HomeMy WebLinkAbout9.a. Legislative Action UpdateCITY OF ROSEMOUNT
EXECUTIVE SUMMARY FOR ACTION
CITY COUNCIL MEETING DATE: JUNE 4, 1991
AGENDA ITEM: LEGISLATIVE ACTION UPDATE
AGENDA SECTION:
NEW BUSINESS
PREPARED BY: STEPHAN JILK, CITY ADMINISTRATOR
AGENDtTbw # 9A
ATTACHMENTS: MEMO, LETTER FROM DAKOTA CTY,
APP Y:
EXHIBITS
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Several items of interest which will directly affect the City of Rosemount
came out of the 1991 Legislature.
The most significant ones were:
1. The effects on local government aid and tax levies.
2. The granting of authority to the City of Rosemount to establish a
port authority.
As part of the legislation regarding local government aid and tax levies
there is a provision which requires cities to consider a new $.05 sales
tax. The adoption or support of the additional sales tax is important
because the way the law reads, if we don't support it we will lose up to
$700,000 in State Aid.
A more detailed report is attached along with pertinent information on this
subject and the other items in the tax bill.
RECOMMENDED ACTION:
Motion to adopt a resolution supporting the additional "Local Option
Sales Tax" as provided in the 1991 Omnibus Tax Bill and to advise
Dakota County of this support.
COUNCIL ACTION:
�iiy of Rosemount
PHONE (612) 423-4411 2875 - 145th Street West, Rosemount, Minnesota MAYOR
FAX (612) 423-5203 Mailing Address: Vernon Napper
P. O. Box 510, Rosemount, Minnesota 55068-0510 COUNCILMEMBF r;-,
Sheila Klasseri
John
TO • Mayor Napper Harry Will y Will ox'
:
•
Council Members Klassen, Oxborough, Willcox, Dennis Wipperrranr:
Wippermann ADMINISTRATOF
Stephan Jili
FROM: Stephan Jilk, City Administrator
DATE: May 31, 1991
RE: Legislative Action Update
Special Sales Tax
Port Authority
State Aid & Levy Changes
The most significant piece of legislation coming out of the 1991
legislative session effecting the City of Rosemount would have to
be the Omnibus Tax Bill.
The reason being is that it includes changes regarding tax
levies, state aid cuts, a sales tax provision controlled by local
action and the authority for the City of Rosemount to establish a
Port Authority.
I would like to expand a bit on the tax levy, state aid and sales
tax provision now and give a special presentation on the Port
Authority issue at a later council meeting.
► Please review the attached data from the AMM to get further
information.
1. Tax Levy - The levy limits were to be removed for 1992. The
action taken this year extends that to 1993. In 1993,
unless the State extends the date, cities, counties and
school districts will be allowed to increase their tax
levies to whatever level they choose. In some cities an
increase will almost assuredly be sought. In others where
levies are high now you probably won't see an increase.
Whatever cities choose to do it will be a local option.
The 1991 tax bill freezes cities levies for 1992 at the 1991
level. But allows increases in levies to pick up State Aid
cuts that cities will experience. That is, cities will lose
some State Aid in 1992 but will be allowed to pick that
amount up in a higher tax levy. That will be the only
increase allowed. What this really means is that cities
will have to plan for no new dollars from tax levies and
State Aid combined for 1992 over the level set for 1991
before the cuts came in 1991..� ////
6verylkings Comivtg `Ub gosemount.11
Legislative Update
Page 2
This is very limiting but a lot less disastrous than what
was expected.
2. state Aid Cuts - We were expecting two cuts in State Aid in
1991. Both were expected to be 2.06% of our tax levy plus
State Aid. The expected cut was $118,000 in 1991 - half in
July and July in December, or a total of 4.12%. In 1991 we
were not able to levy additional dollars to pick that amount
up.
The final cuts will amount to about 3.62% or about $106,000
in 1991.
In 1992 about 4% of State Aids will be cut but we will be
allowed to make that loss up by levying additional dollars
so, if we choose to levy there will not be an overall loss
in revenue.
This can be seen quite clearly on page 4 of the AMM's
handout.
3. Sales Tax - The legislature did take a major step in making
a commitment to the use of a portion of the State Sales Tax
for local government aid.
The new law states that a new .5% sales tax is to be enacted
and committed to local government aid and 1 2% of the
existing tax will be committed to local government aid.
