8.1. SR 04-21-2003 - Laserfiche WebLink

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Cities Bulletin Number 15 April 16, 2003 A comparison of tax bills Gary Carlson With the announcement of the House DFL tax plan, the Legislature now has five aid reduction proposals in play: the governor's plan, the House Republican target, the Senate DFL target, the House DFL target, and the Sen. Langseth/Rep. Dorman proposal. In addition, the Senate has a property tax freeze bill awaiting action on the Senate floor. Aside from the governor's bill, the Pogemiller freeze, and the Dorman/Langseth bills, the other plans are yet to be fully fleshed out in a bill introduction. Complicating matters, the House Republican and Senate DFL targets will likely take shape within the next two weeks as the tax committees begin working with their respective versions of the tax bill. Nonetheless, the League has received many calls asking for a comparison of the components of each plan. Cuts to state aid programs. Each of the plans makes varying degrees of reductions in local government aid (LGA) and market value homestead credit (MVHC) paid to cities. In 2003, the governor's plan would make $140 million in cuts first from LGA and then, to the extent necessary, from each city's market value homestead credit. The Dorman/Langseth plan would take $95 million in 2003, first from the market value homestead credit and then, to the extent necessary, from each city's LGA distribution. For 2004, the governor's plan would increase the city aid cut to $277 million, again first from LGA and then, to the extent necessary, from market value homestead credit. The Dorman/Langseth plan would reduce city aids by $96 million, again first from market value homestead credit and then, to the extent necessary, from LGA. The governor's plan restores the market value homestead credit portion of the city cuts after 2004, while the Dorman/Langseth plan would permanently eliminate the city market value homestead credit reimbursement. The House Republican and the Senate Democrat targets do not currently contain any specifics on how the cuts would be made. Again, the details of these plans will be negotiated in committee over the next two weeks. The House DFL plan would make $37 million in cuts in 2003 based on 2.25 percent of each city's revenue base (property tax levy plus aid).The cut is limited to 0.9 percent of state auditor-reported expenditures for cities under 1,000 population or larger cities with less than 2 percent average annual growth in spending over the last three years. All other cities would have their cut limited to 2.06 percent of state auditor-reported spending. The 2004 cuts would be based entirely on expenditures as reported to the state auditor. The House DFL plan includes one significant difference from the other plans: the December 2004 aid payment would be delayed until 2005 with half of the aid paid in April and the remaining amount distributed in July, which is after the start of the state's fiscal year. This accounting delay allows the House DFL plan to reduce the governor's cuts while still balanc- ing the state's 2004-05 budget deficit. However, the delay will likely cause significant cash flow problems for some cities. Le~ limits. The governor's tax proposal is the only plan that specifi- cally reimposes levy limits. Under the governor's plan, all cities would be covered by levy limits for taxes payable in 2004. The levy limits would provide some modest levy growth to accommodate inflation, and to adjust for new households and new com- mercial and industrial growth. How- ever, these adjustments would only make a modest dent in the loss of revenue due to LGA and MVHC reductions. Property tax freeze. The Pogerniller tax freeze bill would simply freeze property tax levies of cities at the 2003 level for the next two years. The bill would only allow a few limited exceptions to the freeze. Although the Continued on page 7