8. SR 04-25-1995of
Item 8.
Rl~~l MEMORANDUM
TO: Mayor and City Council
FROM: Patrick D. Klaers, City 'n' trator
DATE: April 20, 1995
SUBJECT: Legislative Update
The City Council received a brief Legislative update at its last meeting on
April 17, 1995. This Legislative update centered on the senate tax bill and
house proposals relating to TIF.
As of today, there is no new information on these two topics to offer, however,
I anticipate that more, and new information will be available by the meeting
on April 25, 1995. The League of Minnesota Cities puts together its
• Legislative updates on Friday's, and cities usually receive this information on
Monday's. Accordingly, the City Council can expect a verbal update from me
next Tuesday on legislative issues.
Attached for your information is the most recent League of Minnesota Cities -
Cities Bulletin on legislative issues dated April 14, 1995. This update
highlights the senate tax bill and offers a summary of other bills that have
recently been introduced. Most of these new bills relate to financial issues.
It is somewhat typical to see a lot of funding bills introduced late in the
legislative session, but it seems like we are seeing more than the normal
number of these bills in this legislative session. We know from past
experience that only a few of these bills, or only a few parts of these bills will
actually become law. The big concern and unknown is which bills and which
parts of bills will eventually make it into a law.
• s:council:legupdat
13065 Orono Parkway • P.O. Box 490 • Elk River, MN 55330 • (612) 441-7420 • Fax: (612) 441-7425
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League of Minnesota Cities
Cities Bulletin
Number 15
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April 14,1995
Senate approves Omnibus Tax Bill
Gary Carlson
After neazly six hours of debate
and dozens of proposed amendments,
the full Senate approved the Omnibus
Tax bill on Wednesday, April 12. The
bill includes a pro ems tax freeze and
taz retie fo~abin properties. The
Senate attached the tax bill [o H.F. 602,
a technical corrections bill that had
been on the Senate consent calendaz,
and sent it back to the House of
Representatives for consideration.
Although the Senate discussed
many amendments, only a few were
actually added to the bill. The most
notable amendments adopted include a
limitation on the increase of parcel
mazket values to the rate of inflation,
an amendment to Qedicate the $91
million interest earnings to the school
levy recognition shift, and a provision
to provide property tax relief for cabin
properties, and an amendment that
would allow growing communities to
generate additional levv based on new
constr _cdon. The bill ultimately
passed on a 44 to 17 vote.
Senator Bill Belanger (IR-
Bloomington) offered an amendment to
repeal the property tax freeze. His
amendment received considerable
debate but was ultimately defeated on a
38 to 29 vote. Five DFL Senators
voted to remove the freeze, including
Senators Steve Kelly, Gene Merriam,
Charlie Berg, Allan Spear and John
Marty.
The Senate took up the measure on
Wednesday, less than 24 hours after the
Senate Tax Committee completed work
on the bill. The committee version of
the bill contained few revolutionary
features other than the property tax
freeze. A proposal to increase the
cigazette tax by 40 cents a pack and
offset the revenue increase with a
reduction in the medical provider tax
used to finance the MnCARE program
was ultimately pulled from the bill.
That provision would have raised
approximately $123 million in state tax
revenue for the current biennium.
The other highlight of the commit-
tee hearing focused on the $91 million
state forecast error that will make mote
money available for the state.general
fund. (See story page 7.)
The Senate met the constitutional
requirement that all tax and spending
bills must originate in the House of
Representatives 6y amending the
Senate property tax provisions onto a
technical cotections tax bill previously
passed by the House.
The House of Representatives is
moving more methodically in the
drafting of their tax bill. According to
sources, the House will complete their
tax bill on or around April 21. This
schedule could allow conference
committee negotiations on the two tax
bills sometime during the last week of
Aptii. Although the House doesn't
have the freeze language in bill form
yet, it still could be chilly for cities in
1996. ~
Page 3-Freeze talk Page Action Alert
Cities aren't alone in criticizing Legislators will have to work
the Senate property tax freeze fast to address workers' comp.
proposal.
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What others say about the property tax freeze
The reaction by Minnesota cities to the Senate DFL proposal to freeze property taxes in 1996 is predictable.
Cities from across the state have attested to the fact that a freeze would handcuff their ability to pay off debt, meet
contract requirements, and mast importantly, maintain the high level of services that city residents have come to expect.
But don't take our word for it, here's what other have to say about a property tax freeze.
"Property taxes are only one aspect of a lazger problem, however.
Major reform of the entire funding relationships between the state and
local govemments, including schools, is desperately needed.
The freeze scheme of Senate DFLers seems more motivated by 1996
election politics than interest in reform. They're banking on a freeze
being populaz with voters-and paying election dividends."