The new z % must be supported by local government or it
won't be enacted locally. Please see page 2 of the AMM
handout and the article in the LMC Bulletin attached. These
articles along with the letter from Commissioner Turner
explains the proposal for the sales tax and what our options
are.
It is important that we do take action to support the new
tax because our alternatives are not acceptable - that is
the loss of $700,000 + in State Aids.
4. Port Authority - Representative Ozment was able to get an
amendment to the tax bill which grants the City of Rosemount
the authority to establish a Port Authority.
The passage of the tax bill does not establish the Port
Authority, but gives the City the right to go through the
established process to do so.
We will make a special presentation on this at a later
council meeting.
The only action required at this time is to consider the special
sales tax provision.
The other information regarding tax levies and State Aid will be
discussed and considered as we prepare budgets for 1992.
CITY OF ROSEMOUNT
DAKOTA COUNTY, MINNESOTA
RESOLUTION 1991 -
A RESOLUTION SUPPORTING THE ADDITIONAL "LOCAL OPTION SALES TAX"
AS PROVIDED IN THE 1991 OMNIBUS TAX BILL
WHEREAS, the Omnibus Tax Bill passed by the 1991 Minnesota State
Legislature increases the sales tax rate from 6% to 6.5% effective
July 1, 1991; and
WHEREAS, each County must act by July 1, 1991 to enact the sales tax
for the time period beginning January 1, 1992 or face elimination of
all State provided Local Government Aid, Homestead and Agricultural
Credit Aid, and other aids identified in the bill; and
WHEREAS, such a reduction in state provided aid would provide for
severe financial hardship for the City of Rosemount.
NOW THEREFORE BE IT RESOLVED, that the City Council of the City of
Rosemount urges the Dakota County Board of Commissioners to enact the
"Local Option Sales Tax" as provided in the 1991 Omnibus Tax Bill.
Adopted this 4th day of June, 1991.
ATTEST:
Susan M. Walsh, City Clerk
Motion by:
Voted in favor:
Voted against:
Vernon J. Napper, Mayor
Seconded by:
DAKOTA COUNTY
May 24, 1991
DAKOTA COUNTY GOVERNMENT CENTER
Stephan Jilk
City of Rosemount
2875 145th St. W.
Rosemount, MN 55068
Dear Mr. Jilk:
OFFICE OF THE
COUNTY BOARD
(612) 437-0418
1560 HWY. 55 - HASTINGS, MINNESOTA 55033
RECEIVED
MAY 28 1991
CLERK'S 0FH(.-`E
CITY OF ROSEMOUNT
On May 20, 1991 the Minnesota Legislature passed the Omnibus Tax Bill
which provides for an increase in the sales tax from 6% to 6.50-0
effective July 1, 1991. In addition, the bill provides that unless
counties act to enact the sales tax increase by July 1, 1991, the
county and all cities and townships within that county will face
elimination of all local government aid, homestead and agricultural
credit aid, and other aids identified in the bill.
Such a reduction in state aid would be more than 10 million dollars
for Dakota County and would present the certainty of both drastic
reductions in basic services and substantial property tax increases.
The bill provides that counties must act by July 1, 1991 and that
cities and townships may act later, by August 1, 1991. However, the
County Board requests that you act in the form of a resolution before
June 15, 1991 so that the County Board may make a decision with the
knowledge of the preferences of cities and townships in the County. A
sample resolution is attached for your possible use.
We find ourselves in a difficult situation and ask for your
cooperation in this matter. Please feel free to contact Lyle Wray,
Dakota County Administrator, at 438-4418 or myself to receive
additional information or to discuss this further. We look forward to
working with the cities as efficiently as possible to resolve this
issue in the interests of the majority of the County's residents.
Sincerely,
Michael E. Turner,
DAKOTA COUNTY BOARD
MET:LDW:cps
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Chair
OF COMMISSIONERS
AN FQ( JAI nPPnPTI INITV FMPI nVFP
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as ociation of
metropolitan
municipalities
May 28, 1991
RECEIVED
TO: AMM City Officials
MAY 2 �) 1991
FROM: Roger Peterson, Legislative Affairs Director CLERK'S OFFICE
Vern Peterson, Executive Director CITY OF R05EPNOUNT
Nicole Debevec, Communications/Research Director
RE: 1991 omnibus tax bill, computer runs
Enclosed you will find 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 -participation in the
sales tax 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 negative impact if a county commission fails to enact the optional tax.
