Minnesota cities raise property taxes 102% over 10-year period

Minnesota’s cities are being forced to rely on increased property taxes to keep operating as revenue from government sources continues to shrink, according to a report on 2008 city finances released today by State Auditor Rebecca Otto.

The 2008 report shows what Otto called some “noteworthy” long-term trends: As federal and state governments have reduced the amount of aid being funneled to cities, those cities have had to raise property taxes to make up for the difference in revenues (PDF).

Between 1999 and 2008, revenues derived from property taxes in Minnesota cities grew 102 percent, compared to a 10 percent increase in revenues from intergovernmental sources, according to the report.

“The state is facing a large budget deficit,” Otto said at a news conference in St. Paul. “If the Legislature and the governor further cut local government aids, this will continue the trend of a greater reliance on property taxes.”

Otto said she plans to meet with legislative leaders and Gov. Tim Pawlenty to discuss the report.

Among the report’s other findings:

• Between 1999 and 2008, the proportion of total city revenues derived from property taxes grew from 24 percent in 1999 to 35 percent in 2008. During the same period, revenues derived from intergovernmental sources shrank from 32 percent of total revenues to 25 percent.
• Total revenues of governmental funds for all Minnesota cities totaled $4.66 billion in 2008, a drop of 1 percent from 2007 revenues. Total revenues of cities with more than 2,500 residents fell 1 percent, while revenues of cities with populations of less than 2,500 increased 2 percent.
• Total expenditures of governmental funds for all cities totaled $5.53 billion in 2008, an increase of 4 percent over 207. Total expenditures of Minnesota cities with populations of 2,500 or more increased 4 percent, and total expenditures for smaller cities increased 3 percent.
• The largest expenditure categories for both small and large Minnesota cities are streets and highways and public safety. For large cities in 2008, streets and highways accounted for 20 percent of total expenditures and public safety 26 percent. For small cities, streets and highways made up 24 percent of total expenditures, and public safety accounted for 21 percent.

The complete report, all 300-plus pages, is available as a PDF on the state auditor’s website.