Archive for January 8th, 2015

Minnesota Needs A Miracle

Thursday, January 8th, 2015

A call for Parity in Equalization!

By Ford Peterson, January 8, 2015

The 1967-1971 Republican legislatures moved to enact the first “Minnesota Miracle.” The 1970 Democratic Governor candidate, the then Senator Wendell Anderson, ran on a campaign pledge to make sweeping changes in the way we finance Minnesota’s local government and schools. The voters bought into his pledge by electing him. In 1971, during the longest special legislative session in Minnesota history, debate became law. Passage happened during a grueling legislative special session that lasted from May 25, 1971 until it adjourned on October 30, 1971. 159 calendar days of debate and no government shutdown! What a marathon! Minnesota witnessed a Miracle.

The disparity in the quality of public services was striking when comparing area-to-area. The disparity in services paralleled the disparity in resources across Minnesota. The economic engines that drive the tax capacity of local jurisdictions were, and continue to be, critical to controlling the local levy on real estate that fuels the machinery to provide services to our communities. The competition to attract commercial-industrial development was fierce. The growing need for “Equalization” was strikingly apparent.

Prior to this miracle, local government and our public schools had to levy local property taxes to fund the ever-growing demand for services. Passage of that bill changed the state’s then minimal role in funding local services into what we witness today. Formulas drive the daily “state aid” for students; per-bed-per-day allowances for the fragile elderly; housing allowances and renter’s credit for the poor; rationed health care for the destitute. The demand for money to fund roads and bridge repairs through local levy is putting significant pressure on local governments. To be blunt, many areas are becoming dilapidated with neglect and state-dictated “charitable” demands hijack local funding priorities.

The funding structure has remained largely intact since those great debates 44 years ago. A quick view of your property tax statement will show the result. Many municipal, city, county, school board, “local” jurisdictions are party to the public assessment against real property. The state leaves homeowners alone and goes after the commercial-industrial base to redistribute to the various jurisdictions. Over the years, tweaks to rules and gaming the system have created hundreds of different property classes, complex funding formulas for schools; healthcare; roads; etc. were frozen and reflect the differences in costs between rural and urban jurisdictions 44 years ago! Tweaks in the formulas along the way skew to favor the urban centers—surrendered by rural legislators as a bargaining chip.

What is striking is the way in which urban legislators have been able to achieve geographically favorable reforms to the rules and formulas to “bring home the bacon” to their district—their urban district. There seems to be money for parks, bike paths, rail lines, athletic stadiums, recreational facilities, higher education, and all at the apparent expense of rural infrastructure. The irresponsible budgets of the past have gamed the system to the brink of a rural collapse.

It costs no less to heat a square foot of school in rural Minnesota as it does in urban Minnesota, yet urban schools can receive double the daily state aid per student. There are also reasons why educators entering the profession must often start in rural Minnesota. School boards have no funding to pay for experience—teachers are released before tenure. Elaborate curriculum in urban schools is common—many languages, advanced instruction, science, art, music, athletics, etc. In rural schools, remote students are lucky to see basic language, math, and science. The disparity is striking. Disparity in funding results in the disparity in services.

Rural care for the elderly suffers a tragic formula misfortune. A new roof on a rural nursing home costs no less than a roof in an urban location. The electric bill is often at a higher rate in a rural area. Wages are minimal in a rural area—intentionally driven low by an urban controlled legislature with their thumb on formula to deny rural money.

If you want more of something, subsidize it. If you want less of something, tax it. Rural MN is vacating to the metro each day that passes. Why? Human existence in Minnesota’s modern funding mechanism demands the flight to subsidized urban sprawl. Are these people drawn to the metro or fleeing the wastelands of the prairie? Do we need wider roads and bigger trains to carry commuters to their urban jobs or a do we need to maintain rural MN so the jobs can move to the country?

The legislature is frequently funding research projects. How about this research project:

A comparison of income by zip code to sales tax collections by zip code and compare those disparities to the changes in property tax capacity over the years. The changes in commercial tax capacity are dramatic. Minnesota leadership needs to do regional analysis. The past 40 years has brought significant change to rural Minnesota. The ‘big box’ retail stores locating in regional centers are systematically starving small communities out of their tax capacity. To add insult to injury, residents of small communities are traveling to regional centers to deposit a handsome ransom in the form of a local option sales tax. Tax capacity has moved from deep-rural to mid-rural communities. Not only does the loss of tax capacity decrease the denominator causing an increase the local levy mil rate, there is an assessment paid by deep-rural residents to regional communities. Why? Without a corresponding change in the funding formulas, these changing trends are robbing deep-rural communities of their only access to money for repairing our aging infrastructure—local levy.

As of the date of this editorial, Minnesota Department of Revenue collects 56 different local option sales taxes. Local options as low as 0.25% and up to 7% additional, most often 0.5%, are becoming common. With a couple exceptions, like Lanesboro and Clearwater, all local option jurisdictions are either major metro or regional retail dynamos. The infrastructure within and the services provided by those regional centers do not support the local communities of many of their customers. This shift is harmful to the health and wellbeing of the deep-rural communities patronizing those regional centers.

Originally called “Equalization” in the formulas, today this is a call for “Parity in Equalization.”