Sr. Cloud Times
Tuesday, April 11, 1995
"Despite all the talk about
reform of the property tax system,
the Senate DFL proposal contains
none. It does the opposite by
freezing the system next year and
then causing an even larger crisis
the year after."
Department of Revenue
memo
March 13, 1996
"...by Election Day 1996,
local governments may be reeling
from the forced spending diet the
freeze would impose. They may
have been forced to chop populaz
services, such as youth recreation
programs, to keep up with
uncontrollable escalating expenses
for, say, criminal justice."
Star Tribune
Apri19, 1995
"...state officials don't collect
or spend property taxes and how
much is raised by the tax is none of
their business. It's logical for the
state to make basic reforms of the
tax, not to restrict its use.
Minnesota voters aze smart
enough to let local officials know
when property taxes are too high.
They don't need folks in St. Paul
deciding in early 1995 how much
officials in Grand Mazais can
spend in 1996."
Duluth News Tribune
April 3, 1995
"The State Legislature has taken bold steps to control state spending. These spend-thrift heroes will make
sure local government units no longer take advantage of their taxpayers by doing such horrible things as building
new roads, hiring police officers to control the growing crime rate made possible by a state judicial system,
building fire stations at the rate of one every two decades, plowing roads to keep local traffic moving in the
winter, etc.
Yes, the dollazs will be saved for things people really want, like finely famished and fully remodeled
chambers at the State Capitol, long distance phone service for legislative members, and welfare programs that
earn Minnesota the title of `progressive."'
Prior Lake American
Apri18, 1995
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"...This looked too much like past DFL efforts to temporarily `buy
down' their constituents' property taxes while satisfying the salary demands
of teachers -- always a tempting combination in an election year, as 1996 will
be for all 201 lawmakers....
...For the last two decades, state lawmakers have been lost on fiscal
issues, despite countless studies and reports that have offered guidance."
Steven Domfeld
St. Pau! Pioneer Press editorial
April 3, 1995
April 14, 1995
Page 3
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summaries
Bond ellomtion authority and
The CJfies Bu7Jetin lists procedutts change
authors of bill summaries 6y their SP. 1543 (Pogemilkr) (razes)
initials, would reduce the small issue pool bond
GC-Gary Cazlsw sllocadw l0 557,000,000 and increase
AH-Ann Higgins -the housing pool m 554,000,000
11 Jcel lamnilc reserving 535,000,000 for the. siogle-
family housing program until du day
after the fast Monday N Febmary.
Two periods generally would be
aYlrOnln¢nt increased from 90 m 120 days. A
oad
H.F. 1768 (7lmheim) (Environ- xpandon of sales tax and
mwt & Natural Resources) would dedrtatim of part to Hale education
authorize road autlmrities to repa'u and
mairtnin roads aitltin the road right-of• SP. 1556 (Hottinger) (Taxes)
way which results in the dnioege of would propose an amendment m the
wetlands, without replacement of Mirmesom constitutive m set up a
wetlands, if the wetlands are ram Benenl property taxpayer' trust fwd
drained more than when the road was A I.25 percent sales tax ve all taxable
consweted m when a replaced culvert sales except motor vehicles would
was working. The bill would clarify Provrde Ure furdmg. Half of the
that no public waters pewit is required funding would be allocaud direcdy m
for such road work. JJ tides while the other hdf would
provide direct property nz relief m
Finance & 1axe6 hveuoaners and renurs. Constim-
Property tax exemptiw Pot 1991 floral language would be added m
church-acquired property Provide for a uniform system of public
H.F. 1770 (Kelley) (Taxes) would schools for which Ilre legislature would
allow a cowry with a population of be allowed ro kry a tax limited m .75
ore than 700,000 m gent a property Percent of the market value of the mnl
~xemplion for taxes payable in taxable property in the state. Any other
to Property which was w athletic property tax levy for public schools
facility classified as class three would be bared except for local
commercial-industrial for 1991 and districts with vour approval. TM sales
was acquired during the year by a ~ t"OUId be extended u business and
church, if certain exam t ro rt
P P Pe Y personal services. The nks tax
rrquirements are met. CC clo[hirrg exemption would be limied m
items costing less dam 550. The bill
Senior citizen property tax would sunset many education levies.
~
/ determent program
H.F. 1794 (Long, Kahn, Mariam, HACA phase out
Schumacher, Milben) (razes) would otwger, Lengseth,
- provide a property tax deferment for Sams) (Taxes) would reduce disparities
qualifying seniors at least 65 years old in tat burdens due to differences in
who own and have lived in their home taxable wealth. The bill would
for 15 years or more, with household provided for a transition from HACA,
income of less than 540,000, end who
P~lnB out payments m local taxing
are not delinquent on thew razes. districts, by transferring funds m w
(Companion Io S.F. 179) GC enhanced property tax refund and rent
credit program and to the industrial
property raz credit program. The bill
would phase in reductions in class nus
for class 2e and 2b property and
provide for property tat credits. Paid N
refunds, up to 550,000 for qualifud
industrial property (new conswetiw,
rehabilitation or addition which
increases capacity or value by 25
percem). GC
Omnibus slate end local tsx reform
bib
S.F. 1566(NOVak, Pappas, Krona,
Belanger, Day) (razes) would provide
comprehensive refow of anti and
local fazes and budgeting procedures.