We recommend that you pass resolutions of support encouraging your county
boards of commissioners to adopt the sales tax increase for your county.
If you have any comments or questions regarding the update, please direct them to Roger
Peterson.
DISTRIBUTION 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, st. paul, minnesota 55101 (612) 227-4008
Summary of the 1991 Omnibus Tax Bill
I. Local Sales Tax Option.......................................................2
H. Class rate changes.............................................................3
III. Aid cuts/levy limits 1991, 1992 ........................................4
IV. Special levies...................................................................5
V. Homestead and Agricultural Credit Aid (HACA)..............5
VI. Local Government Trust Fund.........................................5
VII. Referenda Levy on Market Value...................................5
VIII. Tax Increment Financing...............................................6
IX. Truth in Taxation Changes...............................................7
X. Fiscal Disparities - Technical Changes ..............................7
XI. Local Government Services Sharing and
Combination Services............................................................8
XII. Miscellaneous Changes..................................................8
2
Overview of 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 LGA/HACA 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, part 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 LGA/HACA 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 LGA/HACA 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.
11) I. Local Sales Tax Option
cCITY RESOLUTIONS IN SUPPORT OF COUNTY BOARDS ADOPTING LOCAL SALES
L)
TAX OPTION
The Association of Metropolitan Municipalities urges member city councils
to pass resolutions in support of their county boards to adopt the one-half 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. If the one-half percent option is not adopted, the sales tax
within the county reverts 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.
If a county board fails to act by July 1, 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-half
cent.
The city portion of current aid or the new local government trust fund is between
75 percent and 80 percent of the total. Without city support, counties certainly will
expect a greater distribution when new formulae are considered. Even if cities are willing
to adopt the option, in the absence of county action, there is a very short time between
July 1 and Aug. 1, and room for error. Huge aid losses or tax increases are at stake so.
please do not hesitate. (See impact of loss on attached sheet.)
A final 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.
II. Class rate changes
The tax bill contains class rate changes for homestead property, CI, apartments
with more than three units, residential non -homestead, cabins and vacant land.
The major accomplishment 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.
Classification 1991 1992 1993 1994
HOMESTEAD 1 percent
1st $68K
market value
$68K - $11 OK 2 percent
more than 3 percent
$110K
1st $72K 1 percent
market value
$72K - $115K 2 percent
more than 2.5 percent
$115K
lst $72K 1 percent 1 percent
market value
more than $72K 2 percent 2 percent
C/I (large) 4.95 percent 4.75 percent 4.65 percent 4.60 percent
APARTMENTS 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)
Classification 1991 1992 1993 1994
CABINS 2.3 percent
1st $72K
market value
more than $72K
VACANT LAND 4.95 percent
2.2 percent
2.0 percent 2.0 percent
2.5 percent 2.5 percent
4.75 percent highest and best use per zoning
M. Aid cuts/levy limits 1991, 1992
As earlier mentioned, the total LGA/HACA cuts exceeding the cuts already
passed is $70 million - $35 million in December 1991 and $35 million in 1992. The
Revenue Department 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 permanent 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 permanent $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:
Citv A
Citv B
Citv C
LEVY AID I TOTAL
LEVY
AID ( TOTAL
LEvY
AID I TOTAL
Original Pay 1991
70
30
100
50
50
100
30
70
100
July aid cut ($50M)
-2
-2
-2
Dec. aid cut ($35
-1.6
-1.6
-1.6
End 91 total
70
26.4
96.4
50
46.4
96.4
30
66.4
96.4
Pay 1992 start (same
70
30
100
50
50
100
30
70
100
as 911
1990 law cut ($51 M)
-2.4
-2.4
-2.4
New aid cut ($35M)
-1.6
-1.6
-1.6
New levy authority
4
4
4
1992 total
74
26
100
54
46
100
34
66
100
Percentage levy
5.7%
8.070
13.3%
increase (allowed
5
IV. Special levies
The original House bill contained a provision limiting use of bonded debt special
levy. That has been deleted from the final bill. Bonded debt remains an uncapped
special levy as it has been for two decades. The only significant city change to the
special levy section was the addition (roll in) of the pension special levy to the 1992 base
at the 1991 level without increase.
