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New Formulas for Revenue Sharing In Minnesota September I,1970 Public affairs research and education in the Twin Citie...

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New Formulas for Revenue Sharing In Minnesota

September I,1970

Public affairs research and education in the Twin Cities metropolitan area

New Formulas For Revenue Sharing In Minnesota To balance local government needs with overall statefiscal objectives

Prepared by: Committee on Revenue Distribution WilliamJ. Hempel, Chair

Approved by the Citizens League Board of Directors September 1,1970

CITIZENS LEAGUE 708 South Third Street

Suite 500 Minneapolis, Minnesota 55415 (612) 338-0791

TABLE OF CONTENTS Page INTRCDUCTION

..............................

1-3

.......................

4-5

SUbfMARY OF RECOMMENDATIONS

. . . . . . . . . . . . . . . . . . . . . . . . 7-17 Local Revenue-Raising Authority . . . . . . . . . . . . . . . . . . . 7-9 Distribution of State Revenues . . . . . . . . . . . . . . . . . . . 9-10 S p e c i f i c Distribution Formulas . . . . . . . . . . . . . . . . . . . 10-17

FINDINGS

)a')CONCLUSIONS

. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-29 Municipal Finance . . . . . . . . . . . . . . . . . . . . . . . . . . 19-20 School Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . .20-25 Property Tax R e l i e f Payments . . . . . . . . . . . . . . . . . . . . 25-26 Federal Revenue Distribution . . . . . . . . . . . . . . . . . . . . 26-29 Constitutional Amendment. Tax Exempt Property . . . . . . . . . . . . 29 DlSCUSSION OF RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . 31-43

RECOMMEYDATIONS

BACKGROUND OF THE REPORT

COPMITTT:E PROCEDURES APPENDIX

. . . . . . . . . . . . . . . . . . . . . . . . 52

. . . . . . . . . . . . . . . . . . . . . . . . . . 53-55

INTRODUCTION

This is a report on revenue d i s t r i b u t i o n quite deliberately.

. . . and not

on

tI

taxes"

...

kie are compelled, now, t o think about d i s t r i b u t i o n because of t h e trend i n

this country toward assigning revenue-raising r e s p o n s i b i l i t y to higher and higher l e v e l s of government. This trend r a i s e s some s e r i o u s d i f f i c u l t i e s particul a r l y as i t increasingly makes eome public of f i c i a l s responsible f o r r a i s i n g [email protected] t i i c y w i l l not spend, and some o t h e r s responsible f o r spending revenues they do not -raise. Y e t t h i s trend is, demonstrably, one of t h e clearest--and, we think, one of the most important--in American public finance. It w i l l continue. Certainly i t was dramatically accelerated i n Minnesota by the t a x revision i n 1967. And we are--perhaps not t h i s year, o r next year, but almost c e r t a i n l y i n a few years-about to begin the use of the revenue-raising capacity of the f e d e r a l government f o r the support of t h e s t a t e s and l o c a l units. This i s an acceleration of t h e trend which opens up a whole new dimension of urgency and complexity i n the problem of d i s t r i b u t i o n .

...

-L

This s t a t e has not t h o u ~ h tabout d i s t r i b u t i o n with t h e c a r e and t h e setioueness requires. The i s s u e involves enormow questions about the basic objectives i n prljlic programs, about t h e p r i o r i t y among p r o g r m s and about the p a t t e r n of l o c a l government organization. There a r e t h e most d i f f i c u l t questions about t h e needs of l o c a l governments, and about t h e i r a b i l i t y t o finance t h e i r programs. it

TradJ.tionally, these questions have not been i n the f o r e f r o n t of our discussion J o u t public finance. We have tended, r a t h e r , t o come a t i t from the tax-Payer s i d e , emphasizing such questions as "the t a x climatet', equity among taxpayers, and the philosophy of one t a x source o r another. Certainly t h i s approach held, basic all^, even tllrough the revision i n Minnesota i n 1967. Increasingly s i n c e 1967, however, these other i s s u e s about t h e needs of the tax-spending u n i t s have been forcing t h e i r way t o public a t t e n t i o n . How can l o c a l revenlles grow in an orderly way, with the growth of population? What l i m i t s shoul~J and can be s e t on t h e r a t e of t h i s growth of public expenditure? Which functions of government have the g r e a t e s t needs? Which Ze~eZsof government have t h e g r e a t e s t needs? And--increasingly-what about t h e g - r ~ i n gd%fferences, o r dioparities, j n

.

resources among t h e various u n i t s ' p a r t i c u l a r l y a t t h e municipal o r school d i s t r i c t

i c v e l and p a r t i c u l a r l y within an area such as t h e F ~ i nCities metropolitan area, where both t h e f o r c e s of t h e market and t h e t h r u s t of p u b l i c planning is tending t o s f ~ i l c i a l i z ec e r t a i n p a r t s of t h e a r e a f o r c e r t a i n r e s i d e n t i a l , r e c r e a t i o r i a l , c m e r c i a 1 o r i n d u s t r i a l purposes? \S\ich l e v e l s , o r u n i t s , should use o r not use t h e pzoperty t a x ? And, a s a l t e r n a t i v e s a r e i n c r e a s i n g l y sought f o r t h e property t a x , a t which l e v e l should non-property s a l e s or income taxes be introduced? A c a r e f u l look a t t h e way t h e s t a t e has moved, t o d a t e , with what i s (thouI3h i t [nay not be c a l l e d ) i t s revenue sharing program r e v e a l s t h e o u t l i n e s of a pollc-Y

...

on d i s t r i b u t i o n evolving and changing through t h e years. But i t has been all incremental and piecemeal change patching and remodeling and addkng-On s n b s t a n t i a l l y without any o v e r a l l plan o r s e n s e of d i r e c t i o n about t h e o b j e c t i v e s of a well-thought-out s t a t e policy f o r t h e f i s c a l a f f a i r s of l o c a l government* There has accumulated, a s a result--and p a r t i c u l a r l y s i n c e 1967--a s e t of s e r i o u s i n e q u i t i e s and problems i n t h e formulas through which t h e l a r g e sums now r a i s e d by t h e s t a t e f o r t h e b e n e f i t of l o c a l government c u r r e n t l y pass o u t t o schools, municipal-ities, c o u n t i e s , and other l o c a l u n i t s . A broad look--complex and d i f f j.cult tl~ought h i s w i l l be--is urgently needed.

-

...

It i s needed p a r t i c u l a r l y a s preparation f o r t h e f e d e r a l revenue-sharing t h a t i s coming. This is a program being d r a f t e d i n Ctpgress, and t h e formulas i n i t w i l l be n a t i o n a l formnlas i f no s t a t e p r e s e n t s a p o s i t i v e a l t e r n a t i v e f o r t h e ilse of t h e money w i t h i n i t s borders. We b e l i e = i t is imperative t h a t Minnesata look c a r e f u l l y a t t h e formulas being designed f o r t h e so-called "pass-through" t o l o c a l government, and think deeply about how f a r those p r e s e n t l y w r i t t e n i n t o t h e various revenue-sharing proposals do, i n f a c t , s u i t t h e policy of t h i s state and the p a t t e r n of l o c a l government evolving here.

There would be less reason t o concern ourselves now about d i s t r i b u t i o n if revenues were expanding s o r a p i d l y t h a t t h e needs of l o c a l government were e a s i l y and f u l l y being met. But t h i s i s not t h e case. P u b l i c revenues a r e , q u i t e t o t h e c ~ ~ n t r a r yunder , increasing pressure. Though some w i l l say t h a t p r i v a t e spending can w e l l a f f o r d t o r e l e a s e more d o l l a r s f o r p u b l i c s e r v i c e s , t h e observable f a c t is t h a t r e s i s t a n c e i s rising. And t h i s p o l i t i c a l r e s i s t a n c e t o higher t a x a t i o n i s r i s i n g a t P r e c i s e l y t h e same t i m e t h a t i n f l a t i o n and growing employee m i l i t a n c e a r e beginning t o speed up t h e i n c r e a s e of c o s t s i n t h i s massive and highly-labori n t e n s i v e e n t e r p r i s e we c a l l l o c a l government.

... dollor- a year . . . compounding

It 5 s e s s e n t i a l t o understand t h e numbers p a r t i c u l a r l y with r e s p e c t t o t h e property tax. This i s a t a x which, i n Minnesota, i s c u r r e n t l y producing more

than three-quarters of a b i l l i o n i t s e l f , i n recent years, i n excess of 15 per c e n t p e r year. i n t h e Twin C f t i e s a r e a , t h e annual orsa7th i n Property t a x c o l l e c t i o n s has r e c e n t l y been t h e equivalent, roughly, of a penny a d d i t i o n a l s a l e s tax. I t would, clear]-y , t a k e a massive ( r e l a t i v e l y ) increase I n non-Pro~ertY taxes simply t o hold down t h e gro~qthof t h e property t a x let alone t o provj.de r e l i e f or t o begin t o fund the expensive new e n v i r o n ~ e n t a l , t r a n s p o r t a t i o n , housing and o t h e r programs waiting--not s o p a t i e n t l y - i n l i n e .

Y

...

These Pressure% on "mme &l.lars" compel a =-&nation

of our present system

...

f o r providing d o l l a r s t o l o c a l government programs and u n i t s whether through the a l l o c a t i o n t o them of t a x i n g a u t h o r i t y o r t h e a l l o c a t i o n t o them of t a x revenue. Not a l l programs have t h e same capacity--legally and p o l i t i c a l l y - - t o s e c u r e revenue through t a x e s o r through g r a n t s . Y e t t h e i r needs and t h e i r c o s t s w i l l continue t o i n c r e a s e . !,re must, t h e r e f o r e , r e a p p r a i s e t h e formulas by which our e x i s t i n g revenues a r e d i s t r i b u t e d , and t h e arrangements i n which l o c a l t a x i n g authority is presently allocated.

...

This need f o r c l o s e r a t t e n t i o n t o p r i o r i t i e s , i n t u r n , becomes a powerful argument f o r continuing t h e t r e n d toward t h e c o n c e n t r a t i o n of revenue-raising a u t h o r i t y t h a t h a s been underway. Our) t r a d i t i o n a l arrangements--which have d i s t r i b u t e d revenue-raising a u t h o r i t y broadly among m u l t i p l e l e v e l s of government, and which have dedicated c e r t a i n revenue s o u r c e s t o c e r t a i n functions--have made i t v i r t u a l l y impossible t o make t h e choices among programs and among u n i t s of government which a r e now e s s e n t i a l . I n p a r t i c u l a r , t h e s t r u c t u r i n g of education and of t h e i n c r e a s i n g l y expensive s t a t e and metropolitan c a p i t a l development programs i n special-purpose agencies, each w i t h i t s independent a c c e s s t o t h e t a x r e s o u r c e s or' t h e community, h a s emasculated t h e policy-making a b i l i t y of government. Questj.ons occur a s "yes" o r "no" I ) progress" o r "no progrees" r a t h e r than a s "more of t h i s program, o r more of t h a t program?"

...

...

...

and t o work conscious.ty I t i s e s s e n t i a l , t h e r e f o r e , t o b u i l d our way back t o s t r e n g t h e n t h e competence of t h e agencies of government w i t h g e n e r a l j u r i s d i c t i o n over r e l a t i v e l y broad geographic a r e a s . W e need, f i r s t of a l l , t h e c a p a c i t y t o mzke and t o c a r r y o u t a s t a t e f i s c a l p o l i c y . S p e c i f i c a l l y , w e need a s t a t e f i s c a l p o l i c y t h a t aims g r a d u a l l y a t e n l a r g i n g t h e p r o p o r t i o n of l o c a l government revenues derived from s t a t e - c o l l e c t e d sources. The argument f o r t h i s , and t h e s p e c i f i c s of i t s implementation, form t h e s u b j e c t of t h i s r e p o r t .

SUMMARY

I.

