Agenda Packets - 1987/09/14 - Laserfiche WebLink

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RS-2. Local Government Aid and State Funding to Cities (cont'd) (A) coincide with the cost of the services which that city s provide to its citizens. Therefore, the WA formula should reflec_ I:ath the individual city's need and its local revenue raising capacity. The League has formed a technical committee to review and resnond to potential changes in the LGA formula as they are developed by the legislature, Governor, or any ocher group. Cities are critically dependent on state funding to reduce property tax burdens in their communities. over the years, state appropriations for local government aad h6v not kept rice with the cost of providing services. The freezing of LGA payments for 1988 will :add to cities' fiscal stress. Changes in the structure of the homestead credit program may lead to further limits on property tax relief for cities. Other economic challenges facing cities include declining tax bases, cuts in federLd support (particularly the elimination of general revenue sharing), costs growing faster than the general inflation rate, and the need to implement state and federal mandates. It is important to put our current property tax relief financing structure into some historical perspective. Tax and government financing reforms enacted, over the past two decades dramatically shifted the mechanisms for rai•'ng revenue away from loual governments and toward the state. With passage of the 1967 Tax Reform and Relief Act, the 1971 Omnibus Tax bill (the so-called "Minnesota Miracle"), and later tax legislation, the state obligated itself to lower property tax burdens by levying increased sales and income taxes. The increased sales and income tax revenue was to be used by the state to partially replace the property tax. The state was to assume a larger share of the costs of delivering local government services. As a trade-off for providing aid to local governments, the state imposed levy limits on local governments and took away their authority to levy local sales or income taxes. Local governments were thus encouraged to rely more on state -collected revenue. Given the continued constraints placed on the taxing abilities of local governments and the state's original commitment to provide property tax relief, the League believes it would be wholly unfair to reduce state funding for local governments. The maintenance of property tax relief should be a high priority. Policy makers must recognize that any cuts in funding for cities will likely result in higher property tax levels and cuts in needed city services. For nearly two decades, the state has appropriately assumed a role in reducing property tax burdens. A long-standing nommitment for such relief has been r,:ade to both the ptblic and municipalities. The state must not renege on that promise. - 54 -