03-14-1988 - Agenda Packet City Council - regular meeting

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As displayed in Chart 5, this trend toward increased dependence on cities' own - source revenues began in 1980, but has intensified in recent years as federal and state aid has decreased. As of 1986, cities relied on their local taxes for over 63 percent of their total revenue, up from 56 percent in 1978. Intergovernmental revenue (predominantly federal and state aid) represented of 44 percent of city revenue in 1978, dropping to under 37 percent in 1986. Local property taxes and special assessments account for the largest portion of cities' locally -derived revenue. In 1978, these local property taxes represented only 32 percent of cities' revenues. By 1986, they represented nearly 38 percent of cities' total revenues. Less reliance on federal/state aid and more reliance on local property taxes can have negative effects on the state's tax structure. Less Equalization. Federal and state assistance have played an important role in Minnesota local government finance. Minnesota cities are quite uneven in their capacities to raise local revenues. Federal and state aid has acted to equalize these disparate tax capacities, making basic and essential services more affordable for many communities. If aid continues to decline, the gap between the haves and have- nots among our communities will widen, making basic services less and less affor- dable for some communities. Increased Regressivity of State's Tax System. In recent years, the shift toward increased reliance on the property lax coupled with reductions in the state's income tax have made our state -local revenue system less progressive --that is, less related to an individual's ability to pay taxes-- than it was previously. The decade of the 1970s was marked by bold policy initiative. it increased Minnesota's reliance on the in- come tax and sales tax so that loca. •operty taxes could be reduced. With the declines in rederal and state aids in the 1980s, this set of policies, the 'Minnesota Miracle,' is gradually being reversed.