11,

OF RECOMMENDATIONS.

.

a

'

.

.

t

Taxing Authority A.

P l a c e L e g i s l a t u r e i n Cent.ra1 Role--The S t a t e L e g i s l a t u r e should d i r e c t l y e x e r c i s e i t s a u t h o r i t y t o determine ( a ) what l e v e l s of l o c a l government should be given power, under what circumstances, t o levy what tms of t a x e s , and (b) t h e e x t e n t t o which l o c a l governments a r e allowed t o set t h e t z x r a t e s themselves. Generally, t h e L e g i s l a t u r e should reduce t h e amount of l o c a l d i s c r e t i o n i t now allows on t h e s e questions.

B.

Recomize General Government--Units of government with g e n e r a l j u r i s d i c t i o n , n o t single-purpose u n i t s of government, should make t h e major d e c i s i o n s on t h e type and e x t e n t of t a x a t i o n . Only g e n e r a l governments have the scope of r e s p o n s i b i l i t y t o s e t p r i o r i t i e s among competing programs. I n c r e a s i n g a t t e n t i o n , too, should be given t o t h e emerging level of r e g i o n a l general government.

C.

Broaden Areas of Collection--We look t o t h e broadest a r e a s p o s s i b l e f o r c o l l e c t i o n of non-property taxes t o avoid undesirable s i d e e f f e c t s of less-than-areawide t a x a t i o n , such as r e s t r i c t i n g t h e b e n e f i t t o a few u n i t s of government which have s u b s t a n t i a l l o c a l t a x resources. Within t h e sevencounty Twin C i t i e s a r e a , a d d i t i o n a l non-property taxes, a s needed, should not be c o l l e c t e d on less than an areawide b a s i s .

D.

Reduce Local Property Tax--Local u s e of t h e property t a x should be reduced. S p e c i f i c a l l y , most of t h e l o c a l l y - c o l l e c t e d property t a x f o r schools should be replaced by s t a t e - c o l l e c t e d taxes. The state should develop e f f e c t i v e , but e q u i t a b l e , r e s t r a i n t s on t h e e x t e n t t o which school d i s t r i c t s levy property taxes.

Revenue D i s t r i b u t i o n A.

Give Cities, V i l l a g e s , School D i s t r i c t s F i r s t P r i o r i t y - - D i s t r i b u t i o n formulas should give f i r s t p r i o r i t y t o c i t i e s , v i l l a g e s and school d i s t r i c t s . Taken a s a whole, t h e s e types of u n i t s , because of t h e i r wide d i f f e r e n c e s i n l o c a l t a x resources, a r e less a b l e t o finance t h e i r s e r v i c e s from l o c a l l y - r a i s e d revenue than are u n i t s which cover broader geographic areas-

B.

Fake Revisions i n Major Aid Programs--The L e g i s l a t u r e should g i v e p r i o r i t y a t t e n t i o n t o improving t h e d i s t r i b u t i o n of revenue t o l o c a l government under i t s two l a r g e s t a i d programs: t h e g r a n t s rmder v a r i o u s provisions of t h e 1967 Property Tax Reform and Relief Act and t h e g r a n t s under t h e school foundation a i d program.

C.

Emphasize General Grants of Revenue-The L e g i s l a t u r e should expand g e n e r a l g r a n t s of revenue t o l o c a l government and de-emphasize c a t e g o r i c a l g r a n t s , which a r e intended f o r s p e c i f i c p r o j e c t s . But t h e L e g i s l a t u r e should a l s o i n s i s t t h a t l o c a l governments i n s t i t u t e e f f e c t i v e review and e v a l u a t i o ~ lt o a s s u r e t h a t t h e d o l l a r s a r e used e f f i c i e n t l y and e f f e c t i v e l y f o r t h e p a r t i c u l a r purposes i t has i n mind.

. . . . . D

.

E.

. F O R

S T A T E FISCAL POLICY

p o s s i b l e t h e L e g i s l a t u r e should d i s t r i b u t e f ur.6~ which a r e intended f o r t h e same purposes ( f o r examole, school d i s t r i c t o p e r a t i n g expense) from one u n i f i e d formula. The L e g i s l a t u r e should a v o i t fragmenting i t s g r a n t s of revenue t o t h e same u n i t s of government f o r t h e same purposes i n d i f f e r e n t formulas.

-.Uni f v ~ormulas--&rever

Avoid " I n d i r e c t " Grants--The L e g i s l a t u r e should place g r e a t e r e m p h a i s on d i s t r i b u t i n g g r a n t s d i r e c t l y t o l o c a l government and move away from so-called "indirect" grants. Currently, the Legislature i s d i s t r i b u t i n g S u b s t @ t f d amounts i n d i r e c t l y i n t h e form of reimbursement t o local g o v e ~ t for s property t a x revenue l o s t because c e r t a i n taxpayers have been granted r e l i e f . Such g r a n t s do n o t r e p r e s e n t a meaningful a i d program t o local government

.

F - S e t Amounts of Grants Directly--The L e g i s l a t u r e should adopt d i s t r i b u t i o n formulas which w i l l set, d i r e c t l y , t h e amounts of d o l l a r s t o be d i s t r i b u t e d t o l o c a l government. This means t h e L e g i s l a t u r e should d i s c o n t i n u e for,mulas t h a t have t h e e f f e c t of i n c r e a s i n g t h e s t a t e ' s commitment t o provide funds t o l o c a l government i n t h e absence of a conscious s t a t e p o l i c y t o that effect.

G.

Improve Measurements of Need, A b i l i t y t o Pav. Effort--The L e g i s l a t u r e should improve i t s c u r r e n t measurements of l o c a l government need f o r funds , a b i l i t y t o pay and l o c a l e f f o r t . S p e c i f i c a l l y , t h i s means, f o r example:

1. Need--A school d i s t r i c t ' s "need" should t a k e i n t o account its t o t a l o p e r a t i n g expenditures, n o t only a portdon of t h e s e expenditures, 2s a t p r e s e n t . Also d i f f e r e n c e s among p u p i l s , i n a d d i t i o n t o d i f f e r e n c e s ill grade l e v e l s need t o b e recognized. A m u n i c i p a l i t y ' s "need'

should t a k e i n t o account t h e r e l a t i v e d i f f e r e n c e s i n requirements f o r s e r v i c e s among v a r i o u s m u n i c i p a l i t i e s .

11-

2-

A b i l i t y t o Pay--Income a s w e l l a s assessed v a l u a t i o n now needs t o be considered i n measuring a school d i s t r i c t ' s o r munl.cipality's a b i l i t y t o pay.

3.

Local Ef fort--\hen l o c a l e f f o r t is measured, t h e e x t e n t t o which o t h e r overlapping u n i t s of government have a c c e s s t o t h e same l o c a l t a x base should b e recognized.

Relate Federal Aids t o S t a t e Policy--We look upon f e d e r a l a i d s t o l o c a l government a s e s s e n t i a l l y another source of revenue f o r t h e s t a t e t o use i n providing funds f o r l o c a l government. W e s t r o n g l y support and urge approval of g e n e r a l f e d e r a l revenue s h a r i n g with t h e s t a t e s and l o c a l governments, with a guaranteed s u b s t a n t i a l s h a r e f o r l o c a l governmentBut s o t h a t a state can r e l a t e t h e f e d e r a l a i d s t o i t s o v e r a l l s t a t e - l o c a l f i s c a l p o l i c y , w e urge t h a t t h e revenue flow i n t o t h e s t a t e ' s Own formulas s p e c i f y i n g e x a c t l y which l o c a l governments a r e t o s h a r e and t o what e x t e n t This w i l l permit d i f f e r e n c e s from s t a t e t o s t a t e i n l o c a l government s t r u c t u r e s and r e s p o n s i b i l i t i e s t o b e r e f l e c t e d . Pending a c t i o n a t t h e f e d e r a l l e v e l t h e s t a t e should e x e r c i s e i n i t i a t i v e t o c o n s o l i d a t e f e d e r a l g r a n t a ~ p l i c a t i o n si n "packages" covering broader areas and t o set priorities among v a r i o u s f e d e r a l grant a p p l i c a t i o n s w i t h i n t h e s t a t e .

FINDINGS AND CONCLUSIONS The l o c a l government system i n Minnesota encompasses 87 counties, about 480 school d i s t r i c t s , 850 c i t i e s and v i l l a g e s , 1800 unincorporated areas (towns

and townships) 150 s p e c i a l purpose d i s t r i c t s and an emerging l e v e l of r e g i o n a l government. A l l l o c a l governments d e r i v e t h e i r existence and t h e i r powers from t h e s t a t e government. Because a l l u n i t s of l o c a l government i n t h e s t a t e a r e creatukres of t h e s t a t e government these u n i t s derive t h e i r f i s c a l a u t h o r i t y from t h e s t a t e government, too. S t a t e government does n o t p r e s c r i b e t h e exact f i s c a l a u t h o r i t y f o r every government u n i t but does e s t a b l i s h t h e l i m i t s within which t h e f i s c a l a u t h o r i t y w i l l be exercised. I

I n e f f e c t , s t a t e government d i r e c t l y o r i n d i r e c t l y h a s power t o c o n t r o l a l l l o c a l government financing. This is accomplished e s s e n t i a l l y through two f o r m : a) t h e delegation by the s t a t e t o l o c a l government of a u t h o r i t y f o r the l o c a l government t o r a i s e revenue from i t s own sources and b) a d i r e c t a l l o c a t i o n of s t a t e c o l l e c t e d revenue t o l o c a l governments. The cambinatton of s t a t e and l ~ a l revenue d i f f e r s s u b s t a n t i a l l y among various u n i t s of government. These d i f f e r e n c e s w i l l e x i s t n o t only among d i f f e r e n t types of u n i t s , ( t h a t is, between school d i s t r i c t s and cities, f o r example) but a l s o w i t h i n a given l e v e l , such as among sr.11001 d i s t r i c t s .

I. Local Revenue-Raising Authori ty--The S t a t e L e g i s l a t u r e has combined a i d t o l o c a l government with . a . f a i r l y extensive g r a n t of a u t h o r i t y t o Local government t o r a i s e revenue from l o c a l sources on i t s own.

--

Propertv Tax Authority--The L e g i s l a t u r e has given some property t a x a u t h o r i t y t o almost every u n i t of l o c a l government. Some u n i t s a r e empowered t o levy property taxes without l i m i t . Others may levy only t o t h e ' e x t e n t prescribed by t h e L e g i s l a t u r e

.

-- Non-Property

Tax Authority--The L e g i s l a t u r e has been more r e s t r i c t i v e on t h e types of u n i t s of l o c a l government which a r e permitted t o levy non-property taxes, but f o r those u n i t s which may levy such taxes t h e r e i s no l i m i t a s t o t h e r a t e . School d i s t r i c t s and counties have no Power t o levy general non-property taxes such a s s a l e s o r income taxes. Cities can give themselves such power i n amounts they decide through t h e i r home-rule c h a r t e r s . Villages a r e n o t permitted by s t a t e law t o impose non-Property taxes, but i t is p o s s t b l e f o r v i l l a g e s t o become c i t i e s without f u r t h e r a c t of t h e L e g i s l a t u r e and then impose non-property taxes* Tcwn governments can become v i l l a g e s and then c i t i e s without f u r t h e r a c t of t h e Legislature and impose non-property taxes, too. But town governments a s such have no a u t h o r i t y f o r non-property taxes. Our review of t h e present d i v i s i o n of l o c a l and s t a t e revenue-raising shouZd r e s p o n s i b i l i t y has l e d us t o t h e conclusion t h a t ~ ' Z G b g z s z a * ~ s ~ m the d s t a t e ' s role i n pa-ising revcmc f o r ZoeaZ government. k7e reached t h i s conclusion far the f o l l o w i n ~reasons

D f B f k u l t y i n Developing a Balanced Tax System--The L e g i s l a t u r e has n o t c e n t r a l i z e d major d e c i s i o n s on t h e l e v e l of p r o p e r t y , s a l e s and income t a m s i n t h e s t a t e . Under t h e p r e s e n t system i t is p o s s i b l e f o r t h e o v e t a l l l e v e l of each t a x t o b e determined by t h e i n d i v i d u a l a c t i o n s of l o c a l governments as w e l l a s t h e s t a t e government. The p r o p e r t y tax rate is set by t h e aggregate a c t i o n s of t h e v a r i o u s l o c a l u n i t s of govprnment. The s t a t e s a l e s t a x , w i t h t h e exception of Duluth which has an e x t r a 1% municipal s a l e s t a x , s t i l l i s imposyd a t t h e uniform 3% [email protected] s t a t e w i d e . There a r e no l o c a l income t a x e s y e t . Minneapolis, S t . P a u l , Rochester, and West S t . P a u l a r e among communities which have considered l o c a l add-on s a l e s o r income t a x e s . Under such a system t h e L e g i s l a t u r e i s n o t a b l e t o e f f e c t i v e l y i n f l u e n c e t h e o v e r a l l l e v e l , and r e l a t i v e mix, of income, s a l e s , p r o p e r t y , and o t h e r t a x e s i n t h e s t a t e .

