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Lower property taxes not a guarantee

The Dayton administration predicts Minnesotans’ property tax bills will fall next year.

Maybe so, maybe not.

Local government officials are considering what to do with property taxes, including looking at whether they need to increase spending, and taxes, after a decade-long funding drought.

If they decide that government responsibilities such as road work have been neglected too long, officials may raise taxes so delayed work can begin.

“It is hard to have a one size fits all answer,” said Kent Sulem of the Minnesota Association of Townships.

Local officials throughout the state will make up their own minds.

“Eighty-seven counties, 87 county boards, 87 very distinct situations...” said Beau Berentson of the Association of Minnesota Counties. “After 10 years, there are some tough decisions to be made out there.”

Officials at each of the state’s 853 cities, 1,790 townships and 337 school districts also need to make decisions about whether catching up with delayed work is important enough to raise taxes.

The Perham School Board has already decided that it is, recently voting in favor of a new per-pupil levy of up to $300.

For most local governments, preliminary tax decisions are close at hand. Perham is expected to announce its preliminary levy this month.

“They were being extremely frugal because during the great recession, they knew people were struggling,” Gary Carlson of the League of Minnesota Cities said about local officials.

Officials are considering reversing a trend of budget cuts now that the state is sending cities, counties and townships $130 million a year more than they got in the past year. A new law also will save cities and counties $172 million annually by eliminating sales tax they now pay.

In Perham, the increases amount to an extra $124,000 in local government aid, or LGA, and sales tax savings that are difficult to nail down and yet to be determined.

Dayton and legislative Democrats frequently play up their property tax-reduction efforts this year, the first time in 22 years that the party has controlled the House, Senate and governor’s office.

Dayton and Revenue Commissioner Myron Frans recently told reporters that this year’s efforts should reduce property taxes by $120 million. However, when pressed, they admitted that they will not know the property tax situation until levies are set later in the year.

Not even local officials know what they will do.

“There are a fair number of cities that still are considering taking on some of the improvement projects...” Carlson said, “things that have been delayed the last several years.”

Streets are a good example.

“You cannot defer maintenance costs indefinitely,” Carlson said. “You can do it in the short term, but ultimately, the cost is going to come back and haunt you. ... If we want to see good roads and public safety, we really are going to have to reinvest.”

City officials in Perham have been discussing the budget at recent meetings. While increases from the state will help keep the levy down from what it would be otherwise, Perham City Manager Kelcey Klemm said property taxes won’t necessarily fall.

“There’s no doubt that the $124,000 will help keep the levy down,” he said. “But is the levy going to be $124,000 less? No.”

That’s because the city’s operating expenses continue to rise, he said, and some recent street projects will add new debt into the city’s budget.

“We are still very much a service organization,” Klemm said. “Personnel costs don’t stay flat year to year. Things like health insurance and the city’s required contribution toward the police retirement plan have gone up… That annual increase is going to eat into some that extra LGA we’re getting.”

Klemm said it’s been “interesting doing the budget this year. For so many years it’s been reductions and more reductions. Now, if (the LGA) stays where it’s at, it provides us with so much ability to do future improvement projects. That provides a lot more flexibility.”

Townships are set to receive state aid for the first time since 2002. But their budgets for next year were pretty much set in March, Sulem said, so there likely will be no immediate tax cut. And maybe not one in 2015.

“The aid frequently helps keep the property tax from going up even more,” Sulem said. “It does not necessarily mean we will have a reduction.”

Counties “have held the line, held the line, held the line on their property tax levies...”  Berentson said. “They do have significant needs.”

Local governments can raise property taxes only so much since lawmakers imposed a 3 percent cap this year.

A Truth in Taxation hearing will be held before Perham sets its final levy; those with questions or concerns will be encouraged to attend.

Don Davis Forum News Service

Marie Nitke, Perham FOCUS

Reporters Erik Burgess, Bethany Wesley, Kim Ukura, Scott Wente and Peter Passi contributed to this story.