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Bill includes LGA reform and funding as well as other tax modifications of interest to cities.
(Published Apr 8, 2013)
The House Property and Local Tax Division concluded its work for the 2013 session last Wednesday by approving a 146-page delete-all amendment to HF 2 (Rep. Jim Davnie, DFL-Minneapolis), a bill that will form the backbone of the broader, yet-to-be-released 2013 omnibus tax bill. We expect the full omnibus tax bill to be unveiled as early as next week.
The bill, which was approved without any amendments, includes a number of provisions of interest to cities including LGA formula reform and funding, an expansion of direct property taxpayer relief programs, and a new funding source for police and firefighter pensions.
The House chose not to restore the former homestead credit program, but instead the bill expands and renames the homeowner property tax refund as the “homestead credit refund” and also modifies the renter refund program. These two programs provide homeowners and renters a state-paid direct refund based upon the individual’s property taxes paid relative to their personal income. The bill also requires the Department of Revenue to match property tax data submitted by each county with income tax and other data collected by the Department of Revenue and then notify potentially eligible homeowners of the program.
Additionally, the bill replaces the current LGA formula with a new formula that makes adjustments to an individual’s city aid based on its “aid gap,” or the difference between its current aid and its unmet need as measured by the formula. The LGA appropriation is increased by $60 million from the current $426 million to $486 million for the 2014 calendar year distribution. In subsequent years, the appropriation is increased annually by the sum of the increases in the annual growth in inflation for state and local governments as measured by the implicit price deflator, and annual change in total city population. The annual growth factor is limited to a maximum of 5 percent and a minimum of 2.5 percent. For estimates of the impact of the LGA formula on individual cities, please refer to this spreadsheet that estimates the distribution under the bill at $60 million:
Comparison of current law LGA vs. LGA under HF 2(pdf)
For more information on the House formula, please see this earlier League article (but note that the referenced spreadsheet reflects an $80 million appropriation level).
The bill also imposes a $5 annual surcharge on homeowners and automobile insurance policies, and dedicates the proceeds of the surcharge for specified fire and police pension purposes. The surcharge was proposed by Rep. Joe Atkins (DFL-Inver Grove Heights) and Sen. Sandy Pappas (DFL-St. Paul) to stem the erosion in the existing police and fire state aid programs. Over the past decade, funds dedicated to fire state aid have declined by more than 30 percent while police state aid revenues have declined by roughly 17 percent. The homeowner and automobile surcharges terminate when the funding ratios of the State Patrol Retirement Plan and the PERA Police & Fire Plan equal or exceed 90 percent.
Fire surcharge (based on homeowner insurance) would generate an estimated $7.5 million per year and would be distributed as follows:
Police surcharge (based on the automobile insurance) would generate an estimated $15.5 million per year and would be distributed as follows:
The bill also converts the computation of levy, tax, spending, debt, and similar limits that are based on “market value” or “taxable market value” to estimated market value. These changes are needed as a result of the 2011 law that replaced the market value homestead credit with the market value exclusion, which inadvertently reduced the market-value based levy limits for EDAs, HRAs, and port authorities, as well as the calculation of each city’s net debt limit. These changes will restore these existing levy and debt limits by using the market value of the city before the homestead market value exclusion.
Other provisions of interest:
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Contact Gary Carlson
(651) 281-1255 or (800) 925-1122
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