A.

B.

Pre-empts D i r e c t Policy-Making by t h e Leaislature--By continuing t o a l i o w broad l o c a l t a x i n g a u t h o r i t y t h e L e g i s l a t u r e is s e v e r e l y reducing i t s own o p t i o n s on e s t a b l i s h i n g s t a t e - l o c a l f i s c a l p o l i c y and i t s own o p t i o n s on revenue s o u r c e s f o r s t a t e purposes. I f , f o r example, a s u b s t a n t i a l nrwnber of c i t i e s adopt l o c a l s a l e s t a x e s , t h i s w i l l make i t a l l t h e more d i f f i c u l t t o i n c r e a s e t h e s a l e s t a x , should a d d i t i o n a l revenue b e needed. I n e f f e c t , under p r e s e n t s t a t e law, l o c a l governments, r a t h e r than t h e S t a t e L e g i s l a t u r e , have t h e p o t e n t i a l t o e x e r c i s e more i n f l u e n c e over t h e f u t u r e d i r e c t i o n s of s t a t e - l o c a l f i s c a l p o l i c y .

C.

D i s t o r t s Local Development Objectives--If t h e L e g i s l a t u r e permits O r encourages broader use of locally-coll.ected t a x e s , v a r i o u s communities-whether they want t o o r not--will be forced i n c r e a s i n g l y t o adopt land usd p o l i c i e s which a r e c a l c u l a t e d p r i m a r i l y t o improve t h e p r o s p e c t s f o r l o c a l t a x revenue, r e g a r d l e s s of t h e adverse e f f e c t s on more r a t i o n a l grcfwth p a t t e r n s . For example, widespread u s e of l o c a l income taxes might w e l l s t i m u l a t e c e r t a i n suburban communities--even more than today-t o become havens f o r h i g h e r income persons, e i t h e r t o avoid a l o c a l income t a x elsewhere o r t o impose one l o c a l l y and r e t a i n a l l t h e b e n e f i t s f o r t h e s e persons only.

D.

P e r p e t u a t e s D i s p a r i t e D i s t r i b u t i o n of Resources--Locally-collected t a r e s work t o t h e u n f a i r advantage of t h o s e communities which a r e f o r t u n a t e t o have high-tax-producing deveicpments. For example a l o c a l l y - c o l l e c t e d s a l e s t a x would provide no shaue of t h e revenue f o r t h e many municipali t i e s w i t h o u t major r e g i o n a l shopping c e n t e r s . L o c a l l y - c o l l e c t e d t a x e s which produce d i f f e r e n t l e v e l s of c o l l e c t i o n among communities undoubtedly w i l l l e a d t o major d i f f e r e n c e s i n l e v e l s of governmental s e r v i c e s from community t o communitv. This is p a r t i c u l a r l y c r i t i c a l because t h e d i f f e r e n t l e v e l s of s e r v i c e w i l l extend t o a r e a s where i t i s i n t h e p u b l i c i n t e r e s t t o a s s u r e an adequate and uniform l e v e l of s e r v i c e i n every l o c a l i t y , f o r example, education, highways or public safety.

E. D i f f i c u l t i e s w i t h Locallv-Collected Property Taxes--The

locally-collected Property t a x , which i s t h e major l o c a l s o u r c e of t a x a t i o n f o r l o c a l governments i n Minnesota, has r e s u l t e d i n wide d i f f e r e n c e s i n t a x burdens from community t o community because of t h e uneven d i s t r i b u t i o n of a s s e s s e d v a l u a t i o n . These d i f f e r e n c e s show no s i g n s of decreasing. The problem ' is most a c u t e when t h e a r e a over which a p r o p e r t y t a x levy i s imposed is

I I

very small. I n such s i t u a t i o n s i t is more l i k e l y t h a t t h e r e w i l l be an abnormally l a r g e o r abnormal1.y small amount o f ' a s s e s s e d v a l u a t i o n r e l a t i v e t o needs, r e s u l t i n g i n either very low o r very high tax r a t e s . I t i s l e s s l i k e l y t h a t a s m a l l a r e a w i l l have a balanced t a x base. The property t a x has been a t t a c k e d , with j u s t i f i c a t i o n , because i t i s d i f f i c u l t t o administer and because i t h i t s some taxpayers h a r d e r than o t h e r s without s u f f i c i e n t l y accounting f o r d i f f e r e n c e s i n a b i l i t y t o pay. But when t h e a r e a over which t h e property t a x i s c o l l e c t e d is s m a l l , th': adds t o t h e problems of t h e p r o p e r t y t a x ,

IT.

D i s t r i b u t i o n of S t a t e Revenues t o Local Government--We have reviewed i n c o n s i d e r a b l e d e t a i l t h e methods bv which revenues are d i s t r i b u t e d t o t h e v a r i o u s u n i t s of l o c a l government. D i s t r i b u t i o n of t h e s e revenues is p a r t i c u l a r l y important t o t h e i n t e r e s t s of s t a t e government, i f f o r no o t h e r reason than t h i s is where most of t h e s t a t e funds go. I n 1970 t h e anounts paid t o l o c a l governments i n school a i d s , s a l e s t a x s h a r i n g and p r o p e r t y t a x r e l i e f payments r e p r e s e n t an amount e q u a l t o about 80 per cent of t h e t o t a l s t a t e income and s a l e s t a x c o l l e c t i o n s combined. I n addizion l o c a l governments r e c e i v e , under t h e c o n s t i t u t i o n , 38 p e r c e n t of t h e Highway User Tax Fund, and a l s o s h a r e i n a numb,er of miscellaneous a i d s t o t a l l i n g about another $26 m i l l i o n . Under p r e s e n t s t a t e formulas, and normal e x t e n s i o n s of t h e s e formulas (as have been made r e g u l a r l y by S t a t e Government) t h e s t a t e is committed t o r e t u r n t o l o c a l government many m i l l i o n s of a d d i t i o n a l d o l l a r s . Based on our review of t h e methods by which s t a t e revenue i s d i s t r i b u t e d t o l o c a l governneat, and i n l i g h t of t h e f a c t t h a t i t i s d e s i r a b l e f o r t h e s t a t e t o i n c r e a s e i t s r o l e a s a c o l l e c t o r of revenue f o r l o c a l governnent, we have concluded t h a t major improvements must be made i n t h e d i s t r i b u t i o n formulas. We have reached t h i s conclusion f o r t h e following reasons: A.

B.

Over-Emphasis on T r e a t i n g "Unequalsl* E q u a i a - G e n e r a l l y t h e formulas of d i s t r i b u t i o n have given more emphasis t o t r e a t i n g u n i t s of government t h e same without d i s t i n g u i s h i n g s u f f i c i e n t l y between t h e i r r e l a t i v e needs f o r funds. For example, a p e r c a p i t a C i s t z i b u t i o n p l a n is popular f o r m u n i c i p a l i t i e s , and a per s t u d e n t d i s t r i b u t i o n p l a n (with only s l i g h t adjustments) i s popular f o r s c h o o l d i s t r i c t s . These a ~ p r o a c h e sare sonewhat l i k e a f a t h e r g i v i n g t h e same weekly a l h w a n c e t o a l l of h i s c h i l d r e n r e g a r d l e s s of t h e i r needs.

Insufficient

Measures of A b i l i t y t o Pay--The most popular means of measuring l o c a l ability t o pay i s t h e amount of a s s e s s e d v a l u a t i o n i n a u n i t of government, which i s i n s u f f i c i e n t because i t does n o t consider t h e e x t e n t t o which o t h e r u n i t s of government a l s o have a c c e s s t o t h e a s s e s s e d v a l u a t i o n , n o r does i t consider t h e a b i l i t y of i n d i v i d u a l taxpayers t o pay t h e i r p r o p e r t y taxes.

C * Lack of Emphasis on S t a t e Aid f o r General Government Purposes--The v a s t m a j o r i t y of s t a t e funds d i s t r i b u t e d t o l o c a l government is earmarked f o r s p e c i f i c purposes, such a s s c h o o l s , o r shows up a s a s t a t e payment t o a focal government i n l i e u of a property t a x hayment by 2 l o c a l taxpayer. Only a very small amount, about 6%, is a v a i l a b l e t o

t o l o c a l government f o r g e n e r a l purposes, wherein a government can a p p o r t i o n t h e funds among c o n p ~ t i n gdemands,.

D.

Too Much Emphasis on " I n d i r e c f ~ a y m e n t s - - A s u b s t a n t i a l amount of state d ~ l l a r sa r e d i s t r i b u t e d i n d i r e c t l y t o l o c a l government i n t h e form of payments by t h e s t a t e i n l i e u of p r o p e r t y t a x payments by c e r t a i n taxpayers (business and farm p e r s o n a l property owners and homeowners). AS f a r a s . l o c a l governments a r e concerned, t h e s e fimds a r e regarded more a s property t a x r e l i e f payments than anything e l s e and a r e n o t I1 seen1' a s s t a t e payments. The chief problem w i t h t h i s s i t u a t i o n i s t h a t l o c a l government does n o t b e l i e v e i t i s r e c e i v i n g meaningful s t a t e a i d when i t r e c e i v e s s t a t e Fayments which r e a l l y amount t o nothing more than t h e state paying sa'neo::e e l s e ' s property t a x b i l l . Consequently, l o c a l governments c ~ n t i n u et o s e e k a d d i t i o n a l revenue from s t a t e government, i n s p i t e of t h e f a c t t h a t t h e s t a t e i s i n c r e a s i n g t h e payments s u b s t a n t i a l l y every year.

TTT.

S p e c i f i c D i s t r i b u t i o n FormuLas--We have concentrated our review on t h e two l a r g e s t types of s t a t e a i d s t o l o c a l government: school a i d and payments under t h e 1967 Property Tax Reform and R e l i e f Act. S p e c i f i c a l l y , w e have found a s follcws: A.

