HomeMy WebLinkAbout11 - Local Sales Tax - Res. 91-26
AGENDA ITEM:
PREPARED BY:
SUBJECT:
DATE:
INTRODUCTION:
BACKGROUND:
HERITAGE
1891
COMMUNITY
1991
19J!JfJ-.Y
2Q9f
11
DAVID J. UNMACHT, CITY MANAGER
CONSIDER RESOLUTION 91-26 IN SUPPORT OF THE
SCOTT COUNTY BOARD ADOPTING A RESOLUTION ON THE
LOCAL OPTION SALES TAX
JUNE 17, 1991
The title of this Resolution is actually
misleading. The 1991 Legislature created a law
which provides for a local option sales tax,
however, the practical implications of the law
are such that there is not a local option
without drastic property tax implications. The
Cit~ of Prior Lake has been put in an enviable
pos1tion based on the Legislature's 1991 omnibus
tax bill. The purpose of this item is to
consider approval of Resolution 91-26 in support
of the County Board's pending action on the
Local option Sales Tax. This Local option Sales
Tax would become effective on January 1, 1992 if
approved. Attached is a copy of Resolution
91-26.
,/
Attached to this report is information which
will provide you with sufficient background to
come to the same conclusion as staff. That is,
it is fiscally prudent for the city of Prior
Lake to adopt a resolution in support of the
Local o~tion Sales Tax. If we do not adopt a
Resolut1on we may be exposed to a loss in HACA,
disparity reduction aid, local government aids
and equalization aids amounting to $749,010.00.
This represents 22% of our general operating
budget. The City of Prior Lake cannot maintain
services to our residents with this loss of aid.
The law provides the option of levying a local
propertr tax to make up that aid loss, however,
the cit1zens of Prior Lake would not stand for a
city tax rate increase of close to 12% and a
total tax rate increase for the prior Lake
taxpayers approaching 24.5%. It is important to
note that monies received from the state sales
tax are not additional aids, rather how the
state is funding our current level of aids has
shifted from "primarily" the income tax to
"substantially" the sales tax.
The Association of Metro~olitan Municipalities
and the League of M1nnesota cities are
encoura~ing all cities to support the County
Boards 1n adopting a Local option Sales Tax.
The sales tax will increase from 6% to 6 1/2%,
4629 Dakota 51. 5.E., Prior Lake, Minnesota 55372 / Ph. (612) 447-4230 / Fax (612) 447-4245
however, that will be state-wide effective July
1, 1991, through December 31, 1991. The tax
that would be optional for cities becomes
effective on January 1, 1992. All
administrative requirements of imposing and
collecting the tax, including notification of
retailers, will be handled by the Department of
Revenue. Further details of the adainistration
of the tax, funding formula and allocation is
being generated at this time and will be
available in the near future.
Huge aid losses and large tax increases are at
stake, so the city must act. Our deadline for
action is July 1, 1991. In discussions with
other communities the consensus is that the
cities will support the Local option Sales Tax.
Attached is a copy of an article in the June 6,
1991 Minneapolis star Tribune where cities in
Hennepin County are urging the County Board to
adopt the state sales tax increase.
The Scott County Board has invited the City of
Prior Lake and other local governments in Scott
County to a meeting on June 18 to discuss the
cities' intent with regard to the local sales
tax. Mayor Andren has committed to attend to
represent the City of Prior Lake. Attached is
that correspondence from the Scott county
Board.
The alternatives are as follows:
1. Do not adopt the Local options Sales Tax
effective January 1, 1992 and direct
staff to take necessary steps to
manage the aid losses and pending
property tax increases.
2. Do not take any action on this request,
develop a wait and see attitude.
3. Adopt Resolution 91-26 - a Resolution in
support of the Scott County Board's
pending action.
RECOMMENDATION: The council is in an enviable position. In a
way the Legislature has made this an easy
decision for us. Our decision really isn't an
"option" after all. certainly staff does not
want to recommend that Council support a sales
tax increase we have very little say about and
very little control over, however, after looking
at all the facts, we are left with no choice.
DISCUSSION:
ALTERNATIVES:
The Council has always been sensitive to
pro~erty taxes, and has taken great efforts to
min1mize or reduce the city portion of the
property taxes. If we do not adopt the sales
tax option this would change dramatically.
Staff recommends that council support Resolution
91-26 and forward this Resolution to the Scott
County Board and other Scott County cities.
ACTION REQUIRED: Will vary depending upon council discussion.
HERITAGE
1891
COMMUNITY
1991
19J$JV
2Q91
RESOLUTION 91-26
RESOLUTION IN SUPPORT OF THE SCOTT COUNTY BOARD
ADOPTING A RESOLUTION ON LOCAL OPTION SALES TAX
MOTIONED
BY
SECONDED BY
WHEREAS,
the 1991 Legislature established a one-half cent
optional sales tax which may be adopted by cities within
counties to augment local government property tax
relief, and
WHEREAS,
if counties fail to adopt the Optional Sales
sales tax for that county will remain at 6%
count~'s 1.5% share of the revenue stream
distr1buted to other cities and counties thus
an inequitable aid distribution; and
WHEREAS, counties and cities within counties failing to adopt
the Optional Sales Tax stand to lose all of their local
government aid and homestead and agricultural aid; and
Tax, the
and the
will be
creating
WHEREAS, in Prior Lake the aid loss is estimated to be
$749,010.00 or 22% of our 1991 general fund budget; and
WHEREAS, this aid can only be made up through a reduction in
services or large property tax rate increases up to
twenty-four and one-half percent; and
WHEREAS, the City of Prior Lake does not appreciate the
Legislature placing this requirement upon the City; and
WHEREAS, the City of Prior Lake has examined the facts and is
compelled to act on this legislative mandate.
NOW THEREFORE BE IT RESOLVED BY THE MAYOR AND CITY COUNCIL OF
PRIOR LAKE, MINNESOTA, that the City of Prior Lake does hereby
support the Scott County Board in adopting the Local Option
Sales Tax effective January 1, 1992.
BE IT FURTHER BE RESOLVED, that this Resolution be forwarded to
the Scott County Board for their consideration.
4629 Dakota St. S.E., Prior Lake, Minnesota 55372 / Ph. (612) 447-4230 / Fax (612) 447-4245
Passed and adopted this 11- th day of
YES
, 1991.
NO
Andren
Fitzgerald
Larson
Scott
White
Andren
Fitzgerald
Larson
Scott
White
David J. Unmacht
City Manager
City of Prior Lake
{Seal}
SCOTT COUNTY
BOARD OF COMMISSIONERS
COURTHOUSE 109
428 S. HOlMES ST.
SHAKOPEE, MN 55379.1382 (612) 496-8100
WM. KONIARSKJ, DUict " ChMTnM
DALLAS BOHNSACK. Dialricl 2
R.E. MERTZ. District 3
DICK UNDERFERTH, District ..
ED MACKIE. Oiltict 5, v.c.chainn..
June 4, 1991
Honorable Lee Andren
Mayor of Prior Lake
4880 Chatonka Beach Trail
Prior Lake, MN 55372
Dear Mayo! JulBH
Subject: Local Option Sales Tax for 1992
The attached overview of the Local Sales Tax for 1992 conveyed under
the Commissioner of Revenue's letter dated May 29, 1991, was discussed in
considerable depth by the Commissioners at their Regular Extra Session
today when a consensus was reached to invite the leadership from each City
and Township in Scott County for the purpose of advising the County Board
of their respective jurisdiction's intentions to impose the optional
one-half percent sales tax effective January 1, 1992.
To that end, you are cordially requested to send a designated
spokesperson from your City Council to represent your position in this
matter before the County's Committee of the Whole at a meeting scheduled
as follows:
Date:
Time:
Place:
Tuesday, June 18, 1991
1:00 o'clock P.M.
Assembly Room Ill, Court House
Please forward a copy of any action you may have already taken or be
prepared to give written or oral testimony at the meeting. Thank you for
your participation in this most important matter.
Sincerely,
{? ,(, L(
Wm. Koniarski
Chairman of the Board
11
b'..I('~
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c: City Managers/Administrators
Township Clerks
WI<: bn
M~~~~~~/~~~k~~~
STATE OF MINNESOTA
DEPARTMENT 01' RKVENUE
Local Government Services Division
Mail Station 3340
Sl Paul, MN. 55146-3340
May 29, 1991
Dear County Board Chair,
Your county board must decide by July " 1991 whether or not to impose
a local option sales tax.for 1992. This requirement results from a law passed .
by the 1991 state legislature.
If imposed, the sales tax will be collected by the Department of Revenue
.- along with the state sales tax. All the administrative requirements of
imposing and collecting the tax -- including notification of retailers - will
be handled by the Department of Revenue.
