Wednesday, February 18, 2015

State General Levy Hearing.  The House Property Tax and Local Government Division held an extremely interesting hearing this morning on the state general levy that is applied against business and seasonal/recreational property.  This levy has been the bane of the state's business community since it was first applied for property taxes payable in 2002 as part of Governor Ventura's "Big Plan" that was passed in 2001.  The complaint from the business community is that the tax is arbitrary and makes Minnesota's business climate less competitive than neighboring states and, as such, hurts Minnesota's economic status.  Today's hearing didn't feature much of a history lesson, with only Representative Ann Lenczewski who served on the Tax Conference Committee during the 2001 session offering much of an explanation of how the state general levy came to be.  She got 99.99% of it right with her explanation, but she forgot one little item that if enacted would have made the state business levy unnecessary.  Governor Ventura's original proposal called for an expansion of the sales tax base and that revenue would have been used to back-fill the revenue loss resulting from the elimination of the state general education levy.  As many of you can remember, in the spring of 2001, the state budget was in great shape financially, but there was still a need to provide revenue to replace the revenue generated by the general education levy.  The House of Representatives eliminated the general education levy (the Senate did not), but did not provide anything in the form of replacement revenue.  As the two-against-one (House and Governor versus the Senate) took shape during the tax negotiations during the special session, the Senate insisted that some measure of revenue assurance be part of the final package and that assurance came in the form of the state general levy, which was originally dedicated to education.  That dedication that was extremely brief due to the fact that the state fell into deficit following the recession that was exacerbated by the terrorist attacks that took place on September 11, 2001.  It was believed that state government needed greater flexibility during that period and the state general levy dedication for education was sacrificed to that belief.

The problem with today's hearing is that no one really acknowledges those stubborn facts.  From SEE's standpoint, eliminating the general education levy was one of the biggest--if not the biggest--mistakes made by state government in recent decades.  It's difficult to believe that it was over seven biennia ago that this decision was made and only recently have many of the adverse effects of that decision been rectified.  I think it's important to recall that the Chair of the House tax conferees that promoted the decision to eliminate the general education levy stated as the agreement was finalized that (and I paraphrase) "there will be no more Minnesota Miracle."  Unfortunately, he was right.  The plight of low property wealth school districts in the wake of the decision to eliminate the general education levy worsened dramatically.  The value of the equalization formulas passed in the early 1990s was eroding due to property wealth growth and massive amounts of state aid were funneled to high property wealth districts to replace levy revenue that had previously been supplied through the general education levy.  On top of that, the referendum cap was increased twice during the first decade of the 21st century, which widened the gap between the districts at the 5th and 95th percentiles by approximately $800 per pupil unit.  Another adverse effect of the elimination of the general education levy is that the state lost an effective tool to balance property tax incidence on homestead and agricultural property.

While I don't totally agree with the business community's synopsis that the state general levy is arbitrary, I can see the problems that it has created for a number of individual businesses (and there are issues with the property tax classification system that pushes burden onto businesses).  But getting rid of it completely without some recognition of the effects it would have on the state budget and the residual effects it could have on education funding both in terms of adequacy and equity would be short-sighted.  When I hear witnesses talk about how property taxes are solely a local tax for local needs, I shiver a bit.  Not because of that mentality per se (everyone has a right to their opinion), but because Minnesota's tradition of fairness in education funding rests on a strong statewide commitment with state resources and not on a collection of disparate communities depending on their local property tax base to supply the bulk of the funding for education.  If the state general levy is to go away, it will need to be replaced with a revenue stream that will provide resources to meet the needs of Minnesota's students.  Ah, blogging.  The world's greatest blood pressure medication.

What the House of Representatives does in regard to the state general levy and other property tax measures will be interesting.  There are a variety of measures floating around in addition to the ones discussed in the House Property Tax and Local Government Division, including measures that would take agricultural property off the tax base for future debt service levies and eliminate the student achievement levy (a very limited version of the general education levy) that was passed as part of the 2013 omnibus education funding bill.  We will see where they go.  The problem in every case is that the state takes a considerable revenue hit and the only way to remedy that is through a tax increase or a budget cut.  Any movement here couldn't be an isolated movement; there would be ripple effects.

Great Program at Bloomington Schools.  I saw this news story on KSTP while eating my dinner this evening and thought it was a great example of how a little creativity can go a long ways in providing quality learning opportunities for students.  The Bloomington school district has teamed up Extreme Sandbox, a company located in Hastings, to give interested students the opportunity to work with heavy equipment and get the feel of what a career in construction would look like.  Great work Bloomington.  Way to think outside the (sand) box!

Here's a link to the story:

And here's a link to Extreme Sandbox:

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