School Aid--Exclusive of payments under t h e Property Tax Reform and R e l i e f Act:, apnroxj-mately $294 m i l l i o n was d i s t r i b u t e d t o school d i s t r i c t s i n Minnesota from t h e s t a t e i n t h e 1969-70 f i s c a l year. S t a t e a i d t o sci1001 d i s t r i c t s makes up t h e l a r g e s t s t a t e payment t o l o c a l government. About $237 m i l l i o n of t h e $294 m i l l i o n was d i s t r i b u t e d through t h e s t a t e foundation a i d f o r n u l a . The balance was d i s t r i b u t e d a s s p e c i a l g r a n t s f o r such purposes a s t r a n s p o r t a t i o n , v o c a t i o n a l education and education f o r t h e handicapped. The foundation a i d f o r n u l a was set up by t h e 1.947 L e g i s l a t u r e . P r i o r t o t h a t t i m e each d i s t r i c t received an e q u a l p e r p u p i l d o l l a r a l l o t m e n t of a i d . The i d e a behind t h e foundation a i d formu;.a was t o a d j u s t t h e p e r p u p i l payrr.ent t o each s c h o o l d i s t r i c t based upon t h a t school d i s t r i c t ' s wealth a s measured by t h e t a x a h l e v a l u e of p r o p e r t y i n t h e school d i s t r i c t e q u a l i z e d f o r d i f f e r e n c e s i n assessment p r a c t i c e s . I n e f f e c t , t h e h i g h e r t h e v a l u a t i o n t h e lower t h e g r a n t of s t a t e a i d . To a c e r t a i n e x t e n t t h i s formula enables one d i s t r i c t t o provide comparable expendit u r e s t o another d i s t r i c t w i t h no g r e a t e r l o c a l t a x burden even though i t s l o c a l assessed v a l u e may n o t be a s g r e a t a s t h e o t h e r , A s o r i g i n a l l y conceived, t h e comparable expenditure l e v e l was intended t o r e p r e s e n t 100% of t h e median o p e r a t i n g e x p e n d i t u r e p e r p u p i l u n i t i n t h e s t a t e i n t h e previous y e a r . I n e f f e c t , s c h o o l d i s t r i c t s would be a b l e t o r e c e i v e e q u a l i z a t i o n a i d up t o t h e median. Beyond t h a t l e v e l t h e d i s t r i c t would have t o u s e only l o c a l funds. Operating expense i n c l u d e s expense f o r i n s t r u c t i o n , a d m i n i s t r a t i o n , p l a n t maintenance b u t does n o t i n c l u d e c a p i t a l expense.

We have examined t h e foundation a i d formula i n d e t a i l . I n g e n e r a l we f i n d t h a t t h e goals of t h e foundation a i d formula c o i n c i d e w i t h t h e g o a l s we have f o r a school a i d plan. Generally e q u a l e d u c a t i o n a l

opportunity should be a v a i l a b l e t o every c h i l d i n every d i s t r i c t i n t h e s t a t e , r e g a r d l e s s of a l o c a l d i s t r i c t ' s wealth. The foundation a i d formula r e p r e s e n t s a major s t e p forward from t h e previous f l a t g r a n t approach. The formula a t t e m p t s t o a s s u r e t h a t adequate s t a t e resources w i l l be made a v a i l a b l e where l o c a l resources are lacking. bJe have found, however, t h a t t h e foundation a i d formula i n i t s p r e s e n t form i s not a s s u r i n g t h e same opportunity i n every school d i s t r i c t i n t h e s t a t e . S p e c i f i c a l l y , we have found t h e following types of p r o b l e m with t h e experience under t h i s formula: 1.

Inadequate Measurement of Local Wealth--We have found s e v e r a l problems with t h e d e f i n i t i o n of l o c a l wealth a s t h e amount of t a x a b l e v a l u a t i o n i n t h e d i s t r i c t (with c e r t a i n adjustments) F i r s t , t h e r e i s no r e c o g n i t i o n of t h e e x t e n t t o which o t h e r u n i t s of government, m u n i c i p a l i t i e s and c o u n t i e s , p a r t i c u l a r l y , have access t o t h e same t a x b a s e , I f t h e e x t e n t t o which t h e s e o t h e r u n i t s had access t o t h e t a x base were r e l a t i v e l y t h e same f r o n d i s t r i c t t o d i s t r i c t , t h i s would n o t p r e s e n t a problem. But a s a matter of f a c t , t h e t a x base is used more by o t h e r u n i t s of government i n some school d i s t r i c t s than i n o t h e r s . I n such s i t u a t i o n s a school d i s t r i c t does not have as much v a l u a t i o n a v a i l a b l e t o i t a s might appear. I n some school d i s t r i c t s only 1 / 3 of t h e t o t a l t a x l e v i e s a r e f o r non-school purposes'while i n o t h e r school d i s t r i c t s 213 of t h e t a x l e v i e s are f o r non-school purposes. A school d i s t r i c t w i t h a v a l u a t i o n which is used e x t e n s i v e l y by non-school u n i t s of government does n o t have a s much wealth a s i t is given c r e d i t f o r i n t h e formula. Consequently i t g e t s l e s s s t a t e a i d . P u t another way, i t s v a l u a t i o n f o r school Purposes is a r t i f i c i a l l y i n f l a t e d . Second, t h e wealth, o r a b i l i t y t o pay, of a school d i s t r i c t is based only upon t h e a s s e s s e d v a l u a t i o n of property. I t is t r u e , of course, t h a t f o r l o c a l taxing purposes a school d i s t r i c t may t a x nothing b u t t h e . l o c a l assessed v a l u a t i o n . The burden on taxpayers i s more s e v e r e i n some communities than i n o t h e r s , however. For example, two communities s i d e by s i d e have t h e same a s s e s s e d v a l u a t i o n per p u p i l . But t h e income of r e s i d e n t s i n one may b e h i g h e r t h a n t h e o t h e r . This d i f f e r e n c e w l l l n o t be r e f l e c t e d i n t h e amouat of s t a t e a i d received by each d i s t r i c t . Third, t h e v a l u a t i o n under t h e c u r r e n t formula i s a d j u s t e d a r t i f i c i a l l y by adding i n t h e value of household goods i n t h e l a s t Year i n which they were t a x a b l e even though they a r e n o t t a x a b l e now. Such a p r a c t i c e b e a r s no r e l a t i o n s h i p t o t h e way a i d should b e distributed.

2.

Differences Amonp P u p i l s Not Adequately Considered--The foundation a i d formula was designed t o r e f l e c t d i f f e r e n c e s i n t h e c o s t of educ a t i n g d i f f e r e n t kinds of s t u d e n t s . Under t h e formula e x t r a funds a r e provided f o r s t u d e n t s i n grades 7-12 on t h e assumption t h a t i t c o s t s more t o educate secondary s t u d e n t s . Other, perhaps more i n p o r t a n t , d i f f e r e n c e s were n o t taken i n t o c o n s i d e r a t i o n . For example, t h e formula does not account f o r t h e h i g h e r c o s t s which a r e o r should b e i n c u r r e d i n educating disadvantaged youth, whether r u r a l o r urban, white, b l a c k o r Indian. Furthermore, t h e e x t r a s t a t e funds

f o r secondary s t u d e n t s do n o t a c c u r a t e l y r e f l e c t a c t u a l d i f f e r e n c e s i n c o s t s . Under t h e p r e s e n t formula a school d i s t r i c t r e c e i v e s 40% more a i d p e r p u p i l f o r a secondary s t u d e n t than an elementary s t u l e r - t , even though t h e a c t u a l c o s t d i f f e r e n c e s would make t h e percentags (Some about 252, i f any d i f f e r e n c e a t a l l is t o b e recognized. educators argue t h a t elementary education is s o important t h a t s t a t e a i d should be t h e same a s f o r secondary education.) The foundation a i d formula accounts f o r d i f f e r e n c e s i n p u p i l s by t h e u s e of a f a c t o r c a l l e d t h e "pupil u n i t . " I f each p u p i l e n r o l l e d i n school were counted a s 1 p u p i l u n i t , then t h e number of p u p i l s e n r o l l e d would coincide with t h e number of p u p i l u n i t s . But a secondary s t u d e n t counts a s 1.4 p u p i l u n i t s , a k i n d e r g a r t e n p u p i l a s .5 p u p i l u n i t s , and an elementary p u p i l a s 1.0 p u p i l u n i t s . m e n a i d i s d i s t r i b u t e d a s c h o o l d i s t r i c t r e c e i v e s s o many d o l l a r s p e r p u p i l u n i t , n o t j u s t p e r e n r o l l e d pupil. Too Many S p e c i a l Adiustments--The i n a b i l i t y of t h e foundation a i d formula t o r e f l e c t with s u f f i c i e n t accuracy t h e d i f f e r e n c e s i n need f o r funds and a b i l i t y t o pay among school d i s t r i c t s was recognized i m p l i c i t l y from t h e s t a r t . The L e g i s l a t u r e b u i l t i n a " f l o o r , " which i s a guaranteed amount of s t a t e a i d per p u p i l u n i t r e g a r d l e s s of a d i s t r i c t ' s wealth, a s p r e s e n t l y measured. I f t h i s adjustment were n o t employed, c e r t a i n s c h o o l d i s t r i c t s with high a s s e s s e d v a l u a t i o n would r e c e i v e l i t t l e o r no s t a t e a i d . Also, because t h e foundation a i d f o w u l a has not s u f f i c i e n t l y considered t h e v a r i o u s d i f f e r e n c e s i n types of s t u d e n t s , t h e L e g i s l a t u r e has from time t o time adopted s p e c i a l supplementary a i d programs o u t s i d e t h e foundation formula. The percentage of t o t a l s t a t e school a i d i n t h i s form has increased from 22% i n 1.964-65 t o 27% i n 1970-71. The p r o l i f e r a t i o n of t h e s e s p e c i a l a i d programs has made i t very d i f f i c u l t t o a s s e s s t h e o v e r a l l impact of t h e a i d program. These s p e c i a l a i d s a r e a s u b j e c t of c o n s t a n t debate: t h e i r presence i s an i n p l i c i t admission t h a t t h e foundation a i d formula does n o t work adequately. 4.

Overlv Corn?&--To acconplish e q u a l i z a t i o n under t h e p r e s e n t formula t h e L e g i s l a t u r e has adopted a p r a c t i c e whereby an a r t i f i c i a l v a l u a t i o n f o r each school d i s t r i c t i s c a l c u l a t e d and then an a r t i f i c i a l m i l l r a t e is applied against t h i s valuation t o a r r i v e a t t h e amount of l o c a l e f f o r t t h a t should be required. This is deducted from t h e o v e r a l l s t a t e a i d e n t i t l e m e n t . The conbination of using t h e a r t i f i c i a l v a l u a t i o n and m i l l r a t e s f i g u r e and t h e n e c e s s i t y t c s u b t r a c t t h e product from t h e s t a t e a i d e n t i t l e m e n t has made i t very d i f f i c u l t f o r l e g i s l a t o r s and o t h e r s t o understand t h e formula, l e t alone propose meaningful changes.

5.

Aid Rased On Attendance. Not Enrollment--Aid i s d i s t r i b u t e d now on t h e b a s i s of t h e number of p u p i l u n i t s i n average d a i l y attendance. The problem i n using average d a i l y attendance is t h a t a school d i s t r i c t w i l l be penalized i f i t s s t u d e n t s have a high r a t e of truancy. This i s l i k e l y t o occur more i n s c h o o l d i s t r i c t s w i t h high m o b i l i t y of t h e population and i n t h e lotqer socio-economic a r e a s . It i s p r e c i s e l y i n t h e s e a r e a s where added funds a r e needed. Using

average d a i l y a t t e n d a n c e works a g a i n s t an adequate supply of funds f o r t h e s e d i s t r i c t s . Pi!r:f.ermorc, u s e of m e r a g e d a i l y a t t z n d a n c e means t h a t a s c h o o l d i s t r i c t which chooses t o o p e r a t e s c h o o l beyond t h e 175 day ninimum p r e s c r i b e d by tile L e g i s l a t u r e can r u n t h e r i s k of r e d u c t i o n i n s t a t e a i d i f t h e average d a i l y a t t e n d a n c e of studect.5 d r o p s a f t e r t h e 175th d a y . 6.