If the board decides to impose the tax, it must make the decision by July 1
in the form of a resolution, and notify the Department of Revenue of the
decision by July 15.
If your board decides to impose the tax for 1992, please send a copy of your
resolution to the Local Government Services Division at the address above.
This letter explains the provisions of the law authorizing you to impose a local
option sales tax, describes the procedures you must foUow, and explains the
consequences of not imposing the tax.
Local Option Sales Tax
Under the law, an increase in the state sales tax rate of one-half percent
automatically goes into effect July " 1991 and automatically expires on
December 31, 1991. For the period after December 31, 1991, the liiw gives
each county board the option of imposing a one-half percent local sales tax
in the county.
Thus, for the local option sa Ie tax to take effect after December 31, 1991
each county board must act to impose the tax in the county. The county
board must make its decision to impose the tax by July 1 of the year. The
board must notify the Commissioner of Revenue of its decision by July 15. If
the county decides to impose the tax, it will go into effect on January 1 of the
next year. If it decides not to impose the tax by July 1 of this year, it will be
automatically removed effective January " 1992.
Once a board has decided to impose the tax, it remains in effect until it acts
to rescind the tax - unless cities and towns or voters take action to rescind
the tax as described below. If the county board decides to rescind the tax
prior to August 1 of any year the tax is removed on July 1 of the next year.
"'.
continued...
AN EQUAL OPPORTUNITY EMPLOYER
Consequences of not Imposins the local option sales tax
If a county decides not to impose the local option sales tax lor any year, the
city, town, county and special taxing district lovernments within the county
will not receive payment pf state aicfs in the fOUowinl year for:
· homestead and agricultural credit aid (HACA)
· disparity reduction aid and attached machinery aid
· homestead and agricultural credit guarantee
· supplemental homestead credit
· disparity reduction credit
· 25 percent of the base aid for county human service programs
· local government aid and equalization aid
(I am enclosing a list of the amounts of the above state aids received by your
county and your cities, towns and special taxing districts in 1990.)
If the local government aid to a city, town or county, or the aid for human
service programs and the attached machinery aid to a county is reduced or
el iminated because a county board decides not to impose the local option
sales tax, counties, cities and towns are authorized to increase their levy limits
to make up for the loss of these aids. The loss of the other aids and credits
listed above is automatically made up through higher property taxes.
Revenue from the local option sales tax will be deposited in a new trust
account dedicated to the payment of state aid - the local government trust
fund. In addition, the law provides for the depositing of 2S percent of the
revenue raised from the six percent state sales tax rate into the fund.
Reversing the decision of the county board
To reverse the decision of a county board to impose or rescind the tax, city
councils and town boards of cities and towns whose populations make up a
majority of the county's population must adopt resolutions to impose a tax
rescinded by the county, or rescind a tax imposed by the county. Also, in
cases where county boards have never taken action to impose the tax, dty
councils and town boards can vote to impose it. The decision of the cities
and towns affects the entire county. Cities and towns must enact their
resolutions no later than August 1. The county auditor must notify the
Commissioner of Revenue of the decision of the cities and towns.
In addition, beginning in 1993, voters can elect to rescind the tax imposed
by their county. To rescind the tax, voters must begin by filing a petition with
the county signed by at least ten percent of the voters in each city and town
in the county. This requires the county to put the issue on the ballot at the
next general election. To rescind the tax, a majority of the voters voting on
the issue must vote to rescind.
If you have questions, please call Rich Gardner of the Department's local
Government Services Division at (612) 296-3155.
Sincerely,
. ~']G~i. {} !h:~'75
Dor y A eClung
Co i I~~r,. .
REPORT 1 - AMOUNT PAID TO COUNTY GOVERNMENT IN CALENDAR YEAR 1990
FOR THOSE AIDS SCHEDULED FOR PAYMENT FROM THE LOCAL GOVERNMENT TRUST FUND
SCOTT COUNTY
HACA
DISPARITY REDUCTION AID
LOCAL GVT & EQUALIZATION AID
SUPPLEMENTAL TAC HSTD CREDIT
DISPARITY REDUCTION CREDIT
ATTACHED MACHINERY AID
2SX HUMAN SERVICES BASE AID-
TOTAL
PAG!:
70
T
4,935,717
14,958
76,204
218,866
6~45, 7~~)
~ Z5Y. OF THE HUMAN SERVICES BASE AID IS TO BE PAID FROM THE LOCAL
GOVERNMENT TRUST FUND. AMOUNT SHOHN IS ESTIMATED CALENDAR YEAR
1991 Af10UNT.
:, .'k',,;, J
:".."lI.:
.. .
.',." .
p. ~t.:. ":.. ........ ",
. ('r'; t. t
REPORT 2 - AMOUNT PAID TO CITIES, TOHNS, AND SPECIAL TAXING DISTRICTS IN CALENDAR YEAR 1990
FOR THOSE AIDS SCHEDULED FOR PAYMENT FROM THE LOCAL GOVERNMENT TRUST FUND
COUNTY OF:... "SCOTT
PAGE
9
. .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. . . . . . . . '. . . . . . . . . . _ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
lAME ... HACA DISPARITY LOCAL OVT & DISPARITY TOTAL
REDUCTION AID EQUALIZ. AIDS REDUCTION CRED
............. ..... ............................ ..... ..... ....... .................... ............. ....... ..... I... ......... ........
.ELLE PLAINE CITY OF
:lKO CITY OF
,ORDAN CITY OF
fEW MARKET CITY OF
'RIORLAKE CITY OF
,AVAOE CITY OF
,HAKOPEE CITY OF
IEW PRAGUE CITY OF
116,539
15,713
103,799
17,706
611,752
444,491
394,673
257,428
1,962,101
293,365
409 4,048
2, 106 275,883
9, 263
1,538 135,720
138,557
251,738
11 , 961 461,155
16,014 1,569,729
409,904
20,170
381,788
26, 96 9
749,11'
583,048
646,411
730,544
3,547,844
IELLE PLAINE TOHN OF
ilAKELEY TOWN OF
:EDAR LAKE TOWN OF
:REDIT RIVER TOWN OF
IELENA TOWN OF
ACKSON TOWN OF
OUISVILLE TOWN OF
IEW MARKET TOWN OF
T LAWRENCE TOWN OF
AND CREEK TOWN OF
,PRINO LAKE TOWN OF
29,499
9,963
15,403
20,903
29,499
9,963
15, ~03.
20,903
13,048
10,297
9,722
13,888
122,723
13,048
10,297
9,722
13,888
122,723
RIOR LAKE SPRINO LAKE
IATERSHED . DISTRICT .2
!RA SCOTT COUNTY
IRA SHAKOPEE CITY
EOION9 REGIONAL
COTT COUNTY REO RAIL
IETRO COUNCIL
IETRO MOSQUITO CONTROL
EGIONAL TRANSIT BOARD
36, 469
24,553
6,497
26,635
85
95
42
72
167
180
641
OTAL BY CO
94,154
2,178,978
16,655
1,569,729
36,554
24,648
6,497
42
26,635
72
167
180
94,795
3,765,362
t.
BULLETIN
May 28. 1991
To:
AMM City Officials
FROM:
Roger Petenon. ugislative Affairs Director
Van Peterson. Executive Director
Nicole Debevec. CommunicationslResearch Director
BE:
1991 omnibus tax bill. computer runs
Enclosed you will fmd a summary of the 1991 omnibus tax bill. It reviews the major
changes that affect cities.
The centerpiece of the tax bill. for cities and the services they offer. is the optional half-
cent sale tax. With it. property tax increases can be held to single digits because cities
and counties can participate in a 2-cent dedicated revenue stream. Without it. property
taxes would skyrocket and/or services would suffer because non-par1idpation in the
laIes tas increase means non-consideration in the distribution of aid.
To better illustrate what can happen if a county board chooses not to approve the half-
cent optional sales tax, we also have enclosed computer runs for all the member cities.
They show the negativt impact if a county commission fails to enact the optional tax.
We recommend that you pass resolutions of support encourapn& your county
boards of commissionen to adopt the sales tas increase for your county.
If you have any comments or questions regarding the update. please direct them to Roger
Peterson.
DISTRmUTJON NOTICE: This Bulletin has been sent to managers/administrators and
legislative contacts only. Please distribute it to mayors. city council members and others
as you deem appropriate.
183 university avenue east. s1. paul. minnesota 55101 (612) 227-4008
Summary of the 1991 Omnibus Tax Bill
L L<>ca.l Sales Tax Option.......................................................2
n. Class rate changes .............................................................3
ill. Aid cuts/levy limits 1991 t 1992........................................4
IV. Special levies . ............... ....................... .............. ...... ........5
V. Homestead and Agricultural Credit Aid (HACA)..............5
VI. Local Government Trust Fund .........................................5
Vll. Referenda Levy on Market Value ...................................5
~. 1r~ Irlcrement Firlancirlg...............................................<5
IX. 1rruth in Ta.x.ation Changes...............................................?
x. Fiscal Disparities - Technical Changes..............................?
