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Townships Victimized by Property Tax Shell Game

March 01, 2010 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis Jeff Van Wychen
Township property taxes have shot up during the so-called "no new tax" era.  From 2002 to 2010, property taxes paid to Minnesota townships have increased by 68.0 percent in nominal dollars and by 23.7 in inflation-adjusted dollars.  The rapid growth in township property taxes was not caused by real growth in town budgets, but by a cut in state dollars shared with townships.

From 2002 to 2010, the revenue of Minnesota townships remained essentially flat.  Thus, the growth in township property taxes over this eight year period is not the result of growing township budgets; rather, the single largest contributor to township property tax increases is declining state aid.  From 2002 to 2010, state aid to Minnesota townships is projected to drop by 45.5 percent.

State aid cuts have hit township property taxpayers hard, according to Kent Sulem, General Counsel of the Minnesota Association of Townships.   "Townships generally provide only essential services, such as road maintenance and snow plowing," said Sulem.  "So when the state makes large cuts in the dollars it shares with townships, it's almost inevitable that property taxes will go up."

The pattern for townships resembles the pattern for counties, cities, and school districts.  In each case, property tax growth was driven primarily by declining state aid, as opposed to increased spending.

A Minnesota 2020 analysis from last Fall concluded that despite large growth in property taxes, total local revenue declined because the property tax increases were insufficient to replace state aid cuts.  Total real per capita state aid to all levels of local government declined by about 25 percent from 2002 to 2010.

This analysis shows that township residents have also been victims of Minnesota's property tax shell game.  Since 2002, "no new tax" policymakers have dealt with a disproportionate share of the state's budget deficit by cutting
the dollars shared with local governments, thereby avoiding the need for a general state tax increase at the expense of local property taxpayers.

The complaint that "local government have to learn to live within their means, just like state government" rings hollow.  Since 2002, local governments have cut revenue more than state government.  Property taxes have gone up not because of profligate local governments, but because a disproportionate share of the state's budget mess has been dumped on to the laps of Minnesota local governments and property taxpayers.

To make matters worse, the analysis presented above does not include the impact of the Governor's supplemental budget announced last week, which includes more aid cuts directed at townships and other local governments. 

During the 2010 legislative session, state policymakers should address the ongoing state budget mess in an honest and balanced fashion without resorting to the property tax shell game.

Township property tax, state aid, and total revenue used in this analysis are from the most recent "Price of Government" (POG) report from Minnesota Management & Budget.  As used in the POG report, "state aid" includes property tax relief credits, such as the market value homestead credit.  POG data for 2008, 2009, and 2010 are estimates.  In 2010, property taxes and state aid will comprise about 82 percent of the total revenue of townships.  The change in property taxes, state aid, and total revenue summarized above are based on constant 2010 dollars.*

*All inflation adjustments in this analysis are based on the implicit price deflator for state and local government purchases, which is the appropriate measure of inflation for state and local governments.

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