Levy L i m i t a t i o n s Not R e l a t e d t o Aid Fornula--Altho~lgh i t may n o t b e widely Icnown. most s c h o o l d i s t r i c t s i n Minnesota a r e l i m i t e d by s t a t e law on t h e e x t e n t t o which they can l e v y l o c a l p r o p e r t y t a x e s * Only i n r e c e n t y e a r s have t h e t a x l e v i e s of many s c h o o l d i s t r i c t s reached a p o i n t where t h e impact of t h e l i m i t i s f e l t . (A few s c h o o l d i s t r i c t s , i n c l u d i n g a l l s c h o o l d i s t r i c t s i n suburban Ranscy County and t h e Golden V a l l e y School D i s t r i c t i n Hennepin County, have r e c e i v e d s p e c i a l 1 e g i . s l a t i o n exempting them from t h e levy 1i.mits.) The levy l i m i t is a r r i v e d a t i n a complex s e r i e s of c a l c u l a t i o n s . For s c h o o l d i s t r i c t s where t h e g e n e r a l l e v y l i m i t law a p p l i e s , a d i s t r i c t is l i m i t e d t o a l e v y of $390 p e r r e s i d e n t p u p i l u n i t , a d j u s t e d f o r c o s t of l i v i n g i n c r e a s e s , f o r o p e r a t i n g e x p e n d i t u r e s . A d i f f e r e n t procedure i s used f o r t h e l i m i t a p p l y i n g i n suburban Mennepin County s c h o o l d i s t r i c t s , e x c l ~ s i v eof t h e Gclden Valley d i s t r i c t . I n additi-on t o t h e obvious problems of d i f f e r e n t l e v ] l i m i t s ( o r no l i m i t s a t a l l i n some s c h o o l d i s t r i c t s ) from d i s t r i c t t o d i s t r i ( : t , t h e b a s i c problem w i t h t h e g e n e r a l l e v y l i m i t law today i s t h a t i t i s t o t a l l y u n r e l a t e d t o t h e f o u n d a t i o n a i d formula. (The e x c e p t i o n i s t h e l e v y l i m i t 1.aw f o r suburban Hennepin s c h o o l d i s t r i c t s , which i s r e l a t e d t o t h e formulo.) A s c h o o l d i s t r i c t whlch r e c e i v e s very l i t t l e s t a t e a i d p e r p u p i l u n i t under t h e formula must have a much h i g h e r p r o p e r t y t a x l e v y p e r p u p i l u n i t than a d i s t r i c t ~ h i c h r e c e i v e s a s i l b s t a n t i a l amount of a i d p e r p u p i l u n i t . Yet b o t h t y p e s o f d i s t r i c t s have t h e same puvil. u n i t l e v y limit. The e f f e c t is t h a t these d i s t r i c t s which a r e e n t i t l e d t o o n l y a s n a l l amount of s t a t e a i d a r e more r e s t r i c t e d i n t h e amount they can spend p e r p u p i l u n i t than a r e d i s t r i c t s which r e c e i v e l a r g e amounts of s t a t e a i d . The l a t t e r d i s t r i . c t s a r e , i n o t h e r vlords, much l e s s a£f e c t e d by tne limit

.

7.

Only P a r t 5 3 1 E c : ~ l i z a t i o n - - key ~ p o l i c y d e c i s i o n by t h e L e g i s l a t u r e i n each biennium i n updating t h e f o u n d a t i o n a i d formula i s t h e d e c i s i o n on t h e f o u n d a t i o n b a s e f i g u r e . The f o s ~ ~ d a t i obna s e f i g u r e o r i g i n a l l y was i n t e n d e d t o approximate t h e s t a t e w i d e median p u p i l ur.it o p e r a t i n g e x p e n d i t u r e . The amount of s t a t e a i d each d i s t r i c t r e c e i v e s then i s c a l c u l a t e d , u s i n g t h i s f i g u r e as a s t a r t i n g p o i n t Every - d i s t r i c t r e c e i v e s l e s s t h a n t h e f o u n d a t i o n b a s e f i g u r e ? w i t h t h e r e l a t i v e amount depending upon t h e l o c a l v a l u a t i o n . I n e f f e c t , e q u a l i z a t i o n t a k e s p l a c e up t o t h e f o u n d a t i o n b a s e f i g u r e . The c l o s e r t h i s f i g u r e i s t o t h e a c t u a l o p e r a t i n g e x p e n d i t u r e i n each d i s t r i c t the better the equalization. I n t h e y e a r s immediately f o l l o w i n g a d o p t i o n of t h e f o u n d a t i o n a i d formula t h e L e g i s l a t u r e r e l a t e d t h e f o u n d a t i o n b a s e v e r y c l o s e l y t o t h e median s t a t e w i d e o p e r a t i n g e x p e n d i t u r e . I n 1957-58, f o r example, t h e f o u n d a t i o n b a s e f i g u r e w a s $240 p e r p u p i l u n i t , w h i l e the a c t u a l median o p e r a t i n g e x p e n d i t u r e i n t h a t y e a r , s t a t e w i d e , was $2b6 S i n c e t h e n , however, t h e s i t u a t i o n has become p r o g r e s s i v e l y worse*

C u r r e n t l y , t h e foundation base f i g u r e i s only about 70% of t h e average o p e r a t i n g expenditure, and t h e percentage i s d e c l i n i n g annuelly. In 1968-69, e q u a l i z a t i o n was based on a f i g x r e of $355 per p u p i l tnit, while t h e a c t u a l median, s t a t e w i d e , i n t h a t y e a r was r e p o r t e d by tkc S t a t e Departlnent of Education t o b e $506. (Mor?over, t h e median was c a l c u l a t e d on a d i s t r i c t - b y d i s t r i c t b a s i s , without t a k i n g i n t o c o n s i d e r a t t c n d i f f e r e n c e s i n s i z e of d i s t r i c t s . The median a d j u s t e d f o r d i f f e r e n c e s i n s i z e of d i s t r i c t , would l i k e l y be more than $506. Each s c h o o l d i s t r i c t , r e g a r d l e s s of i t s w e a l t h , has t o f i n a n c e l o c a l l y a l l t h e expenditures above t h e foundation b a s e f i g u r e . I t would have been p o s s i b l e f o r t h e L e g i s l a t u r e t o i n c r e a s e t h e foundation base f i g u r e t o t h e median o p e r a t i n g e x p e n d i t u r e each biennium, without n e c e s s a r i l y providing more t o t a l s t a t e a i d than a c t u a l l y was appropriated. However, t h e r e have been marry f o r c e s working a g a i n s t i n c r e a s i n g t h i s f i g u r e . I n c r e a s i n g t h e foundation base f i g u r e without Fncreasing t h e t o t a l amount of st2t.e a i d means d i v e r t i n g s u b s t a r . t i a l d o l l a r s of s t a t e a i d from t h e higher-valuation d i s t r i c t s t o t h e lower-valuation d i s t r i c t s . R.

Property Tax B e l i e f Payments--The 1967 L e g i s l a t u r e approved far-reaching l e g i s l a t i o n f o r l o c a l government f i n a n c e . Efrery u n i t of l o c a l g 0 ~ ~ r T m e n t was a f f e c t e d by t h e 1967 Property Tax Reform and R e l i e f Act. The z c t imposes a 3% s t a t e s a l e s t a x . I t a l s o provides f o r t h r e e kinds of s t a t e payments t o l o c a l government. F i r s t , % of t h e r e c e i p t s from t h e s t a t e s a l e s t a x a r e dedicated d i r e c t l y t o c i t i e s , v i l l a ' g e s , unincorporated a r e a s ( t h a t i s , towns) and s c h o o l districts. Second, payments a t e provided t o a l l l o c a l goverr~ments, c i t i e s , v i l l a g e s , unincorporated a r e a s , school d i s t r i c t s , c o u n t i e s , and s p e c i a l d i s t r i c t s a s reimbursement f o r p r o p e r t y t a x r e l i e f g r a n t e d t o owners of c e r t a i n b u s i n e s s and farm proDerty. T h i r d , p a ~ e n t sa r e made t o a l l l o c a l governments a s reimbursement f c r property t a x r e l i e f g r a n t e d t o homeowners. I n the aggregate, an amount g r e a t e r than t h e t o t a l r e c e i p t s from t h e s t a t e s a l e s t a x i s paid a n a u a l l y t o l o c a l government under t h i s a c t . I n 1970, t h e payments a r e $46 million*f o r d i r e c t s a l e s t a x s h a r i n g , $80 m i l l i o n f o r replacement of b u s i n e s s and farm p e r s o n a l p r o p e r t y , and $106 m i l l i o n f o r homestead reimbursement, a t o t a l of $234 m i l l i o n . Estimates of s t a t e s a l e s t a x r e c e i p t s f o r 1970 a r e s l i g h t l y less than $200 m i l l i o n .

As w i t h t h e school a i d formula l e g i s l a t i o n of 1957 t h i s a c t r e p r e s e n t e d a m i l e s tone i n s t a t e - l o c a l f i s c a l r e l a t i o n s h i p s . Perhaps t h e o u t s t a n d i n g f e a t u r e of t h i s a c t , from a l o c a l government s t a n d p o i n t , is t h e new d i r e c t i o n e s t a b l i s h e d whereby t h e s t a t e a s s u r e s t o l o c a l government a s h a r e of s t a t e s a l e s t a x r e c e i p t s , whatever t h e s e r e c e i p t s happen t o b e * This means t h a t t h e revenue t o l o c a l government w i l l increa,ce autom a t i c a l l y a s t h e r e c e i p t s from t h e s t a t e s a l e s t a x i n c r e a s e . For Years l o c a l government had been i n urgent need of an a l t e r n a t i v e revenue source, with b u i l t - i n growth, t o t h e property t a x . The s t a t e s a l e s *Exclusive of a d d i t i o n a l payments to compensate for underpayments i n previous years.

t a x s h a r i n g i s n o t s u 5 j e c t t o r s a n ? r o ? r i n t i o n a-err hm gears. This is R v e r 7 important aiid v f t n l new d F r e c t t o r . f o r s t a t e l c c e l f i . ? c a l ~0li.c..

.

We have p a i d p a r t i c u l a r a t t e n t i o n t o t h e p r o v i s i o n s of t h e P r o p e r t y Tz:: Reform and R e l i e f Act because they a r e l i k e l y t o form t h e b a s i s f o r zny new d i r e c r i o n i n s t a t e - l o c a l f i s c a l p o l i c y and because, i n a d d i t i o n t o s t a t e s c h o o l a i d , t h e payments make up t h e l a r g e s t s t a t e payments t o l o c a l government. S p e c i f i c a l l y i n o u r a n a l y s i s we have found as f o l l o w s : P e r C a p i t a and P e r Census Child S a l e s Tax payments--The one-fourth of t h e s a l e s t a x r e c e i p t s i s d i s t r i b u t e d i n t h i s wanner: f i r s t , a p e r c a p i t a s h a r e i s set a s i d e f o r t h e t h r e e c i t i e s of t h e f i r s t c l a s s , Minneapolis, S t . P a u l and Duluth. Within each of t h e s e t h r e e c i t i e s t h e funds a r e s p l i t 2 / 3 f o r t h e c i t y government and 1 / 3 f o r t h e s c h o o l d i s t r i c t . Second, t h e b a l a n c e of t h e funds a r e si11-i~50-50 between a l l t h e o t h e r m u n i c i p a l i t i e s p l u s town governlnents and a l l t h e o t h e r s c h o o l d i s t r i c t s . The m u n i c i p a l i t i e s and tow2 governments s h a r e on a p e r c a p i t a b a s i s and t h e s c h o o l d i s t r i c t s , on a p e r census c h i l d b a s i s . A "census c h i l d " is e v e r y person between 6 and 1 6 , i n c l u s i v e , who r e s i d e s i n t h e s c h o o l d i s t r i c t , r e g a r d l e s s cf whether h e a t t e n d s ? u b l i c o r p r i v a t e school. k s t r a l g ! l t p e r c a p i t a d i s t r i b u t i o n f a i l s t o account f o r s u b s t a n t i a l d i f f e r e n c e % i n needs of d i f f e r e n t communities. I n 1967, a c c o r d i n g t o t h e Minnesota P u b l i c Examiner, mtmicipal e x ~ e n d i t u r e sp e r c a p i t a i n t h e s t a t e ' s l s r p e s t c i t i e s riveraped m i c e t h e aer c a o i t a e m e n d i t u r e s of t h e s m a l l e s t c i t i e s . The average f o r a l l m u n i c i p a l i t i e s i n t h e s t a t e was $74 p e r c a p i t a , w h i l e t h e f i g u r e i n Minneapolis and S t . P a u l was about $103 and f o r m u n i c i p a l i t i e s under 2,500 p o p u l a t i o n , t h e f i g u r e was $53.