XI. Local Government Services Sharing and
Combirlation SelV'ices .... .... ........... .... .... ................ ........... ......8
xn. Miscellaneous Changes ..................................................8
2
Overview or the 1991 omnibus tax bill
The 1991 omnibus tax bill (HF1698) has many more positive features than
negative ones for cities.
On the up side:
- The LGAlHACA cuts were less than one-tenth of the governor's original
proposal;
-The separation of city property tax relief fund dollars from legislative
manipulation has begun with the dedication of two cents of the sales tax, pan of which is
adopted locally;
- The third tier classification rate on homestead property is being reduced over a
two-year period without the taX cost shifting to other property;
- The 1991 revenue base is restored to its pre-cut level before 1992 cuts - which
may be recovered by levy - are calculated; and.
- The promise for 1993 levy limit repeal remains intact.
On the down side:
- Cities and counties will lose an additional $35 million LGAlHACA in the
December 1991 payment (approximately 1.6 percent of revenue base. or equivalent to
about 80 percent of the July 1991 cuts), and
- The overall levy base is frozen at the 1991 pre-cut level and contains no growth
factor.
For comparative purposes, the total 1991-92 LGAlHACA cuts beyond the $51
million 1992 cut passed in the 1990 tax bill is $70 million. The governor's proposal was
$639 million; the Senate bill was $125 million and the House bill, $25 million.
L Local Sales Tu Option
CITY REsOLlTIlONS IN SUPPORT OF COUNTY BOARDS ADoPTING LOCAL SALES
TAX OPTION
The Association or Metropolitan Municipalities urges member city councils
to pass resolutions in support 01 their county boards to adopt the one-hal' cent sales
tax by the July 1,1991, deadline.
The sales tax automatically will increase to 6.5 percent for the period July 1,
1991, through Dec. 31, 1991. H the one-half percent option is not adopted, the sales tax
within the county revens to 6 percent - not 4.5 percent - and all aid is lost to the county
and cities in that county's borders. Of the 6 percent sales tax, the difference - or 1.5
percent - will go to the Local Government Trust Fund as a windfall for other cities and
counties. In a county not adopting the one-half cent option, the lost aid to each unit of
government may be replaced by additional property tax levy.
H a county board fails to act by July I, 1991, the governing bodies of cities and
towns within the county totalling at least 50 percent of the county population may make
the option choice for the county.
It is important for cities to act quickly in support of their county boards to
help absorb the difficult political decision of increasing the sales tax by one-hall
cent.
3
The city portion of current aid'or the new localgovemment trust fund is between
7S percent and 80 percent of the total. Without city support. counties certainly will
expect a greater distribution when new fonnulae are considered. Even if cities are willing
to adopt the option, in the absence of county action, there is a very shon time between
July 1 and Aug. 1, and room for error. Huee aid losses or tax increases are at stake so.
please do not hesitate. (See impact of loss on attached sheet.)
A tinal complexity to the option is a very difficult reverse referendum to rescind
the option. This would require an election to rescind the tax if a petition signed by a
number equal to 10 percent of the voters in the previous election in each city and town in
the county is filed with the county.
D. Class rate changes
The tax bill contains class rate changes for homestead property. CII, apartments
with more than three units, residential non-homestead. cabins and vacant land.
The major ac:c:omplishment is the elimination of the third tier homestead
classification rate over a two-year period with the subsequent tax loss being paid for
by increased HACA payments.
ClassificatioD
1991
1991
1993
1994
HOMFSTEAD
1st S68K
market value
S68K - $110K
more than
$llOK
1 percent
2 percent
3 percent
1st $72K
market value
$72K - $llSK
more than
$11SK
1 percent
2 percent
2.5 percent
1st $72K
market value
more than $72K
1 percent
1 percent
2 percent
2 percent
CII (large) 4.95 percent 4.75 percent 4.65 percent 4.60 percent
APARTMEP-'TS 3.6 percent 3.5 percent 3.4 percent 3.4 percent
(four or more
units)
RESIDENTIAL 3.0 percent 2.8 percent 2.5 percent 2.3 percent
NON.HOMESTEAD
(1-3 units)
..
Clasiracltioa 1"1 1991 1993 1994
C,u1NS 2.3 percent 2.2 percent
1st S72K 2.0 percent 2.0 percent
market value
more than S72K 2.5 percent 2.5 percent
VACANT LAND 4.95 percent 4.75 percent highest and best use per zoning
ID. Aiel alts/levy limits 1991, 1992
As earlier meDtioned, the total LGAlHACA cuts exceeding the cuts already
passed is $70 million - $35 million in December 1991 and $35 million in 1992. The
Revenue Depanment indicated that the December 1991 aid cut is 1.6 percent of base, or
about 80 percent of the July 1991 cut. (NOTE: this is a preliminary figure.) Aid cuts in
1991 are temporary. Thus, the pre-cut 1991 certified levy base is restored prior to
calculating aid reductions and levy for 1992.
Aid cuts for 1992 will be $86 million: $35 million new and $51 million contained
in the 1990 taX bill. These cuts are pennanent and, according to the Revenue Department,
amount to about 4 percent of the restored 1991 revenue base.
Levy limits are very strict By the end of the session it was clear that everyone,
including the governor, wanted only single-digit overall increases. The good news is that
cities and counties may levy to recover the loss of revenue due to the pennanent $86
million LGA/HACA cuts for 1992. The bad news is the 3 percent inflation for growth is
gone.
The net effect of aid cuts and levy limits is that a city's levy base, aid plus
levy, or total for 1992 is the same as was certified for 1991. The only difference is that
the aid portion of the '92 base will be less and the general levy portion will be more.
The following chart illustrates the interaction of aid cuts and levying authority:
Citl' A Citl' B Citv C
LEVY I Am I TOTAL LEVY I AID I TOTAL LEVY I AID I TOTAL
Oririnal p.v 1991 70 30 100 SO SO 100 30 70 100
July aid cut (SSOM) -2 -2 -2
Dec. aid cut (S3SM) .1.6 -1.6 -1.6
EDd 91 toIaI 70 26.4 96.4 SO 46.4 96.4 30 66.4 96.4
Pay 1992 ~tart Cum. 70 30 100 50 50 100 30 70 100
I1.!ll
1990 law cut (S51M) -2.4 -2.4 -2.4
New aid cut (S3SM) .1.6 -1.6 -1.6
New levv authority 4 4 4
1991 total 74 26 100 54 46 100 34 66 100
P,re,lIIDg' k" 5.7% 8.0% 13.3%
increase (4llowd)
5
IV. Specilllevies
1be oriJinal House bill contained a provision limiting use of bonded debt special
levy. That bas been deleted from the final bill. Bonded debt remains an uncapped
special levy _ it has been 'or two decades. The only significant city change to the
special levy SCCIion was the addition (roll in) of the pension special levy to the 1m base
at the 19911eve1 without increase.
V. Homeslad and Agricultural Credit Aid (HACA)
One rI die major concerns of legislators when discussing reduction of the class
rates for high "falued homes aDd C/I property was the very large tax shift onto low valued
homes and OIlIer property to replace the reduced taxable value. This was especially
difficult becaasc of the state's $1.1 billion shortfall.
The solation became possible with adoption of the increased half cent sales tax
option. The extra funds allow the state to replace on a dollar-for-dollar basis the
city/county lost revenue created by the value reduction, thus preventing an increased tax
burden on other property.
These payments will be made to cities in the fonn of HACA and the lartest
beneficiaries will be ,enerally metro cities with a Veat deal of hleh valued homes
and ell Droaertv. manv of which currentlv receive ven little LGA or HACA.
Over die next three years, $211 million (preliminary legislative estimate) is
budgeted to buy down the class rate reductions, of which about $175 million (or 84
percent) will be distributed to metro area cities. The sales tax increase and the 2,ent
dedication to local government - both city and county - provide a continually growing
pot of money which, hopefully, will make future LGA/HACA reductions unnecessary.
VL Local Government Trust Fund
This fund will receive revenue from the half-cent optional sales tax plus 1.5 cents
of the current six-cent sales tax, or a total of two cents from the sales tax statewide. The
fund is dedicated to pay for existing non-school aid programs including LOA, HACA,
disparity reduction aid, equalization aid, attached machinery aid, border city disparity aid
and a few oIhcr minor programs. There is some income maintenance takeover funding
equal to abcu 0.1 cent initially to balance the dedication at two cents. The fund is
projected 10 grow at about 7 percent per year with new money allocated primarily to
city/county DeW and existing property tax relief programs.