"Class rare" would be defined to mean
a area property tax ve e class of
property equal u the difference
between the combined local nus and
the class rate. Income tax provisives
would be rJranged. Sales tax mus
would be educed to SS percent but
would be extended to services. The bill
makes many other changes. CC
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Property tax freeze
S.F. IS70 (Mce, D. Johnsve,
Holtlnger. Reichgoa ]wge, Price)
(razes) would freeze property tax nus,
levies, school district aids, and values
for taxes payable in 1996. The bill
would impose levy limits for axes
payable in 1997 m the lesser of three
percent or the implicit price deflator for
government purchases of goods and
services. The bill would require the
Legislative Commissive on Plowing
ant Fiscal Policy to make recommerv
dadons on property tax wd education
aid reform. CC
7Wo perant IiquorNcer tax
S.F. 1597 (Finn, Murphy, Solon,
Cbmielewski) (Taxes) would impose w
additived two percent excise tax ve all
on-s a liquor and beer sales. The
additioal [ax revenues would be
allocated m the Commissioner of
Human Services ro be used fm chemi-
Page 14 LMC Cities Bulletin
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Bill summaries contin
cal dependency treawent programs.
GC
Property tax rates llrdted 101995
~/ levels and aids repealed in 1997
S.F. 1605 (Reichgott Junge, D.
Johnson) ("fasces) would restrict 1996
market values m the lesser of 1995
values, plus new constructive, or 1996
values. Local govemmwt tax rates
would be restricted u the 19951evels
with the ability m appeal for an
emmptiw due ro ton judgment or
normal disaster costs. The bill would
establish two 12-member legislative
male forces, one u study local govem-
rcent urvices and furance, and the
other u study recommendations made
by the Coalition for Bdurative Reform
and Aoroumability. Provisiore
regarding school district aid, revenues,
and levies would be repealed as would
provisions regarding HACA and LGA
as of Tune 30, 1997. GC
Rrtend border cRy enterprise zones
far an additional year
S.F. 160'7 (D. Johnson, Solon)
(Taxes) would eund the dundon of
border city enterprise zvees through
December 31, 1995. GC
Stiles [az on mixed municipal solid
waste management aervlces
S.F. 1614 (Finn, Merriam, D.E.
lohnsve) (Taxes) would change sales
lax provisives relating [o solid wasu
collection and disposal services
applying the roc to mixed municipal
solid waste management services
insuad. The bill would define services
as those relating m the management of
mixed municipal solid wasu from
collection to disposal including
transportation and mwagement a[ solid
wasu facilities. Costs forproviding
educational materials and other
infowation, managing other solid
April 14, 1995
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League of Minnesota Cities
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i Cities Bulletin
Number 16
April 21,1995
House tax bill restores some aid cuts
Doesn't include property tax freeze
As expected,_the House.bill is
tough on TIF. The bill wntains
provtstons included in H.F. 147,
Representative Dennis Ozment's (IR-
Rosemount} TIF restriction bill. It
includes the expanded "but-for' test,
the developer repayment provisions,
and a narrower definition of soil
condition districts. The bill would
expand TIF reporting and disclosure
requiremenu, and would allow a
project to be exempt from the LGA/
HACA penalty if a city elects to make
a qualifying local contribution. The
bill would also require early
decertrfication of districts by limiting
the use of reventies to costs defined in
a ijualify'ing plan b~ Decem
1995. The bill also restricts revenues
to covering arep yment of debt issued
before July 1, 1995, and certain other
limited uses. The bill would require
the Met Council to study the use of TIF
in the seven county metropolitan area.
The tax bill does not contain any city
specific TIF provisions.
The bill eliminates the taa-exempt
status of interest on certain Qv_ernmen-
tal botiiis. However, this provision
app~'ears to be less onerous than the
original language of H.F. 1380. As a
rule of thumb, the bill does not remove
Gary Carlson
The House Tax Committee took up
their 1995 omnibus tax bill with a
mixture of good and bad for cities. The
bill restores $57 million in LGA and
HACA cuts originally proposed by the
Governor, and does not include a
property tax freeze. The bad news is
,r.- that the bill would not restore the $20
million payable 1996 aid reductions,
and contains numerous TIF restrictions.
