The Foundation’s analysis is a mixture of distortions, selective presentation, and outright fallacies.
The errors commence in the first paragraph of the report. The Foundation refers to LGA as “a uniquely Minnesota form of direct aid paid to local units of government.” In fact, several other states have programs for directing general purpose aid to cities. Minnesota’s program is unique only insofar as it attempts to rigorously measure each city’s need for state-funded property tax relief.
The Foundation’s description of the growth in total government revenue is at best confusing. The Foundation presents information that shows that state and local revenue as a percent of statewide personal income declined from 16.2% in FY 2000 to a projected 16.0% in FY 2011 and asserts that this information proves that “state and local government do not have a shortage of revenue.” How does a decline in revenue as a percentage of personal income prove that state and local governments do not have a shortage of revenue? The Foundation makes no attempt to explain this non sequitur.
Incidentally, throughout most of the 1990s total state and local government revenue in Minnesota amounted to 17 percent or more of statewide personal income—significantly higher than it is today. During the relatively high revenue years of the 1990s, Minnesota’s economy was doing better in comparison to the rest of the nation than during the relatively low revenue years of the current decade.
The Foundation correctly notes that property taxes have increased dramatically during the current decade. However, the growth in property taxes is not the result of increased local government budgets. While real per capita property taxes have certainly increased over the last seven years, the amount of the increase has not been sufficient to replace cuts in state aid; consequently, property taxes have increased at the same time that the total real per capita revenue of cities, counties, and school districts has fallen. It is state aid cuts, not growth in local government spending, that have caused property tax increases during the Pawlenty era.
For more information from MN2020 on the state’s local government aid system and the rationale behind it, click here. For a discussion of some of the actual problems with the state aid system, click here.