V. Homestead and Agricultural Credit Aid (HACA)
One of the major concerns of legislators when discussing reduction of the class
rates for high valued homes and C/I property was the very large tax shift onto low valued
homes and other property to replace the reduced taxable value. This was especially
difficult because of the state's $1.1 billion shortfall.
The solution 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 form of HACA and the largest
beneficiaries mill be generally metro cities with a great deal of high valued ho=
and C/I nro2erty, any of which h err n ly receive very little T or
Over the 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 -cent
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 LGA, HACA,
disparity reduction aid, equalization aid, attached machinery aid, border city disparity aid
and a few other minor programs. There is some income maintenance takeover funding
equal to about 0.1 cent initially to balance the dedication at two cents. The fund is
projected to grow at about 7 percent per year with new money allocated primarily to
city/county new and existing property tax relief programs.
Revenue 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 formula. 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, three county commissioners, one town board member, five representatives, five
senators and two members of the governor's staff.
VII. Referenda Levy on Market Value
All general education referenda (not including school capital bonds) and non -
school referenda (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
Gl
property within the taxing jurisdiction. This provision will increase significantly the
amount of a referendum levy paid by homeowners/voters as compared to CA or rental
property. Instead of the current 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 first-class city for taxes payable
starting in 1993.
VIII. Tax Increment Financing
Several changes were made to the section governing Tax Increment Financing
(TIF). Most were technical in nature to correct mistakes from last year's bill.
The reduction in LGA/HACA 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 5. non -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 removal 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.
Delinquent 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, TIF
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 permitted to pool increments because the request for certification was made before
1982.
WJ
If a property in a TIF district becomes tax exempt because of a default and
acquisition by the authority, when that property 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 owners who are not developers may enter into assessment agreements.
Assessment agreements also may be entered into for existing properties in the TIF district
that are not being developed. The assessment agreement may provide for increases or
decreases in the minimum market value over the term of the agreement.
IX. Truth in Taxation Changes
Several significant changes occurred in Truth 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 TIF 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;
* Permit the Metropolitan Council and the Commissioner of Revenue to make the
determination that a municipality consciously excluded GI 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;
* Modify the distribution formula definition 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 distribution schedule; and
* Direct that the distribution index now will use the same population year that the
capacity calculation uses.
XI. 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 (D -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 form 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.
XII. 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.
N
A 7.5 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 $550 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 St. Paul and Winona, and the
use changed for Bloomington, no general law or use change was adopted.
IMPACT OF NOT APPROVING THE LOCAL OPTION SALES TAX
If a county government or city councils representing a majority
of the population within a county do not approve the additional
one-half cent local option sales tax, the county and all cities
and special taxing jurisdictions within that county will lose all
of the following state aids: LGA, HACA, equalization aid, and
disparity reduction aid. An estimate of the amount of state aid
that would be lost by cities in 1992 if the local option sales
tax is not approved is listed in the first column. (This amount
does not include county and special taxing jurisdiction 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.
EXAMPLE: CRYSTAL
If the local option sales 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 same 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
state aid in order to maintain the same amount of revenue.
