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Bill cuts aid to cities, but authorizes local sales tax l Nii( t [ -.... propert.y tax By Bill Salisbury bsalisbury(a pioneerpress.com Updated: 03/23/2011 11:52:38 PM CDT State aid to cities would be cut by nearly one-fifth, but local officials could recoup some of their losses by levying a new, half-cent sales tax under a tax bill proposed Wednesday by Republican senators. Senate Tax Committee Chair Julianne Ortman, R-Chanhassen, said the bill would reduce state spending by $580 million over the next two years to help solve a projected $5 billion budget deficit without increasing state taxes thus keeping a Republican campaign promise. "The bill ensures our state government will live within its means because we are not considering tax increases," Ortman said. But DFL senators warned the bill would mean hefty property tax increases for homeowners and renters. The bill would cut state payments to cities and counties by about $400 million over two years. The Revenue Department estimates that for every dollar lost in state aid, local government increases property taxes by 50 cents. By that calculation, the bill would boost property taxes by $200 million. Not necessarily, Ortman said. The bill simply extends state aid reductions that were enacted last year, and local governments should have adjusted their budgets to reflect those changes. "There are still going to be deep cuts for cities," said League of Minnesota Cities lobbyist Gary Carlson. The bill also would reduce state-paid property tax refunds to renters by $106 million. DFLers called that a tax increase. But the measure provides some tax relief. It would phase out the state-levied property tax on businesses over 12 years, starting with $114 million in tax cuts over the next two years. It also would provide an additional $44 million in property tax refunds to certain homeowners, and it starts exempting veterans' pensions from state income taxes. The measure does not, however, reduce corporate income taxes, even though that was a top-priority Republican goal at the start of the year. The chief proponent of corporate tax cuts, Deputy Senate Majority Leader Geoff Michel, R-Edina, said the state couldn't afford those tax breaks this year, but the business property tax cut "sends a strong message to job creators ... that we're going to try to open up this state for business." Ortman said the bill provides property tax relief for all businesses, not just those paying corporate income taxes. Her bill contrasts sharply with a House Republican tax bill that would phase out state aid for Minneapolis, St. Paul and Duluth and reduce it for some suburbs but preserve state payments to outstate cities. The House Ways and Means Committee on Wednesday sent that bill to the House floor for a final vote next week. Ortman said she wanted to make local government aid cuts "as fair as possible."