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. . . LMC League 0/ Minnesota Cities Cities promoting ezeeDence ities lIe tin Number 26 August 8, 2001 Deciphering the impact of tax bill changes Laura Pctersell How do you explain to your constitu- ents that a proposed $50,000 increase in the city's property tax levy will not provide the city any more money? Will t;L'(payers believe that even though the city's property ta.'\.es are going up, their overall ta.'\. bill will actually go down? With the passage of the 2001 omnibus t.1X bill, municipal officials need to be prepared to address the questions and concerns of ta.'(payers, the media, and possibly even legisla- tors who voted on the 2001 omnibus ta.'\. bill. To assist city officials, the League of Minnesota Cities is work- ing on a three-prong effort: first, to help cities understand the impacts of the tlX bill; second, to educate reporters who cover city hall understand the new changes; and third, to further explain to legislators how city financ- ing \,vill change and impact taxpayers. Reform and city impacts The 2001 omnibus tax bill enacted several sweeping reforms to the Minn- esot., state/local finance system, includ- ing a state takeover of the general eduCltion property taxes for school districts. The combined impact of these changes will mean that school property taxes will drop markedly willie city property ta.'\.es will generally incre;lse---in some cases dramatically. In addition to decreasing the school reliance on the property tax, the Legislature reduceo state aids shared with cities. The largest cut for cities was the elimination of the homestead and agricultural credit aid program (HACA)-a reduction of $200 million per year. Under state law, cities generally only have one signifi- cant source of local ta.'\. revenues: the property tax. Because they lack other ta.'\.ing authority, the elimination of HACA will translate into an immedi- ate increase in the city reliance on the property ta..'\.. The overall impact of the elimi- nation of HACA on cities is offset by an increase in local government aid by $l..W million. However, because of how the LGA formula works, cities with less property wealth will generally receive more state assistance through LGA. Although the final LGA formula compromise has drawn criticism from some legislators and some city officials, the general LGA system served as an importl11t policy tool to geographi- cally balance the relief being provided through the elimination of the general education levy. In the end, although most property owners will see a ta.'\. reduction in 2002, the city share of the typical property tax bill will undoubtedly increase. This outcome was an intentional effect of the overall changes contained in the 2001 omnibus ta.\: bill. Educating the media In an effort to help the news media understand the new laws and how city budgets and citizens' property ta.'C bills will change, the League and the Association of Metropolitan Munici- palities will sponsor a workshop for news reporters, the morning of Wednesday, Aug. 22, at the League offices in St. Paul. The goal is to help prepare reporters in time to cover the city budget hearings and the setting of preliminary levies. The meeting \vill focus on changes in state aids, levy limits, class rate compression, and the new state property ta.\:. We also ",ill provide reporters with a list of key contacts from the governor's office, the Senate, and the House to obtain more information and perspectives about these dramatic tax policy changes. Educating cities LMC and AMNl also will send member cities a packet of information the \veek of Aug. 13 to further explain the omnibus tax bill. state aid changes, and what ta.'Cpayers may need to know to understand their properry ta..'\.es. Infor- mation packets \,,-ill include sample letters to the editor and talking points for city officials to LIse in their communications \vith citizens, local reporters, and legislators. These law changes also will be teatured on the League's web site (www.hnnc.org) and in the August issue of jV1il2/JcsoW Cirics magazine. I"