Estimated increase in tax
rates that would occur if
local option sales tax
is not approved
-------------
City Total
Tax Rate Tax Rate
Increase Increase
19.922
Estimated
j
state aid
0.224
to city that
5.079
is lost if
15.445
local option
3.086
sales tax is
A.M.M. Cities
not approved
12.790
16.766
ANOKA (
$1,667,947
APPLE VALLEY
$2,401,085
ARDEN HILLS
$23,463
BAYPORT (
$140,552
BLAINE
$2,466,977
BLOOMINGTON
$2,915,821
BROOKLYN CENTER
$2,837,809
BROOKLYN PARK
$3,914,437
BURNSVILLE
$2,777,645
CHAMPLIN
$1,186,248
CHANHASSEN
$725,860
CHASKA
$504,868
CIRCLE PINES
$424,391
COLUMBIA HEIGHTS
$2,815,726
COON RAPIDS
$4,208,764
COTTAGE GROVE
$2,053,815
CRYSTAL
$2,663,226
Estimated increase in tax
rates that would occur if
local option sales tax
is not approved
-------------
City Total
Tax Rate Tax Rate
Increase Increase
19.922
29.437
10.410
15.352
0.224
4.540
5.079
10.659
15.445
25.512
3.086
7.482
14.175
18.340
12.790
16.766
5.949
11.044
15.540
19.241
7.911
18.463
7.982
18.159
22.882
32.325
35.279
44.820
18.691
28.653
18.842
24.533
26.210
30.168
{
Estimated
{
state aid
{
to city that
{
is lost if
local option
sales tax is
A.M.M. Cities
not approved
DAYTON
$186,257
DEEPHAVEN
$123,397
EAGAN (
$1,205,080
EDEN PRAIRIE
$51,992
EDINA
$242,548
FALCON HEIGHTS {
$319,615
FRIDLEY {
$2,404,543
GOLDEN VALLEY
$1,508,449
HASTINGS (
$2,003,713
HOPKINS
$1,577,262
INVER GROVE HEIGHTS {
$1,173,830
MAHTOMEDI
$350,988
MAPLE GROVE
$1,859,890
MAPLEWOOD {
$2,012,537
MENDOTA HEIGHTS
$277,892
MINNEAPOLIS {
$85,514,648
MINNETONKA
$1,377,371
MOUND {
$705,408
MOUNDS VIEW {
$886,822
NEW BRIGHTON {
$1,378,912
NEW HOPE {
$1,771,394
NEWPORT {
$389,241
NORTH ST PAUL {
$888,795
OAKDALE j
$1,328,679
ORONO {
$91,460
OSSEO {
$171,137
PLYMOUTH
$1,389,526
PRIOR LAKE {
$735,926
RAMSEY
$734,957
RICHFIELD {
$4,768,701
ROBBINSDALE {
$2,282,382
ROSEMOUNT j
$797,771
ROSEVILLE J
$1,568,696
SAINT ANTHONY {
$425,405
SAINT FRANCIS
$99,971
SAINT LOUIS PARK
$4,419,256
SAINT PAUL
$56,585,103
SAINT PAUL PARK
$600,773
SAVAGE {
$475,898
SHAKOPEE {
$521,894
SHOREVIEW (
$826,374
SHOREWOOD {
$253,771
SOUTH ST PAUL (
$3,345,133
SPRING LAKE PARK
$369,859
SPRING PARK
$83,877
STILLWATER {
$1,559,817
WAYZATA {
$138,078
WEST ST PAUL
$1,932,789
WOODBURY {
$1,010,669
WOODLAND (
$12,413
Estimated increase in tax
rates that would occur if
local option sales tax
is not approved
City Total
Tax Rate Tax Rate
Increase Increase
9.811
2.196
2.313
0.091
0.318
12.675
12.214
6.466
27.258
11.022
7.595
9.973
7.462
7.437
2.368
32.484
2.330
11.996
18.863
10.058
12.612
16.239
16.796
14.840
0.708
9.367
2.816
11.989
16.605
25.969
37.918
11.165
4.922
7.683
10.920
11.624
39.659
33.978
9.336
6.263
5.065
3.358
38.007
11.468
5.114
19.382
1.673
14.955
5.584
0.637
Association of Metropolitan Municipalities, 5/24/91
12.956
6.984
7.387
4.373
4.741
15.404
21.917
10.723
31.399
15.228
12.156
15.860
11.386
11.660
7.412
36.663
6.703
16.137
23.222
14.200
16.671
21.965
21.016
20.995
5.465
13.370
7.153
24.466
25.133
30.268
41.893
16.141
9.177
11.778
19.441
15.822
43.288
39.595
21.250
18.175
9.362
7.874
43.042
20.995
9.281
25.128
6.170
20.048
11.371
5.583
League of Minnesota Cities
Cities Bulletin
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 -417 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 bill --1.6 percent of revenue
base (does not 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 bill --1.6 percent of revenue base.
Further complicating this picture
are the facts that LGA and HACA
(homestead and agriculture credit aid)
had some increases built in before the
aid outs�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 property tax relief payments
are estimated to increase 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 support of county
approval of the new local option
sales tax by the July 1 deadline. If a
county fails to adopt the 1/2 cent
additional sales tax, the county and
its cities and townships will lose
ALL of their aids --LGA, HACA, and
disparity reduction aid.
If a county fails to adopt the tax,
the sales tax rate in the county
does not drop to 4111 percent, it
stays at six percent. Yet all aids
within the county are eliminated,
and the difference between a six
percent and 4-1/2 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 Steams,
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 1, 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 short timeline and mis-
understanding of the complex new
provisions could result in failure to
approve the tax using the city/
township method. Huge aid losses
would then occur.