Per' cevsus c h i l d a s a method of d i s t r i b u t i o n is i n a d e q u a t e because i t does n o t r e l a t e t o t h e numbers of p u p i l s e n r o l l e d i n s c h o o l . But more .important, t h e i n c l u s i o n of s c h o o l d i s t r i c t s i n d i r e c t s h a r i n g of t h e s t a t e s a l e s t a x i s an i m p l i c i t r e c o g n i t i o n of t h e shortcomings of t h e p r e s e n t f o u n d a t i o n a i d formula. Assuming, t h e r e f o r e , t h a t t h e p r e s e n t f o u n d a t i o n a i d formula needs changing, and i s changed, we cannot j u s t i f y a s e p a r a t e a i d payment of t h i s magnitude t o s c h o o l d i s t r i c t s . I f t h e f o u n d a t i o n a i d formula a c c u r a t e l y r e f l e c t s t h e d i f k e r e n c e s i n need and a b i l i t y t o pay from d i s t r i c t t o d i s t r i c t , such a s e p a r a t e a i d problem can only d i l u t e whatever e q u a l i z a t i o n i s i n t e n d e d i n t h e f o u n d a t i o n a i d formula. Under t h e p r e s e n t d i s t r i b u t i o n towns a r e t r e a t e d j u s t a s c i t i e s and v i l l a g e s , which assumes, i n c o r r e c t l y , t h a t t h e s e u n i n c o r p o r a t e d a r e a s have t h e same t y p e s of s c r v i c . e s t o f i n a n c e a s do c i t i e s and v i l l a e e s To t h e e x t e n t t h a t a l l u n i t s of government r e c e i v e a s h a r e , simply because they e x i s t , t h i s reduces t h e amounts t h a t can b e made a v a i l a b l e t o t h o s e u n i t s w i t h t h e g r e a t e s t need f o r t h e funds. 2.

_--

Farm -and-- Business _ P r g - e r t y Replacement--Certain

farm and b u s i n e s s p r o p e r t y , formerly t a x a b l e , h a s been made t a x exempt under t h e 1967 P r o p e r t y Tax Reform and R e l i e f A c t , The exemption a p p l i e d t o a l l farm l i v e s t o c k and machinery and t o a b u s i n e s s ' i n v e n t o r i e s o r

I

equipment, a s each business may choose. A l l j u r i s d i c t i o n s which levy property t a x e s ( m u > i c i p a l i t i e s , towns, c o u n t i e s , school d i s t r i c t s and s p e c i a l d i s t r i c t s ) a r e reimbursed from s t a t e funds f o r l o s s of revenue because of t h e property now exempt. The s t a t e paid approximately $57,300,000 i n 1968 and a g a i n i n 1969 f o r p e r s o n a l property replacement. During 1970 and a g a i n i n 1971 t h e payment w i l l b e approximately $80,000,000. These payments were intended t o b e n e u t r a l , merely reimbursing l o c a l government f o r t a x revenue they otherwise would have received. But t h i s i s n o t t h e case. Under t h e a c t t h e s t a t e payment t o each u n i t of governmat is a percentage of i t s c u r r e n t property t a x levy. I n e f f e c t , each u n i t of government i s allowed t o send t h e s t a t e a b i l l f o r p a r t of i t s l o c a l property t a x levy. There i s no l i m i t t o the amount t o be paid by the state i n future ,years. I t w i l l simply b e a percentage of t h e l o c a l levy. Moreover, t h a t percentage v a r i e s widely from community t o community (from zero t o 34% i n t h e metropolitan a r e a and from zero t o 65% s t a t e w i d e ) . The percentage i s based only on

the relationships Eetween the 1967 Zety on the now-tax-exempt property and the t o t a l levy i n that year. None of the changes i n Zoc a t i ~ nor value of $he now-tax-exempt property since t h a t year are r e f l e c t e d . Some communities r e c e i v e s u b s t a n t i a l amounts and w i l l continue, under p r e s e n t l a w , t o r e c e i v e w e n g r e a t e r amounts i n f u t u r e y e a r s , w h i l e o t h e r s r e c e i v e very l i t t l e . Put another wag,

each locaZ government can tax the s t a t e , without l i m i t , except that some local governments can apply a much higher rate t h m others. IJe do n o t q u a r r e l with t h e f a c t t h a t l o c a l governments needed t o be reimbursed f o r l o s s of revenue a t t h e t i m e t h e farm and business property was f i r s t made tax-exempt. Also, t h i s reimbursement i n t h e f i r s t y e a r s had t o be r e l a t e d t o t h e amount of: exempt p e r s o n a l property i n each community. Consequently, some received more than o t h e r s . But i t is unreasonable t o allow a permanent automatic e s c a l a t i o n of payments i n such a manner, w i t h each community's s h a r e dependent upon t h e l o c a t i o n and v a l u e of property b e f o r e i t was made tax-exempt

.

3.

Homestead Reimbursement--A t h i r d major p a r t of t h e 1967 Act provides t h a t t h e s t a t e w i l l reduce homestead taxes by paying l o c a l govern.merits f o r 35% of t h e f i r s t $714 of homestead property t a x , f o r purposes o t h e r than debt r e t i r e m e n t . (Actually, t h z law s t a t e s t h a t t h e c r e d i t s h a l l b e 35% of t h e non-debt t a x , with a maximum allowable c r e d i t of $250 per homestead. The $250 is 35% of $714.) The s t a t e payment t o l o c a l governments under t h i s p r o v i s i o n is approximately $106 m i l l i o n i n 1970. There a r e approximately 818,000 lromesteads i n t h e s t a t e . The t o t a l s t a t e payment, a s s m i n g t h e same number of homesteads, w i l l i n f u t u r e y e a r s approach a maximum annual payment of $205 m i l l i o n . Cecause t h e state payment does n o t cover t h e portion-of--the tax b i l l

f o r debt r e t i r e m e n t , state payments t o l o c a l governments with heavy - debt obligations a r e r e l a t i v e l y lower than t o o t h e r s . W e do not

b e l i e v e i t is e q u i t a b l e t o g i v e higher payments, p r o p o r t i o n a t e l y , debt: o b l i g a t i o n s , a t t h e expense of t o l o c a l governments with l ~ w o t h e r s , nor t o p e n a l i z e horneowr.ers i n conununit.ies w i t h heavy debt obligations. Furthermore, because of t h e way i n which t h e payments are made, lower income f a m i l i e s i n less expensive homes r e c e i v e t a l i c f mtc s l m l y , than do h i g h e r income f a m i l i e s i n more expensive homes.

Ye a l s o have s e r i o u s r e s e r v a t i o n s about t h e commitment, i n p r e s e n t law, t o double t h e t o t a l homestead c r e d i t i n f u t u r e y e a r s from $106 m i l l i o n t o approximately $205 m i l l i o n . The a d d i t i o n a l $100 m i l l i o n could be used much more e f f e c t i v e l y by t h e s t a t e i n o t h e r aLd programs. F i n a l l y , we q u e s t i o n g i v i n g a d d i t i o n a l a i d t o homeowners e do n o t b e l i e v e i t i s sound p u b l i c p o l i c y t o and n o t t o r e n t e r s . W s u b s i d f z e home ownership by an a d d i t i o n a l $100 m i l l i o n beyond t h e present level.

Our recommendations here b u i l d on t h e a c t i o n s of t h e 1967 L e g i s l a t u r e t o provize ~ n u n i c i p a lgovernments with a non-property source of revenue t o finance general municipal s e r v i c e s . We a r e s u g g e s t i ~ ~ag way t o i n c r e a s e s u t \ s t a n t i a l l y t h e t o t a l amount f o r m u n i c i p a l i t i e s . We a r e f u r t h e r proposing t h a t t h e revenue b e d i s t r f buted among m u n i c i p a l i t i e s i n a way which more accurately r e f l e c t s t h e i r d i f fare n t i a l need f o r funds. A*

Units t o Share

. -

1- W e recommend t h a t an e n t i r e one-fourth of t h e s t a t e s a l e s t a x r e c e i p t s b e dedicated t o c i t i e s , v i l l a g e s and county governments. The e f f e c t of t h i s recommendation would b e approximately t o double the t o t a l amount for mun i c i p a l government. For purposes of explanation, the one-f ourth of the s a l e s t a x r e c e i p t s could be c a l l e d t h e Municipal Aid Fund.

B.

2.

We recommend t h a t county governments, which now do not s h a r e (other than f o r the i n s i g n i f i c a n t mount f o r unorganized t e r r i t o r y ) r e c e i v e t h e amounts a t t ributrible t o unincorporated a r e a s (towns). unincorporated area.; no longer would s h a r e d i r e c t l y i n s t a t e s a l e s t a x payments.

3

We recommend t h a t school d i s t r i c t s , which now r e c e i v e approximately oneh a l f of the d i r e c t s a l e s t a x payments should r e c e i v e a l l t h e i r S t a t e a i d from an improved foundation a i d formula, a s reccmended elsewhere i n t h i s report. A d i r e c t s a l e s t a x payment t o school d i s t r i c t s d i s t r i b u t e d Outs i d e t h e s t a t e foundation a i d formula d i s t o r t s t h e e x t e n t of equa.tization which is iatended i n the formula.

Distribution 1. We recornlend t h a t , with c e r t a i n adjustments as o u t l i n e d below, t h e Cfunic i p a l Aid Fund be d i s t r i b u t e d t o each c i t y and v i l l a g e according t o t h e proportion w h k h its l o c a l l y - r a i s e d revenue b e a t s t o t h e t o t a l l o c a l l y r a i s e d revenue of a l l c i t i e s , v i l l a g e s and ucincorporated a r e a s .

..

We would accept the d e f i n i t i o n of l o c a l l y - r a i s e d revenue as used by U.S. Bureau of t h e Census, which includes revenue from a l l l o c a l taxes s p e c i a l assessments , l i c e n s e s , f e e s , permits, and s o f o r t h , b u t excl~1dj.ng r e c e i p t s from u t i l i t y operations, such as municipal water, municipal e l e c t r i c i t y and u.unicipa1 l i q u o r s t o r e s . Locally-raised revenue woulcl n o t i n c l u d e , e i t h e r , property ta r e l i e f payments f o r personal property replacement and homestead c r e d i t from t h e s t a t e t o t h e l o c a l i t y - County governments would s h a r e i n t h e Municipal Aid Fund by receiving t h e m o u n t s a t t r i b u t a b l e t o unincorporated areas. 2.

We recomme:ld t h a t t h e s t a t e Municipal M d Fund b e divided f i r s t between t h e seven-county Twin C i t i e s region and t h e r e s t of t h e s t a t e according t o t h e Proportion which t h e l o c a l l y - r a i s e d revenues of a l l c i t i e s , v i l lages and unincorporated oreas i n t h e region b e a r t o t h e t o t a l l o c a l l y r a i s e d revenues of a l l c i t i e s , v i l l a g e s and unincorporated a r e a s i n t h e state.

3.