RevcaK is expected to be $700 million in 1991-92 (11 months), $786 million in
1992-93, $842 in 1993-94 and $898 million in 1994-95.
For 1991 and 1992, the distribution will be as per current fonnula. For 1993 and
thereafter, it may change based on recommendations of a new Advisory Commission on
Intergovernmental Relations (ACIR). ACIR initially will have as members four city
officials, tJm:c county commissioners, one town board member, five representatives, five
senators and two members of the governor's staff.
VB. Referenda Levy on Market Value
All general education referenda (not including school capital bonds) and non-
school refermda (cities, towns and counties) held for taxes payable in 1993 and
thereafter will be levied on the market value rather than on the net tax capacity of
6
property within the taxing jurisdiction. This provision will increase significantly the
unount of a referendum levy paid by homeowners/voters as compared to CII or rental
property. Instead of the cumnt 5:1 pay ratio based on taxable value. the ratio is reduced
to 1: 1 based on market value. Tax statements will show referenda levy payments
separately. Levy referenda ballots must have clear. bold-faced language indicating. "By
voting yes on this ballot question, you are voting for a property tax increase." There
is a one-year exception for school referenda passed in a flI'St-c1ass city for taxes payable
starting in 1993.
vm Tax Increment Financing
Several changes were made to the section governing Tax Increment Fmancing
(I1F). Most were technical in nature to correct mistakes from last year's bill.
The reduction in LGAlHACA will apply only to the new area of an old district
(pre-April 30. 1990) that is amended by adding a new area. A phase-in schedule of the
aid reductions is provided for economic development districts for manufacturing. and
research and development projects. which must be located in cities with populations
under 10.000 outside a metropolitan statistical area by federal law. The phase-in is
accomplished over five years.
Calculation for lost state aid excludes equalized levies for 1. health and safety, 2.
cooperation and combination. 3. community education. 4. early childhood family
education. and S. DOn-regular transportation from the calculation of the state aid
reductions.
The original tax capacity of a tax increment district is based on the prior year's
assessment if certification is requested by June 30. and for the current year's assessment
if certification is requested after June 30.
A development authority will be allowed to treat a parcel as occupied by a
substandard building for the purposes of redevelopment and renewal and renovation
district criteria. even though the parcel does not have a substandard building on it at the
time the district is established. There are three conditions:
. The authority must have removed. financed removal or entered into a
development contract for the mnoval of the substandard building within three years
before requesting certification of the parcel;
. The authority must adopt before the demolition or removal a resolution finding
the building was substandard and that the parcel would be included in a TIF district; and
. The original net tax capacity of the parcel will be the greater of the value before
or after the demolition and removal.
DeJinquent taxes on property in a TIF district will be paid to the authority after
the district is decertified if the delinquency required the authority to use revenues other
than tax increments to pay the district's bonds. Under the three-year knock-out rule. TlF
bonds must be issued for the project in which the district is located.
Interest costs on developer financing are not prohibited by the five-year rule.
Payments of credit enhanced bonds are not subject to the five-year rule if increments
from the district where the financed activities are located and from the pooling share are
insufficient. Increments may be used to pay credit enhanced bonds. even if the district is
not pennitted to pool increments because the request for certification was made before
1982.
7
If a propeny in a TIF disuict becomes tax exempt because of a default and
acquisition by the authority. when that propeny is returned to the tax rolls its value at the
time of the initial certification will be used in the original net tax capacity.
Adjustments to the original net tax capacity of economic development districts for
inflation will be made using the growth in market value rather than tax capacity. For
parcels with demolished substandard buildings that the authority elects to treat as still
occupied substandard buildings. the original net tax capacity is the higher of: 1. current
tax capacity or 2. the tax capacity before the demolition but at the current class ratio.
Property ownen who are not developers may enter into assessment agreements.
Assessment agreements also may be entered iDto for existing properties in the TIF disuict
that are Dot being developed. The assessment agrmnent may provide for increases or
decreases in the minimum market value over the tenn of the agreemenL
IX. Truth in Taxation Changes
Several significant changes occurred in Troth in Taxation matters. Among them:
. Deletion of the requirement to provide time and place of the second meeting on
the initial proposed property tax notice;
. Requirement that an estimated percentage change in the levy be calculated as
well as a total percentage change weighted in relation to each taxing authority's
proportion of the total levy;
. Requirement that llF and fiscal disparities. when applicable. be stated
separately;
. Requirement that owners of class 4 residential rental property mail or deliver a
copy of the notice to each tenant, or post a notice in a conspicuous place on the premises;
. Use of business days rather than calendar days regarding publication notice;
. Exemption of cities having populations of less than 1.000 from advertising
notice (they must post notice. however);
. Requirement that cities with populations between 1.000 and 2.500 publish an
advertisement that is one-eighth of a page;
. Requirement that cities with populations over 2.500 publish an advertisement
that is one-fourth of a page; and.
. Allowance of an additional levy exceeding the proposed levy if the half-cent
optional sales tax is not adopted.
X. Fiscal Disparities. Technical Changes
Several changes were made to laws governing fiscal disparities. The technical
changes:
. Eliminate the never-used municipal equity account and obsolete language;
. Pennit the Metropolitan Council and the Commissioner of Revenue to make the
detennination that a municipality consciously excluded CII development and. therefore.
is ineligible to participate in the fiscal disparities program;
. Direct that contributions will be made based on equalized market value rather
than the assessor's stated market value;
8
. Modify the distribution fonnula defmition of fiscal capacity to include personal
property, such as utilities or manufactured homes. (The contribution side currently
includes utility property.);
. Direct South St. Paul to contribute to the pool using its 1989 value as the base
value;
. Eliminate the "factor of two" minimum distributions, and provides a phased in
loss of disuibution schedule; and
. Direct that the distribution index now will use the same population year that the
capacity calculation uset.
XL Local Government Services Sharing and Combination Services
This program was established to provide financial incentive to local units of
government to jointly provide services or to combine their services into a single entity, as
well as combine separate governments into single units. Among the highlights:
. Service Sharing Grants: Any city, town or county jointly with other units(s)
may apply to the Department of Trade and Economic Development (0- TED) for a grant
equal to the start-up costs for shared services. The application must include: 1. the
proposal for jointly providing a service, 2. projections of cost savings and increased
efficiency, and 3. evidence of the need for financial assistance to meet start-up costs for
the new endeavor.
. Cooperation and Consolidation: This program provides for two or more
contiguous units to combine services for two years and then combine into a single
governmental unit. The plan submitted to D-TED must describe joint activities, how the
merger would be accomplished, the fonn of the post-merger governing body, service or
facility changes, personnel and administrative changes, revenue and expenditure
projections, tax levy differential and a timetable to accomplish the merger. Voters would
have two years to pass a consolidation referendum. Up to $100,000 per year for four
years in additional aid will be available for implementation. This money must be repaid
if the merger is not accomplished per the voters.
A total of $1.5 million was appropriated with at least 40 percent dedicated
initially to the cooperation and combination program.
xn Miscellaneous Changes
Sales tax is extended to dedicated phone lines, telephone paging services, kennel
services and massage services. Sales tax is repealed on massage parlour admissions, and
tree and shrub planting services (although sales tax does apply to landscaping items).
A surcharge of $7.50 is imposed on each contract for car, van or pick-up truck
leases of 28 days or less.
The so-called "Yuppie" sales taxes were not enacted.
Cooperative electric associations are included in the set of utilities upon which
cities may impose franchise fees, but rates are not limited as they were in the initial
House bill.
9
A 7.S percent surtax is imposed on 1-900 calls.
The cigarette tax increases five cents per pack from 38 cents to 43 cents. (A
separate health insurance bill would impose an additional tax of seven cents per pack if it
is signed by the governor.)
No new beer, wine or liquor taxes were enacted.
Budget Reserve is set at $400 million with a first priority on excess revenues to
restore it to the full SSSO million.
Food shelves did not get a chickadee-type checkoff, but was allocated a direct
funding of $800,000 for the biennium.
While the lodging tax was increased one cent for Sl Paul and Winona, and the
use changed for Bloomington, no general law or use change was adopted.
IMPACT OF NOT APPROVIRG THE LOCAL OPTION SALES TAX
If . county government or city councila repre.enting a majority
of the population within a county do not approvl the additional
one-half cent local option .ale. tax, the county and all cities
and apecial taxing jurisdictions within that county will 10s. all
of the following state aids: LGA, HACA, .qualization aid, and
disparity reduction aid. An estimate of the amount of state aid
that would b. lost by cities in 1992 if the local option aales
tax is not approved ia listed in the first column. (Thi. amount
doe. not include county and special taxing jurisdiction aid that
would also be lost.)
