Guest Commentary: More advice for state leaders

Talk about it

This is the second of two pieces from Jim Miller on the hazards facing cities in Minnesota in the form of deficits and drastic budget cuts and how the state can help these struggling communities.

For decades, Minnesotans have taken for granted that regardless of where we lived or traveled in this state, we could expect to receive essentially the same level of basic local government services. Needing police attention in Winona or Wayzata was expected to, and for the most part did, result in the same type of response. That has been changing in recent years as the state’s budget dilemma has grown and funding for programs such as local government aid were consequently reduced. The result is a growing disparity in the ability of Minnesota’s 854 cities to provide similar services. While not exclusively a function of geography, many communities in greater Minnesota are among the most adversely affected.

This has not been the result of an overt policy shift; rather it has occurred because of the cumulative effects of individual decisions about where to find money to balance the state budget, with programs important to cities often being the choice. This outcome might even be described as an unintended consequence since most of the attention has been on solving the budget problem and not so much on understanding the consequences of those decisions. The salient question facing the new Governor and the 2011 Legislature is whether this kind of piecemeal public policy making can continue without even more negative results. Hopefully, our new state leaders will make difficult budget decisions having first answered such important public policy questions as: Do we want to sustain a vibrant rural Minnesota, and what are the consequences if we don’t?

Deficits by 2025

At the core of the Humphrey Institute analysis mentioned earlier was a projection, based on historical revenue and expenditure trends, of what city budgets would look like in the year 2025. Overall, cities across the state will face a deficit of 30 percent of revenues by that year. When considering cities outside the Twin Cities metropolitan area, regional centers will have a 2025 deficit of 30 percent of revenues. Other large cities as a group will face a 2025 deficit of 25 percent. Small cities in greater Minnesota will see a deficit overall of 29 percent in that year, and exurban fringe cities as a group will face the smallest deficit – 9 percent in 2025.

As important as the question of how we can retain an effective state/local fiscal partnership to curb these disturbing projections is, we know there are also many other stresses facing communities outside the metro area – declining and aging population; inadequate housing stock to meet job growth when that does occur; in other instances, a workforce lacking in numbers or training to attract growth; distances between cities that makes collaboration to provide services difficult if not impractical, and more.

Solutions, on the other hand, are much more difficult to identify. One-on-one interviews with city officials across the state conducted as part of the Humphrey analysis shed some light on how these trends impact city conditions.

One official from a small rural community discussed the challenges changing demographics have created for the city. That official’s city has been unable to retain younger residents due to a lack of job opportunities, and the city is feeling this loss through a decrease in local tax and fee revenue. The city now has more elderly residents than school-age children. Other communities expressed concern over the fact that many seniors live on fixed incomes and, thus, are sensitive to property tax increases.

Information garnered from the interviews showed that another rural community is meeting the challenge of population change by taking a leadership role in helping residents understand what the demographic shift means. The city has held community meetings to explain potential impacts on families and city services. That city is also working with banks and utility companies to print bills with larger, easy to read text. Yet another city official commented that his city will hope to retain its elderly population thanks to inexpensive housing and easy living.

No reliance on state

Through all this demographic change and the fiscal stress it brings, it seems increasingly clear that cities can no longer expect the state government to be the great equalizer. Communities are going to need to find local solutions to local problems. To do that, the state will need to loosen its hold on local governments. When the “Minnesota Miracle” was embraced in the early 1970s, it meant not only relatively uniform revenues for cities, but with that, the expectation that cities would be more tightly regulated. In addition, with state funding came an increasing number of mandates which have proliferated over the years adding cost for local governments as well as inflexibility. The new Governor and Legislature should rethink this part of the state/local relationship: if the revenue side of the partnership is no longer relevant, then neither should be constraints on local control.

Aside from this overarching and important public policy issue that must first be addressed, there are specific actions our state leaders can take to help secure the vibrancy of rural Minnesota, starting with mandate reduction. Virtually every year, legislators ask local officials to submit their list of those state imposed mandates that, if relieved, would have the greatest benefit. Those requests, while undoubtedly well intentioned, yield little or no results. Why, for example, should local governments be forced to publish official notices in a newspaper when other media may reach more residents? Of course, every mandate has its own constituency, and preserving any particular mandate may not seem especially onerous to legislators, so the newspaper lobby preserves this anachronistic requirement year after year. Cumulatively, however, mandates increase the cost of providing local services and limit flexibility and creativity.

Additionally, revenue options for all cities are limited by state statute. Cities do not have general authority to impose a local sales tax, but can only raise revenue through the property tax, and fees and charges. According to the interviews done as part of the Humphrey Institute research, many cities strive to maintain a flat property tax rate. Others try to keep the rate low while also providing the services their residents have come to know and expect. Several of the smallest greater Minnesota cities interviewed acknowledged that, due to state aid cuts and rising costs, property taxes will likely go up in the community. The survey results show little difference between the share of greater Minnesota cities and metro cities reporting property tax increases for 2010. The survey does indicate a difference in the share of cities raising fees, charges and licenses. Almost half of metro cities reported increasing these revenue streams while just one third of greater Minnesota cities did so.

Give locals control

To offset cuts in state aids to cities and to minimize constant property tax increases, cities need more flexibility in raising revenues. Cities must currently petition the Legislature for local sales tax authority and, even on rare occasions when granted, the authority has been for limited purposes. In recent years, the Legislature has become increasingly reticent to grant even that limited authority. Certainly not all cities in greater Minnesota could benefit by having the ability to impose a local sales tax, but many undoubtedly would. City council members are in a much better position to decide if a local sales tax makes sense than are legislators.

Rural communities also need a stronger state commitment to infrastructure, especially roads and broadband. The geographic disadvantage of distance facing many communities cannot literally be shortened, but it can be addressed. The economy of many outstate communities depends on a good road system to get products to market, and our investment in that part of the transportation system has been woefully inadequate. Likewise, more than ever, rural communities need high-speed Internet access to attract and retain business and allow children in those communities to compete with their urban counterparts.

It is clear that Minnesota will have fewer resources to invest in its future. Rather than making those decisions based on immediacy or politics, the state would be well served to have an overall vision of where and how state investment will have the largest return and benefit. Answering questions such as how can the resources of greater Minnesota help the state compete in the global economy and what needs to be done to take full advantage of that potential will be increasingly important. That kind of vision would undoubtedly reveal the wisdom of strategic investment in rural Minnesota. It’s success will increasingly fall on the shoulders of those who live there. That success will demand greater creativity and a willingness to break down long standing barriers and ways of thinking. It will no longer be helpful to think in terms of “city,” “school” or “county” problems or responsibilities. Rather, they must be seen as community challenges and opportunities.

Tags: guest commentary, opinion, politics