Local governments should treat state aid increase wisely

Housing prices are up 17.5 percent. Home sales are up 5.6 percent. Consumer spending is up. Americans are buying appliances at mid-2007 levels.

The downside? Consumer debt has jumped 8.3 percent. Could Americans’ pent-up desire to spend money backfire, putting our economic recovery in reverse? Financial gurus urge us to spend below our means, save for a rainy day and curb our exuberance.

Minnesota’s cities face a similar quandary — accelerate spending to make up for five years of tight budgets?

Or hold the line?

Thanks to a generous 2013 Minnesota Legislature, our local units of government have much to cheer about.

In previous editorials, we urged the Legislature to fund all-day kindergarten and beef up preschool programs. Those steps were essential to address our huge achievement gap and strengthen our educational model.

Our cities, counties and townships will also benefit as the state flows $302 million in additional funds to the local level.

Local government aid (LGA) was redefined, and future allocations stabilized, to the tune of $130 million. The impact on some cities is dramatic: Buckman, while small, will receive an additional 54.5 percent; Royalton aid will increase 32.5 percent and Little Falls will be up 16.6 percent

Cities, counties and townships will get another break Jan. 1, 2014, when they become exempt from almost all state sales taxes. That means saving 6.875 percent on all purchases, an estimated $172 million in savings for the biennium.

A state-mandated levy limit sets some controls. With a few exceptions (disaster expenses and debt repayment, for example), local governments will be limited to a 3 percent increase in tax rates.

Still, local governments can choose to spend extra revenues as they wish, or they can choose to hold spending, returning extra dollars to the property owner through reduced taxes.

Governor Dayton and the DFL-controlled legislature called the sales tax exemption “property tax relief,” but cities are not bound to cut levies in return. Cities are required to publicize how much they paid in sales tax in 2012, but they can spend the funds as they wish, within the bounds of the 2014 levy limit.

The Minnesota Center for Fiscal Excellence says the additional funds ($130 million in general aid and $172 million in the sales tax exemption) “… create a very rich environment for spending increases with little, if any, short term property tax repercussions.” Public employee unions will strongly seek a piece of the pie, after several years of zero or very low wage increases, the center warns.

Meanwhile, the most generous and broadly accessible property tax refund programs in the nation become even more generous and accessible, insulating more citizens from more of the cost of operating local governments,” the center said, in a policy paper called “Third Time Is Not a Charm.”

These are legitimate concerns. Our local governmental leaders are aware of the cuts they have made to staff and to services. Consumers understand the feeling: It would be wonderful to restore everything to pre-recession levels.

Citizens need to become involved today. Cities are now working on 2014 budgets, anticipating the Sept. 15 deadline for preliminary levies. (Cities must deliver a preliminary levy to the county mid-September. That amount becomes the maximum it can levy in 2014. They are allowed to go lower as the final budget is created – and most cities do.)

All property owners will get a statement of estimated taxes due around Nov. 1. However, much of the budgeting process has been completed by then, so if you wish to help influence your city’s spending, speak promptly.

Do you think every penny should go back to the homeowner in lower property taxes?

Do you think your city should restore staff cuts to the police department?

Are there fees in park and recreation programs that could be reduced?

The great majority of the 250 cities within the ECM coverage area operate with transparency. They welcome citizen input. Check your city’s website for contact information. Send an email to your mayor and city council.

Read your local ECM newspaper. We’ll be reporting the process, from early discussions, to the preliminary levy to the final budget.

Study your property tax statement. Read it thoroughly and learn what each unit of government charges you for its services.

Attend your truth-in-taxation hearings in November.

Write a letter to the editor with your ideas and concerns.

Our economy is better. We feel relief as jobs return, housing rebounds and fiscal tensions ease. Now, think about the needs and wants in your community, and become part of the decision-making process.

An editorial from the ECM Editorial Board. The Record is part of ECM Publishers, Inc.