Next, t o r e f l e c t d i f f e r e n c e s i n l o c a l t a x r e s o u r c e s and n a e d s , we reccmnend t h a t each c i t y ' s and v i l l r ; g e t s e n t i t l e m e n t i n t h e Twin C i t i e s r e g i o n be a d j u s t e d u s i n g two f a c t o r s , weighted e q u a l l y , i n a composite index. The f a c t o r s would b e : (1) Assessed v a l u a t i o n p e r c s p i t a , 3s e q u a l i z e d f o r d i f f c r e n c e s i n assessment p r a c t i c e s , and ( 2 ) indf v i d u a l a d j u s t e d g r o s s incone p e r dwelling u n i t , u s i n g a d j u s t e d g r o s s income from biinnesota income t a x forms. A m u n i . c i p a l i t y f s s h a r e of t h e fund would b e a d j u s t e d up o r dman depend-

ing upon whether i t s v a l u a t i o n p e r c a p i t a and income p e r d w e l l i n g , i p t h e a g g r e g a t e , were above o r below average f o r t h e e n t f r e r e g i o n . A below-average v a l u a t i o n o r iccome would c o n t r i b u t e t o a l a r g e r s h a r e , w h i l e an ahove average v a l u a t i o n o r income would c o n t r i b u t e t o a smaller s h a r e . (See Chart I i n Appendix.) We have not reviewed whether i t i s d e s i r a b l e t o r e f l e c t d i f f e r e n c e s i n a s s e s s e d v a l u a t i o n and income i n a p p o r t i o m e n t t o c i t i e s and v i l l a g e s o u t s t a t e . I t would b e p o s s i b l e t o d i s t r i b u t e t o each oz t h e 11 [email protected] r e g i o n s of t h e s t a t e , a s w e have recommended f o r t h e % i n C i t i e s r e g i o n , and then t o i n c r e a s e o r reduce each c i t y and v i l l a g e ' s e n t i t l e m e n t i n each o u t s t a t e r e g i o n a s we have recomaended f o r t h e Twin C i t i e s regior-• We have found i t extremely d i f f i c u l t t o o b t a i n a c c u r a t e i n f o r m a t i o n t h a t would e n a b l e us t o a n a l y z e t h e impact of t h e s e s p e c i f i c adjustment f a c e t o r s as proposed h e r e . Based on t h e i n f o r m a t i o n we were a b l e t o o b t a i n , they appear reasonable. Hawever, we want t o s t r e s s t h a t our suggested adjustments may n o t b e t h e only ones t o r e f l e c t d i f f e r e n c e s i n a b i l i t y to-pay and ef f c r t . A s a d d i t i o n a l i n £ormation becomes a v a i l a b l e , i t might be d e s i r a b l e t o review t h e s e proposed adjustments a s t o t h e i r o v e r a l l impact on v a r i o u s comnunities

.

We a l s ~r e c o g n i z e t h e problems of w r i t i n g a formu1.a i n t o law which may b e d i f f i c u l t t o change i n coming y e a r s as c o n d i t i o n s change. We would n o t b e a v e r s e t o charging t h e H e t r o p o l i t a n Council w i t h monitoring t h e o p e r a t i o n of t h e formula and p r e p a r i n g recommendations, as n e c e s s a r y , t o t h e L e g i s l a t u r e f o r changes i n d i s t r i b u t i o n of t h e funds t o municipali t i . e s i n t h e Trc-izl C i t i e s r e g i o n . If and a s any add-on non-property t a x e s a r e imposed a t t h e r e g i o n a l l e v e l i n t h e T ~ d nC i t i e s r e g i o n t h e same approach should b e followed f o r d i s t r i b u t i o n of t h o s e funds. '

F u r t h e r , we b e l i e v e i t i s d e s i r a b l e f o r t h e L e g i s l a t u r e t o r e q u i r e p e r t 0d-i.c review of al.1 d i s t r i b u t i o n f o m u l a s by an a p p r o p r i a t e arm of s t a t e government, perhaps t h e S t a t e Department of Taxation. (See pages 33-36 f o r more d e t a i l e d d i s c u s s f on of t h e s e recommendations 11.

School Finance

A.

Level of S t--.__ a t e Supxort--We __

recommend t h a t t h e L e g i s l a t u r e p r o v i d e s t a t e f i nancing of elementary and secondary e d u c a t i o n up t o t h e average p e r p u p i l u n i t o p e r a t i n g e x p e n d i t u r e i n each r e g i o n of t h e state. W e believe t h i s g o a l could be reached i n 1971. The o v e r a l l S t a t e - l o c a l t a x burden i n Minnesota need n o t n e c e s s a r i l y b e an i s s u e w i t h S t a t e f i n a n c i n g up t o t h e l e v e l of t h e average o p e r a t i n g expeni

d i t u r e s of t h e p u b l i c schools, To t h e e x t e n t the s t a t e i n c r e a s e s support f o r educaticn, tile m o u n t of l c - d l taxati.on needed f o r schools goes [email protected]**. I f a l l sr s u l s r a n t i a l l y a l l of t h e expenditures a r e financed by t h e s t a t e , the l o c a l school property tax l e y becones minimal. I n t h e year ending 2une 30, 1969, approxtmately $270 m i l l i o n i n property taxes was levied by school d i s t r i c t s t o finance operating expenditures. I f t h i s amocnt were. t o be financed by s t a t e t a x e s , t h e S t a t e L e g i s l a t u r e , a p p r o p r i a t e l y , would makg the policy decision on t h e o v e r a l l n i x of property, s a l e s , income, arid Perhaps even some new type of t a x , such as a value-added tax. A statewide m i l l r a t e of approximately 100 m i l l s would r a i s e $270 m i l l i o n , There now is no s t a t e m i l l r a t e . The s t a t e s a l e s t a x r a i s e d $195.5 m i l l i o n i n t h e year enr.!ing .June 30, 1970, and t h e s t a t e income t a x , $415.6, according t o p r c l h i n ary f i g u r e s f r m t h e Minnesota Department of Taxation. (See Pages 36-37 f o r more d e t a i l e d discussion of t h i s recommendation.) l?le question of a higher aggregate l e v e l or support (including both l o c a l and s t a t e funds) f o r elementary and secondary education is n o t faced in r e p o r t . Our recommendations a r e cozlcerned w i t h revenue d i s t r i b u t i o n * Wz a r e s p e c i f i c a l l y n e u t r a l on t h e question of whether t h e aggregate l e v e l of support should be increased f o r education o r f o r reducing support. C.

Foundation Aid Formula--We r e c m e n d a new approach t o t h e foundation a i d formula which will r e l a t e t o a c t u a l expenditures (not only a p o r t i o n , as a t present), which w i l l r e f l e c t mere important d i f f e r e n c e s ir, t h e c o s t s of educ a t i n g p u p i l s (not j u s t grade l e v e l s , a s a t p r e s e n t ) , and which wf 11 provide more a c c u r a t e measures of Local a b i l i t y t o pay and e f f o r t . Our recommendation w i l l be b a s i c a l l y t h e same, a t f u l l s t a t e support of t h e operating ex2enditures o r a t some lower l e v e l , except t h a t with f u l l s t a t e support i t w i l l be unnecessary t o apply s t e p s i n t h e formula which take i n t o account d i f f e r e n c e s i n l o c a l a b i l i t y t o pay and e f f o r t . We r e c o m ~ n dt h a t s t a t e a i d t o each school d i s t r i c t be determined e a s c n t i a l l Y i n t h e f o l l o t ~ i n gmanner (See a l s o Cb.art I1 i n appendix): Step 1: P l u l ~ i p l yt h e p u p i l u n i t expenditure (as c a l c u l a t e d below) by the number of p u p i l u n i t s (as c a l c u l a t e d beiow). Step 2 :

(Unnecessary with subs t a n t i a l l y f u l l s t a t e support. ) Multiply Lhe r e s u l t i n Step 1 by t h e o v e r a l l percentage of l o c a l school operating expenditures which t h e Legislacure decides w i l l be p a i d by t h e state.

Step 3:

(Unnecessary with s u b s t a n t i a l l y f u l l s t a t e support) Multiply t h e resuit i n Step 2 by a v a r i a b l e support index, as c a l c u l a t e d below, which e s s e n t i o l . 1 ~w i l l i n c r e a s e o r decrease a school d i s t r i c t ' s entitlement based on its taxpayers' a b i l l t y t o pay and l o c a l tax effort.

v

1.

-

_-__

-Unit Ex~enditure--The p u p i l u n i t expenditure, t h e base f i g u r e from s i c k ~t h e a c t u a l a i d t o each school d i s t r i c t i s determined, should b e 100 Per cent of t h e previous y e a r ' s average p e r p u p i l u n i t of operating expendi-ture i n each of t h e 11 economic regions of t h e s t a t e , adjusted

f o r c o s t of l i v i n g changes. The p r e s e n t foundation a i d formula is part i c u l a r l y d e f i c i e n t i n t h a t t h e foundation bzse f i g u r e r e p r e s e n t s c a l y about 70 per cent of o p e r a t i n g expenditures. This is n o t how much s t a t e a i d is paid; i t i s only t h e base from which a i d is determined. I n ck.f e c t , e q u a l i z a t i o n i s only taking p l a c e t o t h a t e x t e n t . With o u r prop o s a l , e q u a l i z a t i o n would cover t h e t o t a l o p e r a t i n g expenditure. I n a school d i s t r i c t where t h e average p u p i l u n i t expenditure is below t h e r e g i o n a l average, t h e b a s i s f o r payment ( t h a t is, t h e base f i g u r e from which a c t u a l a i d t o each school d i s t r i c t i s determined) should b e t h e d i s t r i c t ' s a c t u a l p u p i l u n i t o p e r a t i n g expenditure. However, such 2 d i s t r i c t should be e n t i t l e d t o a d d i t i o n a l funds up t o t h e average if i t can show a demonstrated need, perhaps by p e t i t i o n t o t h e S t a t e Board of Education. 2.

Number of P u p i l Unlts--We recommend t h a t t h e following d i f f e r e n c e s i n p u p i l s be r e f l e c t e d i n determination of t h e number of p u p i l u n i t s :

-- Pre-kindergarten -- Kindergarten

-- Grades 1-6 -- Grades 7-12 -- Socio-economic disadvantaged -- Other d i f f e r e n c e s now r e f l e c t e d

i n categorical appropriations t o each school d i s t r i c t ( p h y s i c a l l y handicapped, mentally handicapped, high school v o c a t i o n a l )

The weighting should b e based upon a c t u a l p e r p u p i l expenditure i n t h e previous y e a r i n each region. The S t a t e Depsrtaent of Education sh3uld be empowered t o o b t a i n t h e necessary information from school d i s t r i c t s t o develop t h e a p p r o p r i a t e weighting. lcformation w e have received ind i c a t e s i t i s reasonable t o g i v e a dcuble weiqhticg f o r s t u d e n t s i d e n t i f i e d a s socio-economic disadvantaged. Disadvantaged s t u d e n t s , a s def i m d i n T i t l e I of t h e f e d e r a l Elementary and Secondary Education Act, t ~ o u l d be a n a c c e p t a b l e d e f i n i t i o n . A double weighting means t h a t i f nn elcmentary s t u d e n t Irere given a p u p i l u n i t f a c t o r of ( I ) , then a disadvantaged s t u d e n t would b e given a p u p i l u n i t f a c t o r of ( 2 ) . In e f f e c t , a d i s t r i c t would r e c e i v e twice a s much s t a t e a i d f o r each s t u d e n t i d e n t i f i e d a s disadvantaged. The e x t r a weighting f o r disadvantaged p u p i l s should b e a d j u s t e d downward, a s necessary, t o o f f s e t f e d e r a l pa3ments t o school d i s t r i c t s under T i t l e I. An e a s i e r apnroach would be t o ded u c t from a d i s t r i c t ' s t o t a l s t a t e a i d allotment t h e amounts received under T i t l e I from t h e f e d e r a l government. However, w e understand t h i s i s not p o s s i b l e under p r e s e n t f e d e r a l law, r e g a r d l e s s of t h e e x t e n t t o which a s t a t e may be r e f l e c t i n g t h e c o s t s of educating disadvantaged youth i n t h e r e g u l a r foundation formula. (See Page 39 f o r f u r t h e r d i s c u s s i o n of t h i s recommendation.) I f t h e number of p u p i l u n i t s i s a d j u s t e d t o account f o r what expendi-t u r e s should be, r a t h e r than what they a c t u a l l y have been, t h e p u p i l u n i t expenditure i n t h e formula needs t o b e a d j u s t e d p r o p o r t i o n a t e l y , o r e l s e c e r t a i n school d i s t r i c t s w i l l not r e c e i v e t h e i r f u l l e n t i t l e n e n t of a i d . For example, t h e t o t a l number of p u p i l u n i t s could be increased a r t i f i c a l l y t o r e f l e c t what expenditures should b e i n educating disadvantaged youth. T h i s would tend t o decrease a r t i f i c a l l y t h e overa l l p u p i l u n i t expenditures on education. Consequently, a school

d i s t r i c t without disadvantaged youth would r e c e i v e l e s s s t a t e a i d unless the p u p i l u n i t expexditures were a d j u s t e d upward accordingly. a.

b

.

c.