Local government a vill have the option of levying to replace aid
that was lost by not approving the local option sales tax. The
second and third columns li.t the .stimated 1992 city and total
tax rate increases needed to replace all aid that would be lost
by not approving the local option aales tax.
EXAMPLE: CRYSTAL
If the local option aales tax was not adopted in Hennepin County,
the City of Crystal would lose an estimated $2,663,226 in state
aid (from column one). In addition, the city tax rate in Crystal
would increase by an estimated 26.210 (from column two) and the
total tax rate in Crystal would increase by an estimated 30.168
(from column three). For example, if we assume that Crystal's
city tax rate was 21.000 before the loss of any state aid, the
city rate would have to increase to 47.210 (21.000 + 26.210 )
after the loss of state aid in order to maintain the 8ame amount
of revenue. Similarly, if the total tax rate in Crystal was
120.000 before the loss of state aid, the total rate would have
to increase to 150.168 (120.000 + 30.168 ) after the loss of
atate aid in order to maintain the same amount of revenue.
Estimated increase in tax
Estimated rates that would occur if
state aid local option sales tax
to city that is not approved
is lost if --------------
local option City Total
sales tax is Tax Rate Tax Rate
A.M.M. Cities not approved Increase Increase
--------------------=- ------------- ---------------------------
ANOKA .. $1,667,947 19.922 29.437
APPLE VALLEY $2,401,085 10.410 15.352
ARDEN HILLS $23,463 0.224 4.540
BAYPORT $140,552 5.079 10.659
BLAINE $2,466,977 15.445 25.512
BLOOMINGTON $2,915,821 3.086 7.482
BROOKLYN CENTER $2,837,809 14.175 18.340
BROOKLYN PARK $3,914,437 12.790 16.766
BURNSVILLE $2,777,645 5.949 11.044
CHAMPLIN $1,186,248 15.540 19.241
CHANHASSEN $725,860 7.911 18.463
CHASKA $504,868 7.982 18.159
CIRCLE PINES $424,391 22.882 32.325
COLUMBIA HEIGHTS $2,815,726 35.279 44.820
COON RAPIDS $4,208,764 .18.691 28.653
COTTAGE GROVE $2,053,815 18.842 24.533
CRYSTAL $2,663,226 26.210 30.168
E.tim.t.d incr.... in tax
E.timat.d rat.. that would occur if
.t.t. aid loc.l option .al.. tax
to city that i. not approved
i. lo.t if --~----------
local option City Total
aal.. tax ia Tax Rate Tax Rate
A.M.M. Cities not approv.d Incr.... Incr.a.e
---------------------- -------------- ---------------------------
DAYTON $186,257 9.811 12.956
DEEPHAVEN $123,397 2.196 6.984
EAGAN $1,205,080 2.313 7.387
EDEN PRAIRIE $51,992 0.091 4.373
EDINA $242,548 0.318 4.741
FALCON HEIGHTS $319,615 12.675 15.404
FRIDLEY $2,404,543 12.214 21.917
GOLDEN VALLEY $1,508,449 6.466 10.723
HASTINGS $2,003,713 27.258 31.399
HOPKINS $1,577,262 11. 022 15.228
INVER GROVE HEIGHTS $1,173,830 7.595 12.156
MAHTOMEDI $350,988 9.973 15.860
MAPLE GROVE $1,859,890 7.462 11.386
MAPLEWOOD $2,012,537 7.437 11. 660
MENDOTA HEIGHTS $277,892 2.368 7.412
MINNEAPOLIS $85,514,648 32.484 36.663
MINNETONXA $1,377,371 2.330 6.703
MOUND $705,408 11.996 16.137
MOUNDS VIEW $886,822 18.863 23.222
NEW BRIGHTON $1,378,912 10.058 14.200
NEW HOPE $1,771,394 12.612 16.671
NEWPORT $389,241 16.239 21. 965
NORTH ST PAUL $888,795 16.796 21. 016
OAKDALE $1,328,679 14.840 20.995
ORONO $91,460 0.708 5.465
OSSEO $171,137 9.367 13.370
PLYMOUTH $1,389,526 2.816 7.153
PRIOR LAXE $735,926 11.989 24.466
RAMSEY $734,957 16.605 25.133
RICHFIELD $4,768,701 25.969 30.268
ROBBINS DALE $2,282,382 37.918 41.893
ROSEMOUNT $797,771 11.165 16.141
ROSEVILLE $1,568,696 4.922 9.177
SAINT ANTHONY I $425,405 7.683 11.778
SAINT FRANCIS I $99,971 10.920 19.441
SAINT LOUIS PARI< I $4,419,256 11.624 15.822
SAINT PAUL I $56,585,103 39.659 43.288
SAINT PAUL PARI< I $600,773 33.978 39.595
SAVAGE I $475,898 9.336 21.250
SHAKO PEE I $521,894 6.263 18.175
SHOREVIEW I $826,374 5.065 9.362
SHOREWOOD I $253,771 3.358 7.874
SOUTH ST PAUL I $3,345,133 38.007 43.042
SPRING LAKE PARK I $369,859 11. 468 20.995
SPRING PARK I $83,877 5.114 9.281
STILLWATER I $1,559,817 19.382 25.128
WAYZATA I $138,078 1.673 6.170
WEST ST PAUL I $1,932,789 14.955 20.048
WOODBURY I $1,010,669 5.584 11.371
WOODLAND I $12,413 0.637 5.583
Association of Metropolitan Municipalities, 5/24/91
. ,
1&1 UDiwnitJ Ave. Eat
It. Paul, 11M 11101...
(112) 127-1800 (pAl: 221.0888)
League of Minnesota Cities
PROK:
MaYO~~nager., and Clerk.
Dona~'Slater, Executive Director
GOVERNOR'S LINE-ITEM VETO OF TWO TAX BILL PROVISIONS
RECEIVED
JiJiY , 0 ti91
PR9~ t%E
June 7, 1991
'1'0 :
SUBJECT:
Saae of you received a June 6th letter on thi. .ubject. If ao,
plea.e ignore that letter, thi. letter provide. the late.t corrected
information.
On May. 31, Governor Carlson line-item vetoed two .ections of the
oanibu8 tax bill. By far the aore i.portant of these provisions
i. Article 2, a.ction 4, which i. de.cribed below.
lIbat the 8ill COntained. Before the Veto
*Diatribution formula for 1993 and 1994 aid payments from the Local
Government Tru.t Fund, containing the revenue. from the 1/2 cent
local option aale. tax plus 1-1/2 cent. of the .tate .al.. tax.
*payaent from the tru.t fund in 1993 and 1994 for LGA, HACA,
di.parity reduction aid, three minor aids, and part of income
maintenance payment. to counties.
*Di.tribution of growth in the trust fund for fiscal years
1994-95 compared to 1992-93 e.timated as follows: 24' for income
maintenance aid, 42' for growth in HACA a. payment for cla.. rate
reductions, and 33' available for growth in aid formulas.
What The Veto Did
*The Governor's veto eliminated the provisions listed in the previous
section. The Governor apparently intended to force the 1992
legislature to adopt new distribution formulas, including a provision
tor 67' of the fiscal year 1994-95 growth to go to income
maintenance (11M) rather than the 24' in the original bill. 11M
is currently a state general fund obligation, and the
use of 67' of trust fund growth for 11M would leave no money for
growth in aid formulas such as LGA.
*Due to a technical error, the Governor failed to achieve his
intended purpose; instead, .the new tax law, now assigns ALL of the
,.
- - OVER - -
trust tund revenue tor tiscal years 1994-95 to city and town.hip
Local Government Aid (LeA). In tiscal year 1994 (taxes and aids
payable in 1993), LGA would increase from $282 .illion to about $820
million. The trust fund would not pay for HACA or 11M.
*With the technical error, the fiscal year 1994-95 trust fund
distribution is very strange, and the 1992 legislature should adopt
new distribution formulas, similar to the vetoed provisions. The
technical error appears to avoid the Governor having the upper hand
in the 1992 negotiations, since with no bill, he would get NO trust
fund .oney for 11M to help the state's general fund. The League will
work for new distribution formulas in the 1992 session, with minimal
trust fund revenue going to 11M.
*The Leaque objects to the Governor's desire to have 67' of trust
fund growth go to inco.e aaintenance aid, which is currently a state
General Fund obligation. This amounts to local governments imposing
a local option sales tax which brings a dedicated matching share of
the state sales tax, and then having most of the growth in these
funds put back into the state general fund. It is also contrary to
the Governor's stated purpose of disconnecting state and local
finances.
What the Veto Does Bot Do
*The veto does NOT reduce aids payable in 1991 and 1992.
