Final budget deal is anything but final

This summer’s government shutdown and special session are more than two months in the past now, but the lasting effects of the decisions made to end the budget stalemate are just starting to be noticed around the state. I’ve received a lot of questions about what happened this year, and I’d like to clear up some of the information.

The deal to solve the state’s $5 billion deficit was built largely on budget cuts. Every area of government spending, from health and human services to the DNR, was reduced by a total of about $2 billion, significantly more than Governor Dayton originally proposed. He made a major compromise to end the stalemate, realizing these cuts will have lasting effects on many important state services.

The real problem is that the remaining $3 billion deficit was solved mostly with short-term fixes, not new revenue that will help hold up our economy into the future. The effects of those short-term fixes are what most Minnesotans are now noticing.

The unconscionable plan to shift another $2.1 billion from our state’s schools, delaying payments until some undetermined date in the future, has caused real stress on classrooms around the state. One-third of Minnesota school districts will be asking voters for levy increases this fall, the highest number of levy referenda in state history. Property taxpayers and our children will be paying for this short-term fix.

Another short-term fix in the final budget deal spends money the state doesn’t yet have. Under the plan, the state will sell bonds against tobacco settlement payments the state is expected to receive in the future. For $640 million to spend today, Minnesotans will pay about $1 billion after interest and other costs. This move just kicks the budget can down the road and will cause more financial strain in the future.

Perhaps the most frustrating “fix,” however, came with Republicans’ elimination of the Market Value Homestead Credit. The MVHC used to be applied directly to homeowners’ property tax statements. The city or county would determine your tax bill and then subtract the credit amount your property qualified for – up to a $304 credit. The state would then reimburse cities and counties for the amount of credits provided to ensure local governments continued to receive their fair share of tax revenue.

Under the new system Republicans passed this summer, that deduction homeowners used to see on their tax bills will disappear. Cities and counties now will recognize a lower percentage of homeowners’ total market value when applying their levies, essentially reducing the total local property value they are allowed to tax and the total revenue they will take in. Unlike the old MVHC system, the state will not reimburse cities and counties for that lost income.

Also unlike the old system, there is no guarantee that the new Homestead Market Value Exclusion will result in lower property taxes for homeowners because the deduction no longer is applied directly to individual tax bills. Instead, it’s more than likely that every homeowner – and now business owners and commercial property owners – will see an increase in their tax bills next year.

Those who say this change is not a property tax increase are not being honest, or realistic. For suburbs or big cities with highly valued properties that didn’t benefit from the MVHC system, the budget hit may not be that big. But rural communities like ours, with average-priced homes that received a lot of MVHC reimbursements from the state, are facing the loss of up to $200,000 a year. When coupled with rising costs for staples like fuel and food, as well as the fact that other state budget cuts have pushed more costs onto cities and counties, it’s easy to see how the loss of this much money would cause serious strain for local governments.

If our communities do not levy back these lost revenues, they will be swallowing huge budget losses that will force significant cuts in local services.

If cities and counties don’t spend one additional dime next year but want to maintain the current level of basic services, they will be forced to increase property tax levies. It’s a simple arithmetic fact: The loss of MVHC reimbursements from the state, artificially lower property values, and higher costs add up to a cost burden that cities and counties can’t absorb without help from property taxpayers.

Democrats that opposed this change in the first place have proposed legislation for 2012 that would reverse this decision and restore the MVHC. Minnesota property taxpayers already are on the hook for more than $3 billion of the state’s budget problems over the past decade. There’s absolutely no excuse for them to pay even more.

If you have any questions, please feel free to contact me at sen.tony.lourey@senate.mn, or 651-296-0293, or at 75 Rev. Dr. Martin Luther King, Jr. Blvd., St. Paul, MN 55155.

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Senator Tony Lourey
Tony Lourey represents District 11, which includes portions of Carlton, Kanabec, Pine and St. Louis counties in the northeastern part of the state.

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