Counties are likely to expect city
support 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
Aid cuts, continued from page 1
million in 1991 to $763 million in
1992. JT
Local government
trust ftmd
A major new feature of the tax bill
which the League has promoted is the
local government trust fund. This fund
will receive the revenues from 1 1/2
cents of the existing state sales tax,
plus a new 1/2 cent local option sales
tax, making the total sales tax rate
6 1/2 cents. The 2 -cent total for the
trust fund is estimated to yield $699
million in fiscal year 1992 and $786
million in fiscal year 1993. It will
provide total funding for non-scbool
local aids, including LGA, HACA,
disparity reduction aid, part of the
$139 million base of the recent income
maintenance takeover, and several
smaller aid programs. Cities are
hopeful that the dedicated revenue
source and removal of all city aids
from the state general fund will
provide greater stability and growth
for city aids.
Estimates show that trust fund
growth from the 1992-93 biennium to
the 1994-95 biennium will be $254
million, allocated as follows:
Aid growth provided
by existing law $40 million
New HACA resulting
from class rate reductions $71 million
Reduction of state costs
for income maintenance $59 million
Available for aid growth
or new aid programs $94 million
TOTAL
$254 million
While the inclusion of the income
maintenance takeover in the trust fund
is unwelcome, it appears justified by
the fact that the fiscal 1992 base year
only includes about 11 1/2 months of
sales tax receipts; thus, abnormal
growth in 1993 provides adequate trust
fund growth to cover all of the
categories listed above. The $84
million available for aid growth is
favorable, compared to no growth
provided in previous law.
The extra 1/2 cent sales tax will
be mandatory statewide from July 1 to
December 31, 1991. County boards
may vote to adopt the 1/2 cent tax by
July 1, 1991. for sales starting January
1, 1992. In a provision developed by
the League, whatever the county
decides can be reversed by resolutions
of the governing bodies of cities and
towns within the county having a
majority of the county's population.
Thus, if a county fails to adopt the
tax, the cities and towns within the
county could adopt it. Each county, as
well as the cities and towns within
each county, have this option for
adoptio p of rescission each year.
For 1991 and 1992, distributions
from the trust fund will equal present
aid amounts for each city, after the aid
cuts. The bill calls for a new commit-
tee, the Advisory Commission on
Intergovernmental Relations (ACIR),
which may recommend to the 1992
Legislature new formulas for distribut-
ing trust fund money. JT
Levy limits for 1992
The levy limit base for 1992 for
each city will be identical to the
original 1991 levy limit base, with no
three percent growth, or household or
population growth factor. (Levy limits
continue to apply only to cities over
2,500 population).
Each city may increase its levy in
1992 enough to make up for the aid
cuts in 1992, leaving the total base at
100 percent of the original 1991 base.
While these levy limits are severe,
the League succeeded in improving
the limits from those in the original
House bill and the vetoed conference
committee bill. They reflect the ,
Legislature's intent to hold down
property taxes in the face of aid cuts.
The key issue is achieving the repeal
of all levy limits for taxes payable in
1993, as still specified in law. JT
The state -local
relationship
In describing the changes made to
the state -local relationship and the
dedication of two cents of the sales tax
to the local government trust fund,
Paul Anders Ogren (DFL-Aitkin),
chair of the House Tax Committee,
made an analogy to borrowing eggs
from a next door neighbor. If that
neighbor moves several blocks away,
it is much less likely that they will be
borrowing eggs from that person in the
future.
"In future years, if local govem-
ments come to the Legislature for
See Cuts, page 4
Municipal Board vacancy
The League urges interested
city officials to apply for appoint-
ment to the Municipal Board. The
Board acts on all boundary adjust-
ments between a city and the
adjacent land, and rules on incorpo-
rations and dissolutions of cities.
The three-member board meets
monthly and conducts numerous
hearings. Members must file with
the Ethical Practices Board and
receive $50 per diem plus expenses.
The only requirement for appoint-
ment is Minnesota residency for at
least five years prior to appointment.
Application forms may be
obtained from the Secretary of State,
(612) 297-5845. Application
deadline is June 11, 1991. JJ
May 24, 1991 PrWed on reeyekd paper Page 3