In the war of words over property tax changes enacted in the 2011-2012 legislative session while the Republicans held the majority, the pachyderm party greets the claim that their actions led to raised property taxes with the notion that only local government can raise property taxes.
Curious about the Franklin Center for Government and Public Integrity's Watchdog.org project report about the credit rater's downgrade of 31 cities in Minnesota, Mankato's Free Press reporter Dan Linehan looked deeper in Moody's down on small cities:
The city of Madelia has little debt, and pays what it has quickly. Its conservative budgets create annual surpluses in both utility and general government accounts. And it has plenty of money saved up.
Moody’s Investors Services, a firm that examines how well governments and companies are able to pay their debts, heaped praise on the city during a recent credit rating change. The only surprise was the direction of the change — Moody’s lowered the city’s credit rating.
The agency cited residents’ relatively low incomes and steep declines in the city’s tax base.
Madelia is not alone. About 40 Minnesota cities, including six in south- central Minnesota, have seen their credit ratings lowered in the past 18 months, almost all by Moody’s. There was only one downgrade in 2011. . . .
Declines in tax base are cited as a reason for the downgrade in nearly every case, though most of the downgraded cities have other problems as well. Many or most Minnesota cities lost some tax base in the recession as home prices fell, but a steeper decline took effect in 2012 after the Legislature changed how taxable value is calculated.To give lower-valued homes a tax break, the Legislature decided to exempt part of their value from taxes. This shifted the tax burden to more- expensive houses and businesses, but it did not, by itself, affect the amount of taxes cities collected. There was still a tax consequence, though, as cities were forced to raise their tax rates to compensate for the reduction in tax base.
The result, especially in rural cities with older houses, was that the tax base fell dramatically. Madelia’s market value dropped by 23 percent in 2012, to $62.8 million. Of that decline, about 84 percent was due to the tax change, said Gary Carlson, government affairs director for the League of Minnesota Cities.
Linehan notes Moody's response, which includes the following observation:
The statement noted that while cities can still increase their levies, “political unwillingness to do so in some cases has led to fiscal pressure.”
Moody’s cited North Mankato as an example: “ The city has also not raised its property tax levy to increase revenue although it has the ability to do so.”
Ah yes. Raise taxes as a consequence of the legislative changes--and be slammed by representatives of the party that enacted those changes. Don't raise taxes? Get slammed by Moody's--and scrutinized by a conservative media outlet funded by conservative dark money.
Read all of Linehan's article at the Mankato Free Press. The editorial board did, and they are so not pleased in Legislature hurt cities with tax change:
. . .The 2011-2012 Republican majority in both houses of the Legislature and Gov. Mark Dayton approved a change in the way property was valued. In essence, the mostly Republican plan that Dayton agreed to lowered values on paper. The assessed value of the properties were lowered in order to provide homeowners with property tax relief.
Most of the value decline through the Legislation aimed to provide tax relief to lower valued homes, and cities with a lot of lower valued homes took the biggest hit as a result. . . .
The trend of downgrades especially in small-town, outstate Minnesota should be cause for concern to legislators in those districts and statewide. A change in the way property taxes are calculated appears to be one of the main reasons taxes are rising. The legislation had an impact opposite of what was intended.
This episode should be a very cautionary tale for legislators who are prone to jigger with local property tax law without understanding the full implications.
Small cities in Minnesota continue to be at risk for fiscal pressure as they continue to face dwindling tax bases and income levels. Moody’s has been making this assessment for a few years and now has acted on it by lowering credit ratings and forcing these small towns into even tougher fiscal decisions.
But some of that fiscal pain comes from the unintended actions of the Legislature and governor.
While Dayton bears some responsibility for the change, it's worth remembering how the Republican legislature was hell-bent for their notion of "reform."
Photo: Little Madelia may be the pride of the prairie, but Moody's was not impressed. The Mankato Free Press looked into the issue.
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