The Committee met on Friday,
Apri121, after this edition of Cities
Bulletin went to press. We received a
copy of the bill late Thursday and
completed a cursory overview. Next
week's Cities Bulletin will include a
detailed review of the bill, including
any amendments or floor action.
The House bill will restore the $57
million in proposed 1995 LGA and
HACA cuts that were included in the
Governor's budget recommendations.
However, the bill will not restore the
payable 1996 aid reductions of $20
million proposed by the Governor and
will take the entire $20 million from
HACA. The bill changes the distribu-
tion of those curs to include counties
and special taxing districts.
Page 3-Nominations open Page 4-A chilling effect
Nominations are now open for The Senate property tax freeze
LMC board and officer spots. would affect city residents in
many ways.
the exemption for property tax sup-
ported bonds.
The constitutional amendment to
take education finance off the property
tax (see page 7) is not part of the tax
bill. Other items that are part of the bill
include a senior citizen,propetty tax
deferral, acircuit-breaker credit for
cabin owners, a increase in the ciga-
rette tax, and the creation of a local
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government eff_iciency:and effective-
ness review panel.[1l1B
House DFL proposed constitutional amendment ~
Would allow voters to decide on school finance
Gary Carlson
The House DFL, this week pro-
posed a constitutional amendment that
would allow voters to decide [he
funding source for K-12 education in
the State of Minnesota. The proposed
amendment appears [o be the House
response to [he Senate property tax
freeu proposal. Although the amend-
ment does not provide many specifics,
it would allow yours to decide if
schools should be financed via the
property tax or other state revenue
sources.
The vagueness of the amendmen[
makes it difficult to anticipate how
cities might ultimately be affecud. On
one hand, it only focuses on K-12
education finance and does not directly
affect cities. However, when alterna-
tive financing souroes for schools have
been discussed in the past, LGA and
HACA have been targeted as sources
of revenue.
During the discussions of the K-12
education finance bill on Wednesday,
Representative Todd Van Dellen (IR-
Plymouth) offered an amendment to
the bill that would sunset vittually all
school property tax ]evies for taxes
payable in 1997. Representative Irv
Anderson (DFL-International Falls)
offered an amendment to the amend-
ment that would require the state to use
corporate and personal income taxes to
finance the school takeover. The
Anderson amendment to the amend-
ment as well as the Van Dellen amend-
ment were both adopud and included
in the K-12 education finance bill.
These proposals would hasten the
education reform efforts proposed in
the house Constitutional Amendment.
The movement toward reform of
the state's property tax and education
finance systems appears to be steadily
gaining momentum. On Thursday
evening, the Senate Tax committee will
discuss several reform proposals
including Senator Steve Novak's
April 21, 1995
(DFL-New Brighton) bill S.F. 1568,
two bills by Senator John Hottinger
(DFL-Mankato), and several other
property tax reform bills. In addition,
the Governor has proposed a reform
study to be headed by former Con-
gressman Vin Weber and farmer State
Senator john Brandl. Although it \
appears unlikely that any major \\\
reforms will emerge from the 1945 ~
legislative session, we may be spending
the summer and the 19961egisiative
session discussing ways to modify
local government finance. ~
Introduced by Rest, 1. Anderson, Solberg, H.F. No. 18x4
Long, Wagenius
April I8, 1995 '
Referred a Comminee on RULES & I.EOISIATtVE ADMINI577tAT10N
I A bill for an act
proposing an amendment to flte Minnesota Cons[iNtion,
article XLII, section 1; prohibiting financing of
certain education cosu with property taxes.
5 BE TT ENACTED BY THE LJiGTSI.ATURE OF THE STATE OF MINNESOTA:
6 Section 1. [CONSTTTUTIONALAMENDMENTPROPOSED.J
7 An amendment to Lhe MinnesoL Conctimtion 9rY' t XIII
8 section 1, i~~oosed to the neaole. If the amendment is
9 adopted. the section will read as follows:
10 Section 1. The stability of a republican form of
11 government depending mainly upon the intelligence of the people,
12 it is the duty of the legislamre to establish a general and
13 uniform system of public schools. The legislature shall make
14 such provisions by taxation or otherwise as will secure a
15 thorough and efficient sysum of public schools throughout the
16 stau but witho t th ~ of local ort;certy ar v n
17 Local nro*+•nv taxes may t,e~eoutt and oav debt u~•~ •~
18 financ_ e_oubl~gchool capital facilities.
]9 Sec. 2. [SUBMISSION TO VOTERS.]
20 7'hg .t ,r r must be ~ ~btrirtd r t, ~~Ie at
21 the 1996 e n cal 1 etion Th u tion ~submitmd it
22 shall the Minnesota o ctitntion be amend to r quire
7.3 Shat oubli s hoot o rce auk r rt t,r entirely fmm ur
24 other than local pLgp~rty taxes
25 v~.
26 No .......
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