sufficient warning. Local jurisdictions did not have adequate lead time to eva- luate options available to offset the reduced revenue. As a result, property taxes increased substantially. These local taxes were increased primarily to replace lost State aids and not to provide additional local revenue. The effect of this action (by the State of Minnesota) was increased local property taxes of 29% (1982 over 1981) for local school districts. This increase was followed by additional 11% increases in 1983 and again in 1984 for local school districts. See Tables 1 -A through 1 -D in the Statistical Data Section of this Report relating to local property taxes for the years 1968 through 1984. On a State -wide basis, property taxes (for all local government units) increased by over 71% between 1979 and 1984 as compared with 21%, 44% and 48% for each five year period ended 1969, 1974 and 1979 respectively. Substantially all of the 1979 -1984 increase occurred in 1982, 1983 and 1984. These increases were primarily the result of decreased State aids rather than increased local revenue.