*The veto does NOT reduce the importance of county adoption of the
local option sales tax by July 1, 1991. It is still true that any
county not adopting the tax viII 10.. all of it. county, city, and
township aids, totalling far .ore than it saves on the sales tax.
Cities should continue to urge their county boards to adopt the new
1/2 cent sales tax, through resolutions and other means.
*The veto does NOT affect levy limits for 1992.
Lin.-it_ Veto of Appropriations for Local Govermaent Service Sharing
and coeination IDcentive.
Governor Carlson also vetoed the $1.5 million appropriation for
incentives to local governments for start-up costs for sharing
services or merging governments. He stated that financial incentives
are not necessary for such efforts to occur.
,
.'.11 ~
IMPACT OF NOT APPROVING THE LOCAL OPTION SALES TAX
UPON PROPERTY TAX RATES OF A.M.M. MEMBER CITIES
The omnibus tax bill recently passed by the state legislature gives
county boards the option of adopting an additional one-half cent
sales tax. The decision of a county board to adopt (or not to
adopt) the local option sales tax can be reversed by the governing
bodies of cities and townships representing half of the population
of the county.
If the local option sales tax is not adopted within a county, the
county and all cities and special taxing districts within that
county will lose all of the followinq state aids:' LGA. HACA
(homestead and agricultural credit aid). eaualizationaid. and
disDaritv reduction aid. The attached table summarizes the impact
that the loss of this aid would have upon the cities that are
members of the Association of Metropolitan Municipalities.
The first column contains an estimate of the amount of state aid
that would be lost by cities in 1992 if the local option sales tax
is not adopted. This amount does not include county and special
taxing district aid that would also be lost.
Local governments will have the option of levying to replace aid
that was lost by not approving the local option sales tax. The
second and third columns list the estimated 1992 city and total tax
rate increases needed to replace all aid that would be lost by not
approving the local .option sales tax.
Similar information for taxes payable in 1993 is presented in
columns four through six. In 1993 there is no scheduled aid cut.
However, there should be an increase in HACA received by local
governments (assuming the local option sales tax is approved)
because of the continuing buy-downs associated with further class
rate reductions. There is a very little data for 1993 currently
available: consequently, the estimated impact of not approving the
local option sales tax is determined by applying the class rates
and HACA formula for taxes payable in 1993 to preliminary 1992
data. The 1993 aid amount is assumed to be equal to the 1992 aid
amount (after cuts) plus new HACA-amounts associated with the 1993
class rate reductions.
EXAMPLE: MINNEAPOLIS (1992)
If the local option sales tax is not adopted in Hennepin County,
the City of Minneapolis would lose an estimated $85,514,648 in
state aid (from column one) for taxes payable in 1992. The city
tax rate in Minneapolis would increase by an estimated 32.484%
(from column two) and the total tax rate would increase by an
estimated 36.663% (from column three). For example, if the city
tax rate in Minneapolis was 33.000% before the loss of state aid,
- it would have to increase to 65.484% (33.000% +...32.484%) after the---
loss of state aid in order to maintain the same amount of revenue.
Similarly, if the total tax rate in Minneapolis before the loss of
state aid was 126.000%, it would ihave to increase to 162.663%
(126.0..00%. + 36.663%) after the loss of state aid in order to
maintain the same amount of revenue.
~. IMPACT OF NOT APPROVING THE LOCAL OPTION SALES TAX . . 1992 & 1993
1...............;~t~~~.;~;~~~:.;~.;~~.111 1...............~;t:~~.;~;;~;;.;~.;;;.1
Estimated rates that would occur if II Esti..ted rates that would occur if
state aid local option sales tax state aid local option .al.. tax
to city that i. not approved I to city that i. not approved
is lost if ............. is lost if .............
local option City. Total I local option City Total
sales tax is Tax Rate Tax Rate sal.. tax is Tax Rate Tax Rate
A.M.M. Cities not approved Increase Increase I =~..=~:~:~.. Increase Increa.e
.....===:=.=========-= ===as=:.....=: ===-=======================a =._==.......===..===_.====z=
ANOKA $1,667,947 19.922 29.437 $1,690,453 20.616 30.699
APPLE VALLEY S2,401,085 10.410 15.352 12,592,416 11. 717 17.313
ARDEN HILLS $23 , 463 0.224 4.540 169,986 0.690 5.9n
BAYPORT $140,552 5.079 10.659 $152,171 5.622 12.094
BLAINE $2,466,9n 15.445 25.512 12,496,456 15.890 26.543
BLOOMINGTON S2,915,821 3.086 7.482. 13,361,853 3.652 9.254
BROOKLYN CENTER S2, 837, 809 14.175 18.340 S2, 879, 662 14.583 19.840
BROOKLYN PARK $3,914,437 12.790 16.766 $3,996,536 13.317 18.411
BURNSVILLE S2,m,645 5.949 11.044 12,939,015 6.441 12.137
CHAMPLI N Sl,186,248 15.540 19.241 Sl,206,888 16.143 20.960
CHANHASSEN I Sn5,860 I 7.911 18.463 I S825 I 395 9.453 21.231
CHASICA S504,868 7.982 18.159 S522,391 8.482 19.794
CIRCLE PINES I 1424,391 I 22.882 32.325 I 1431,157 23.706 33.nD
COLUMBIA HEIGHTS S2,815,n6 35.279 44.820 S2,837,482 36.317 46.429
COON RAPIDS I 14,208,764 I 18.691 28.653 14,268,201 19.334 29.870
COTTAGE GROVE S2,053,815 18.842 24.533 S2, 083, 846 19.369 25.925
CRYSTAL I S2,663,226 I 26.210 30.168 S2,689,267 26.906 31.969
DAYTON S186,257 9.811 12.956 S197,235 10.708 14.990
DEEPHAVEN I $123,397 I 2.196 6.984 $210,160 4.231 10.915
EAGAN $1,205,080 2.313 7.387 $1,365,.675 2.685 8.361
EDEN PRAIRIE I $51,992 I 0.091 4.373 I 1464,502 0.848 6.382
EDINA $242,548 0.318 4.741 S844,076 1.184 7.101
FALCON HE I GHTS I $319,615 I 12.675 15 .404 I $329 ,286 13.415 17.098
FRIDLEY S2,404,543 12.214 21.917 $2,452,339 12.682 22.964
GOLDEN VALLEY I $1,508,449 I 6.466 10.723 I $1,653,912 7.302 12.816
HASTI NGS $2,003,713 27.258 31.399 $2,038,3n 28.341 33.048
HOPKINS I $1,5n,262 I 11. 022 15.228 I $1,657,865 11.973 17 . 379
INVER GROVE HEIGHTS $1,173,830 7.595 12.156 $1,245,557 8.269 13.452
MAHTOMEOI I $350,988 I 9.973 15.860 I S385,375 11.549 18.458
MAPLE GROVE $1,859,890 7.462 11. 386 $1,979,917 8.162 13.250
MAPLEWOOD I $2,012,537 I 7.437 11. 660 I $2,086,242 7.836 12.958
MENDOTA HEIGHTS $2n,892 2.368 7.412 1401,263 3.646 9.464
MINNEAPOLIS I $85,514,648 I 32.484 36.663 I $87,484,783 34.285 39.658
MINNETOHKA $1,3n,371 2.330 6.703 $1,801,660 3.1n 8.883
MOUND I $705,408 I 11. 996 16.137 I $743,469 13.253 18.698
MOUNDS VIEW S886,822 I 18.863 23.222 $897,575 19.503 24.n6
NEW BRIGHTON I $1,378,912 I 10.058 14.200 I $1,422,620 10.662 15.n9
NEW HOPE $1,nl,394 12.612 16.671 I $1,802,503 13.053 18.219
NEWPORT I $389,241 I 16.239 21.965 I 1400,525 17.081 23.701
NORTH ST PAUL S888, 795 16.796 21.016 $896,129 17.190 22.296
OAKDALE I $1,328,679 I 14.840 20.995 I $1,350,157 15.355 22.418
ORONO $91,460 0.708 5.465 I $249,553 2.174 8.812
OSSEO I $171,137 I 9.367 13.370 II $173,994 9.695 14.788
PLYMOUTH $1,389,526 I 2.816 7.153 " $1,696,737 3.584 9.215
PRIOR LAKE I $735,926 I 11. 989 24.466 1/ sm,284 13.114 26.428
RAMSEY I $734,957 16.605 25.133 $745,914 17.167 26.218
RICHFIELD I $4,768,701 I 25.969 30.268 " $4,813,642 26.667 32.067
ROSBI NSDALE $2,282,382 37.918 41. 893 " $2,296,821 38.941 44.034
ROSEMOUNT I $797, nl I 11.165 16.141 " $831,179 11. 896 17.465
ROSEVILLE $1,568,696 I 4.922 9.1n " $1,660,527 5.325 10.502
SAINT ANTHONY I 1425,405 I 7.683 11.n8 /I 1447,633 I 8.2n 13.447
SAINT FRANCIS $99,971 10.920 19.441 $102,787 11.399 20.434
SAINT LOUIS PARK I 14,419,256 I 11.624 15.822 1/ S4,555,675 I 12.258 17.612
SAINT PAUL I $56,585,103 39.659 43.288 S57,460,695 41.216 45.n9
SAINT PAUL PARK I S600,m I 33.978 39.595 /I 1603,696 I 34.6n 41. 150
SAVAGE I 1475,898 9.336 21.250 $493,585 9.828 22.486
SHAKOPEE I $521,894 I 6.263 18.175 1/ S546,086 I 6.643 19.305
SHOREVI EW $826,374 5.065 9.362 S925,592 5.881 11.184
SHOREWOOD I S253,nl I 3.358 7.874 /I $381,928 I 5.567 11. 736
SOUTH ST PAUL $3,345,133 38.007 43.042 $3,367,387 38.874 44.492
SPRING LAKE PARK I .$369,859 I 11. 468 20.995 " $375,542 I 11 .810 21 .911
SPRING PARK $83,8n 5.114 9.281 S91 1739 5.783 11. 139
STILLWATER I $1,559,817 I 19.382 25.128 " $1,611,892 I 20.574 27.246
WAYZATA S138,078 1.673 6.170 S249,248 3.312 9.473
\oIEST ST PAUL I Sl,932,789 I 14.955 20.048 II $1,974,673 I 15.614 21.316
WOOBURY Sl,010,669 5.584 11.371 $1,127,730 6.484 13.230
WOODLAND I $12,413 I O.63Z 5.583 $30,199 1.838 8.925
Associ ation of Met ropo l itan Municipal ities, 5130/91
13 cities urge Hennepin County Board
to adopt state sales tax increase
., ~_ Jeter
SIIIrWricer
Mayol"l, council members and ad-
ministrators from 13 cities uraed the
Hennepin County Board Wednesday
to.cSopt a 'h-<:ent increase in the state
sales cu.
Without the increase, cities would
lose S253 million in 1992, and home-
owners would be forced to pay nearly
30 percent more in propeny taxes,
they said.
The state sales tax will rise from 6
cents to 61/2 cents July I, but county
officials aCTOSS the state must decide
whether to extend the increase into
1992. The Lqislature passed the in-
Y"AC M/6 ,- y'l
Sales tax Contlnu.4 from pI.e 18
coup: ~he lost sales-tax revenurl.
whic~ are returned by the Itlte to
l'IluQic\Palities in the form of 10(11
aovemment lid Ind propeny tu rr.
lief to homeowners.
At a news conference in front of the
Hennepin County Government ('en.
ter in Minneapolis, city OffiCIIII 'I.d
the cuts would mean serioUI prub-
&ems. .
Minneapolia City Council Menlber
Steve Cramer said that the city wuuld
~S8.S mittion and that the cuunclI
~ul4 be forced to raise lale' by
mort than 30 IlCI'CCnt Tu" on I
S71,600 bouse, the IVCfalt in Mlnn..
. : .~- .
lpolia, would rise by $300 next year.
Other city officials told similar tal~;
Robbinsdale Mayor Joy Robb ~Id
thlt property taxes there wou!d 10-
creaae 42 percent next y~ If the
..ICllax increase were re5Cmded.
"To not enact the sales tax would be
a bad financial decision for the tax-
Plyers of Minneapotis,.' Cramer said.
The decision is a political pickle for
the County Board, w~ich is faced
with approvina I tax ID~ that
will do little to support services pro-
vided by the county. Cities ~I .re-
ceive 76 percent of the $253 million
crease to help balance the state bud-
Ft for the tw~year period bqinning
in July.
County officials must decide by July
I whether they want to extend the
increase. If they do not, cities will be
forced to raise propeny taxes to re-
Sales tax continued on page 68
generated by the Ih-cent increase,
while the county receiVes only 24
percent.
"I don't know what we're going to
do .. said Commissioner John Derus.
"There's a lot of mixed reaction on
behalf of the County Board, but per-
sonally, I'm leanina towards (retain-
ina) it myself."
Star Tribune
established 1867
Roger Parkinson Publisher and President
Joel R. Kramer Executive Editor
TIm J. McGuire Managing Editor
Robert J. White Editorial Editor
22A.
Swlday /June 9/1991
About that 'optional' sales-tax increase
When the fussin' and cussin' are done, the Henne-
pin County Board will adopt the optional half-cent
sales tax authorized by the Legislature. The tax
actually isn't optional at all. Refusing to accept it
might make a man feel like a man. but it wouldn't
make much sense.
The additional half cent automatically takes effect
July I. boosting the sales tax to 6.5 cents on each
dollar. The 6.5 cents gets divided up, 4.5 cents to
the state, 2 cents to a trust fund that will be
divided among local governments.
That's a simple concept, but the Legislature hung
gewgaws all over it. By July I, each county board
must decide whether it wishes to continue the half-
cent tax. If not. the tax blinks ofT in that county on
Jan. I. 1992, and the county and its cities lose their
allocation from the trust fu'nd. In Hennepin Coun-
ty. that loss would amount to $156 million, quite a
ch unk of change.
Several Hennepin County Board members. espe-
cially Mark Andrew. are grousing about the whole
arrangement. Andrew came away from the legisla-
tive session feeling that county government had
been generally put down and abused by the gover-
nor and Legislature. He also believes that calling
this half-cent tax "optional" is an abuse of the
English language. For pride as much as anything
else. Andrew would love to stand up to the Legisla-
ture and the governor by rejecting the tax.
Part of the problem is that it looks like counties
must vote to keep the tax but cities get most of the
trust-fund money. So. goes the argument, let the
cities vote the tax, which they can do if their
county refuses.
But here's the biggest catch: That $156 million
isn't new money for government. It's part of a
swap: Sales-tax dollars got substituted for proper-
ty-tax dollars. Legislators wanted to reduce tax
increases already in the works for all property
owners. They also wanted to reduce the excessive
burden on h1gh-valued homes and business prop-
erty. This complicated sales-tax/trust-fund scheme
is where they got the money to make those proper-
ty-tax reductions. For county and city govern-
ments. the swap is just about a wash - no more
money. just from a different source. But for prop-
erty-tax payers the effect is significant tax relief
Mark Andrew and his colleagues should swallow
hard (pride doesn't slide), and vote to keep the
half-cent extra sales tax. They should do it for all
county residents who pay property taxes.
_.
<r
League of Minnesota Cities
Illiill
Cities Bulletin
Number 21
J),n
:JQ _ 31, 1991
/.)~l G-
A.' ,., r
031\/303&
Every county would gain
by adopting local option sales tax
New data show that every one of
tbe state's 87 counties would gain
substantially by adopting the 1/2 cent
local option sales tax, rather than
rejecting the tax and losing all local
aids. If a county rejects the local
option tax, the county and its cities
and townships will lose all of their
existing aids--LGA, HACA, disparity
aid, and several smaller aids.
The table on page 3 shows tbe
estimated per capita amounts at stake
for each county. The fust colwnn
shows the total per capita county, city,
and township aid received witbin tbe
county. The second colwnn shows the
per capita dollars raised by the 1/2
cent local option sales tax within the
county.
For example, for the fust entry,
Aitkin County, total per capita aids in
1991 are $106.01, while the 1/2 cent
sales tax would yield $20.22 per
capita. Thus, by rejecting the local
sales taX, Aitkin County would lose
SI06.01 of aid per capita, and property
taxes would have to be increased by
approximately tbis amount.
Asswning that tbe sales tax is all
paid by Aitkin County residents, these
residents would save $20.22 per capita
on their sales tax payments. Thus,
Aitkin County residents would be
worse off by $106.01 milll1S $20.22
~qlUJls $85.79 per capita.
The sales tax rate would remain at
6 percent in Aitkin County, and the
difference between 6 percent and the
state general fund sales tax rate of
4 1/2 percent would go into the local
government trust fund aod would
provide a windfall for the other
counties which adopt the local option
tax.
The tbird colwnn shows the ratio
of the total aid witbin the county
divided by the 1/2 cent sales tax. For
Aitkin County, the ratio is $106.01
divided by $20.22, or 5.2. This means
that Aitkin County, by rejecting the
local tax, would lose 5.2 times as
much aid as it would save in sales tax
Summary of new laws
This issue of the Bulletin includes summaries of laws the
Legislature passed during the 1991 legislative session. The
session ended on May 20, 1991.
· Bills by topic, page 5
· Omnibus tax bill, page 27.
payments. Generally, if this ratio is
more than 1.0, tbe county 's residents
would gain by adopting the local
option tax.
The lowest ratio of the 87 counties
is 2.4 for Hennepin County. Thus,
even Hennepin would be bener off
overall by adopting the local option
tax, by a ratio of 2.4 to I. If Hennepin
rejected the tax, it would allow about
$190 million of sales tax revenue
collected in Hennepin (the difference
between 6 percent and 4 1/2 percent)
to be divided among the other 86
counties as a windfall above present
aid amounts.
The data are for 1991 and do not
include the December 1991 aid cuts,
tbe income maintenance base portion
of the local government trust fuod
allocation, or changes in future years.
Howe'..er, the figures give a good
approximation of the situation for each
county.
The reason adoption of the local
tax appears so favorable and rejection
appears so unfavorable for every
county is tbat the new law provides for
each county adopting the tax to gain
its share of a 2-cent sales tax, while
. rejection only saves county taxpayers
II2-cent of sales tax. Thus, the
statewide average benefit ratio oC
adopting the tax is 2 to 1/2, or 4 to I.
Cities should use this infonnation
to clariCy the issues involved and 10
urge citizens and their county boards
to support county approval of the local
option sales tax before the July I
deadline. See sample resolution
page S. JT
Comparison of aids lost if 1/2 percent sales tax
not adopted versus sales tax savings
1991 $ 1991 $
per cap. per cap.
1"1 dty, from Ratio of 1991 city, from Ratio or
CIOUIIty , 111'11 aid to couaty, 111'11 aid to
low'a aJd sales to: 111'11 to"aald sales to 111'11
Couaty aame per cap. ia couaty sales to: Couaty aame per cap. la county sales to
Aitkin 106.01 20.22 5.2 Martin 213.22 21.44 9.9
Anoka 117.16 23.36 5.0 Mcleod 201.89 26..56 7.6
B~kcr 93.00 20.97 4.4 Meeker 158.08 17.03 9.3
Beltrami 81.14 2.5.60 3.2 Mille Lacs 110.60 22.2.5 5.0
Benton 89.86 18.63 4.8 Morrison 146.08 15.08 9.7
BiB Stone 326.68 18.01 18.1 Mower 249.62 20.28 12.3
Blue Earth 192.92 36.06 .5.3 Mumy 225.91 13.89 16.3
Brown 234.80 26.,59 8.8 NicolIet 197.91 13.62 14.5
Carlton 209 .60 18.16 11.5 Nobles 230.18 33.40 6.9
Carver 114.49 19.79 5.8 Nonnan 235.72 16.60 14.2
Call 58.43 18.61 3.1 Olmsted 152.70 39.38 3.9
Olippewa 237.03 23.13 10.2 Ottertail 146.65 27.15 5.4
OlisaBo 133.39 14.19 9.4 Pennington 217.47 29.92 7.3
Clay 165.44 18.08 9.2 Pine 95.45 15.71 6.1
Clearwater 100.72 1.5 .33 6.6 Pipestone 223.99 19.53 11.5
Cook 145.69 49.01 3.0 Polk 218.57 18.86 11.6
Cottonwood 247.96 17.63 14.1 Pope 168.27 14.27 11.8
Crow Wing 108.72 39.50 2.8 Ramsey 201.42 42.81 4.7
Dakota 101.05 28.36 3.6 Red Lake 270.19 15.87 17.0
Dodac 234.85 16.84 13.9 Redwood 233.66 20.40 11.5
DoUBlu 135.76 28.73 4.7 RenvilIe 209.70 13.86 15.1
Faribault 2.38..50 20.05 11.9 Rice 169.84 19.,59 8.7
Fillmore 2<40.18 17.93 13.4 Rock 211.44 15.40 13.7
Freeborn 220.99 28.00 7.9 Roseau 109.33 20.43 .5.4
Goodhue 117.47 21.58 5.4 Scott 123.72 28.14 4.4
Grant 214.48 15.89 13.5 Sherburne 62.52 13.62 4.6
Hennepin 146.39 61:22 2.4 Sibley 224.76 9.32 24.1
Houston 206.17 10.03 20.6 Steams 168.36 33.41 5.0
Hubbard 69.57 21.96 3.2 Steele 196.62 27.90 7.0
lsanti 126.38 18.42 6.9 Stevens 239.96 23.41 10.3
ltasca 162.88 29.20 5.6 St. Louis 301..57 28.68 10.5
JacOon 2.53.89 15.85 16.0 Swift 253.62 16.79 15.1
Kanabec 138.32 17.14 8.1 Todd 172.41 10.32 16.7
Kandiyohi 151.18 29.97 5.0 Traverse 296.14 14.66 20.2
KitllOn 201.95 1,5.05 13.4 Wabasha 176.33 15.68 11.2
Koochiching 20S .28 31.93 6.4 Wadena 135.10 26.03 5.2
Lac Qui Parle 239.44 24.15 9.9 Waseca 206.41 19.30 10.7
Lake 266.82 26.74 10.0 Washington 96.45 20.40 4.7
Lake of the Woods 149.52 20.60 7.3 Watonwan 212.48 18.59 11.4
LeSueur 183.91 16.64 11.1 Wilkin 279.55 13.19 21.2
Lincoln 246.30 13.36 18.4 Winona 202.43 20.91 9.7
Lyon 192.52 28.95 6.6 Wright 97.60 17.41 5.6
Mahnomen 186.2.5 18.71 10.0 Yellow Medicine 245.58 13.81 17.8
ManhalI 170.24 10.90 15.6
May 31, 1991
Printed on recycled paper
Page 3
League of Minnesota Cities t.~;~el\lE:D I~
Cities Bult~tin
Number 20
May 24, 1991
New city aid cuts are one-tenth of
governor's original proposal
· Local option sales tax
dedicated to local aids
· 1992 levy limit base
same as original 1991
base
The final tax bill, which the
Legislature passed on May 20 and
Governor Carlson is expected to sign,
contains new city aid cuts of $34
million--$17 million from the Decem-
ber 1991 aid payments and $17 million
from the 1992 aid payments. The $34
million of new city aid cuts is one-
tenth of the $340 million the governor
proposed in his original budget. Each
$17 million cut will be about 1.6
percent of revenue base.
While the League succeeded in
greatly scaling back the governor's
original proposal, the combination of
new aid cuts with cuts previously
enacted is still significant. The entire
package of aid cuts is as follows:
· Cut in July 1991 aids, passed in
January--2.0 percent of revenue base
(does not repeat in 1992).
· Cut in December 1991 aids in
new tax biU--l.6 percent of revenue
base (does DOt repeat in 1992).
· Cut in 1992 aids passed in 1990
session--2.4 percent of revenue base.
· Cut in 1992 aids passed in new
tax biU--l.6 percent of revenue base.
Further complicating this picture
are the facts that LOA and HACA
(homestead and agriculture credit aid)
bad some increases built in before the
aid cuts started, and that HACA will
increase due to state payment for class
rate reductions contained in the new
tax bill. Overall, city, county, and
township propeny tax relief payments
are estimated to iDcrease from $723
See Aid cuts, page 3
Cities should urge county boards to
adopt local option sales tax
The League urges cities to pass
resolutions and contact their county
board members in suppon of county
approval of the new local option
sales tax by the July 1 deadline. If a
county fails to adopt the In cent
additional sales tax, the county and
its cities and townships will lose
ALL of their aids-olGA, HACA, and
disparity reduction aid.
If a county fails to adopt the tax,
the sales tax rate ID the couDty
does Dot drop to 4-111 perceDt, it
stays at six perceDt. Yet all aids
within the county are eliminated,
and the difference between a six
percent and 4-In percent sales tax
goes into the local government trust
fund as a windfall for all local
governments in the other counties.
For an average county, failure to
adopt the tax would mean aid losses
equal to a two percent sales taX,
while saving only 1/2 percent on the
sales tax. In every county, the aid
loss would be much greater than the
sales tax gain.
Even for Hennepin County, the
aid loss would be 2.4 times as large
as the sales tax gain. The ratios of
aid loss to sales tax gain for other
large counties are 4.7 for Ramsey,
10..5 for St. Louis, .5.0 for Stearns,
3.9 for Olmsted, .5.0 for Anoka, and
3.6 for Dakota.
If a county fails to adopt the
local sales tax by July I, the govern-
ing bodies of the cities and townships
within a county can adopt the tax
August 1. However, cities should
urge their counties to approve the
tax, since the soon timeline and mis-
undentaoding of the complex new
provisions could result in failure to
approve the tax using the cityl
township method. Huge aid losses
would then occur.
Counties are likely to expect city
suppon for adoption of the tax, since
the local government trust fund aid
payments to cities will be about three
times as large as the aid payments to
counties. JT
-