-

I n t r a - d i s t r i c t Differences--School d i s t r i c t s w i t h more than one school should be requtred t o r e p o r t per p u p i l u n i t expenditures SY school, and e:ip l a i n d i f f e r e n c e s i n t h e expenditures, t o t h e exterltJ they e x i s t . This would enable t h e s t a t e t o determine t h e e x t e n t t o which funds are being d i s t r i b u t e d w i t h i n t h e s c h o o l system t o account f o r p u p i l d i f f e r e n c e s upon which s t a t e a i d is based. C a t e g o r i c a l Aids--Special c a t e g o r i c a l a i d programs can b e d i s c o n t i n ued t o t h e e x t e n t t h a t p u p i l u n i t s a r e weighted t o take account of t h e p u p i l d i f f e r e n c e s , which now are handled w i t h s p e c i a l a i d s , We b e l i e v e t h a t elmost a l l of t h e s p e c i a l a i d programs can be eliminat e d i n t h i s process. An exception might be t r a n s p o r t a t i o n , because c o s t s of t r a n s p o r t a t i o n vary s o widely i n t h e s t a t e . If t r a n s p o r t a t i o n i s t o b e continued a s a s e p a r a t e c a t e g o r i c a l a i d , t h e a i d should be made a v a i l a b l e t o a l l s c h o o l d i s t r i c t s which i n c u r t r a n s p o r t a t i o n c o s t s and n o t b e l i m i t e d t o those above a c e r t a i n geograp h i c a r e a , as a t p r e s e n t . Post-secondsrv Students--We b e l i e v e t h a t post-secondary a r e a voca---..-----t i o n a l s c h o o l s t u d e n t s , now included as p a r t of t h e p e r p u p i l ~ e j - g h t i n g , should b e removed f r k t h e r e g u l a r foundation a i d program. Aid f o r t h e s e s t u d e n t s should be handled by s e p a r a t e a p p r o p r i a t i o n s t o t h e t o s t-secondary i n s t i t u t i o n s .

I .

3.

Average Daily Membership--We recommend t h a t t h e a i d be c a l c u l a t e d on tile b a s i s of average d a i l y membership, which would n o t p e n a l i z e d i s t r i c t s whose s t u d e n t s have poorer attendance records o r d i s t r i c t s which choose a longer school y e a r with t h e r i s k of poorer attendance. The s t a t e would have t o e s t a b l i s h procedures t o a s s u r e tllat s t u d e n t s who a c t u a l l y have withdrawn from s c h o o l a r e n o t kept on the menbership r o l l s .

4

Variable Support Index--(Unnecessary w i t h subs t a n t i a l l y f u l l s t a t e supp o r t ) a I f the l e v e l of s t a t e support ccntinues a t s u b s t a n t i a l l y below t h e average c p e r a t i n g expenditures of t h e p u b l i c s c h o o l s , we recommend t h a t t h e mormt of a i d t o which a school d i s t r i c t is e n t i t l e d be a d j u s t e d by taking i n t o account t h r e e f a c t o r s : ( a ) The t o t a l n e t property t a x levy Per p u p i l u n i t , i n c l u d i n g s p e c i a l assessments and l e v i e s f o r a l l u n i t s of government w i t h i n t h e s c h o o l d i s t r i c t , (b) t h e assessed v a l u e Per p u p i l u n i t , as a d j u s t e d f o r d i f f e r e n c e s i n assessment p r a c t i c e s , and (c) a d j u s t e d i n d i v i d u a l g r o s s income per p u p i l u n i t , a s r e p o r t e d on s t a t e income t a x r e t u r n s . The t h r e e f a c t o r s should be merged i n a ~ m p o s i t e index which w i l l g i v e equal weight .to each. (See Chart I V i n Appendix. ) A d i s t r i c t ' s a i d e n t i t l e m e n t would be i n c r e a s e d o r decreased depending upon whether t h e levy p e r p u p i l u n i t , v a l u a t i o n per p u ~ i ul n i t and income p e r p u p i l u n i t were above o r below t h e r e g i o n a l average Per p u p i l u n i t . F a c t o r s which would c o n t r i b u t e t o an i n c r e a s e i n t h e s t a t e a i d e n t i t l e m e n t would b e an above average l e v y , a below average v a l u a t i o n and a below average income. ~t i s important t o recognize t h a t w i t h t h e v a r i a b l e support index a school d i s t r i c t ' s e n t i t l e m e n t conceivably could be g r e a t e r than t h e average pupil. u n i t expenditure, a d j u s t e d f o r c o s t of l i v i n g changes. We b e l i e v e t h a t , i n no e v e n t , should a school d i s t r i c t r e c e i v e more than t h e r e g i o n a l p u p i l u n i t expenditure, a d j u s t e d f o r Cost of l i v i n g changes.

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We have found i t extremely d i f f i c u l t t o o b t a i n a c c u r a t e i n f o m . t i o n t h a t would enable us t o analyze t h e impact of t h e s e s p e c i f i c adjusgment fatt o r s a s proposed h e r e . Based on t h e information we were able t o o b t a i n , they appear reasonable. However, we want t o stress t h a t our suggested adjustments may not be t h e only ones t o r e f l e c t d i f f e r e n c e s i n e b i l i t y to-pay and e f f o r t . A s a d d i t i o n a l information becomes a v a i l a b i e , i t might be d e s i r a b l e t o review t h e s e proposed a d j w t m e n t s as t o t h e i r o v e r a l l impact on v a r i o u s communities. 5.

Local L e v Authority--We recommend t h a t t h e L e g i s l a t u r e d i s c o n t i n u e c u r r e n t p r a c t i c e of p r e s c r i b i n g d i f f e r e n t k i n d s of l e v y l i m i t s f o r d i f f e r e n t school d i s t r i c t s . A-similar r e s t r a i n t should be imposed e q u a l l y on a l l s c h o a l d i s t r i c t s . The l i m i t should n o t b e imposed i n such a manner a s t o b e more s e v e r e on t h o s e school d i s t r i c t s which r e c e i v e t h e l e a s t amount of s t a t e a i d , a s c u r r e n t l y is t h e case. We recognize and r e s p e c t t h e s t r o n g f e e l i n g of l o c a l s c h o o l d i s t r i c t s t o be allowed t o spend a t what l e v e l they d e s i r e . A t t h e same t i m e w e recognize th2 need, from a s t a t e w i d e s t a n d p o i n t , t o keep expenditures i n l i n e , both a s t o t o t a l and a s t o d i f f e r e n c e s from d i s t r i c t t o d i s t r i c t , and t o develop incentives f o r b e t t e r u t i l i z a t i o n of d o l l a r s . W e rQcSma mend an approach t o accomplish b o t h o b j e c t i v e s . We recommend t h a t t h e L e g i s l a t u r e n o t impose any d i r e c t levy l i m i t 0-n any l o c a l school board. I n s t e a d , t h e Leglslacrlrc should provide an inc e n t i v e f o r s c h o o l boards n o t t o levy s u b s t z n t i a l l y more than o t h e r s . To accomplish t h i s o b j e c t i v e , w e recommend a s follows: I f a school d i s t r i c t chooses t o levy l o c a l t a x e s which, i n cornbinaCion with s t a t e a i d , produce a p e r p u p i l u n i t o p e r a t i n g e x p e n d i t u r e s c b s t m t i a l l y above t h e previous y e a r ' s r e g i o n a l o r s t a t e w i d e average Per p u p i l u n t t e q e n d i t u r e ( a d j u s t e d f o r c o s t of l i v i n g changes) , whichever i s b i g h e r , a school d i s t r i c t ' s s t a t e a i d should be reduced a c c o r d i n g l ~ . We do n o t know e x a c t l y a t what p o i n t above t h e average e x p e n d i t u r e p e r p u p i l u n i t s t a t e a i d sllould begin t o be reduced o r a t what r a t e t h e r e d u c t i o n should t a k e place. Perhaps t h e L e g i s l a t u r e w i l l have t o experiment w i t h some f i p u r c s , determined ,rare o r l e s s " a r b i t r z r L i y " , i n t h e f i r s t few y e a r s . It would n o t apyear unreasonable t o us t o a l l m a school d i s t r i c t t o have a p u p i l u n i t expenditure up t o 10% above t h e r e g i o n a l o r s t a t e w i d e average ( a d j u s t e d f o r c o s t of l i v i n g changes), whichever is h i g h e r , b e f o r e i t begins t o l o s e s t a t e a i d . This would mean, f o r example, t h a t i f t h e average expenditure were $600 p e r PIP^^ u n i t , t h e school d i s t r i c t could levy an amount s u f f i c i e n t i n combination with s t a t e a i d , t o spend $660 p e r p u p i l u n i t b e f o r e any r e d u c t i o n i n s t a t e a i d would t a k e p l a c e . It would a l s o n o t appear unreasonable t o us t o provide a r e d u c t i o n of 50 c e n t s i n s t a t e a i d f o r every d 0 l l . a ~ of expenditure above t h i s l e v e l . Continuing t h e example above, assume a d i s t r i c t d e s i r e d t o i n c r e a s e i t s p u p i l u n i t expenditures t o $700, which would be $40 above t h e p o i n t a t which a r e d u c t i o n i n s t a t e a j d l ~ o u l dbegin. blithout a r e d u c t i o n i n s t a t e a i d , t h e d i s t r i c t would ~ i l n p ll e ~ ~ yan a d d i t i o n a l $40 p e r p u p i l u n i t l o c a l l y . But because s t a t e a i d would be reduced by 50 c e n t s f o r every d o l l a r of a d d i t i c n a l t h i s means s t a t e a i d would b e reduced by a t o t a l of per P u p i l u n i t - Consequently, t h e s c h o o l d i s t r i c t would have t o levy l o c a l l y an a d d i - t i o n a l $60 per p u p i l u n i t t o f i n a n c e an a d d i t i o n a l $40 Of This proposal is workable a t f u l l o r p a r t i a l s t a t e support of t h e previous y e a r t s average p u p i l u n i t o p e r a t i n g e x p e n d i t u r e * (See Pages 39-42 f o r more d e t a i l e d d i s c u s s i o n of t h i s recommendation.)

6 - C a p i t a l E y W ? n d f t g ~ ~ ~ - A l . t owuhr r e c o m e n d e t i o n on t h e b a s i c school aid ram ) r n ~ , e xc~ + a + o s i r l shnrilr! formula covers only op-t+bp exr,endqpr,rme

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a l s o be provided f o r a pottion of c a p i t a l expenditures. Because of the uneven timing of c a p i t a l expenditures from d i s t r i c t t o d i s t x f c t , we recommend t h a t s t a t e a i d f o r t h i s purpose be provided i n a miparage grant program and not be integrated with t h e b a s i c school aid f0:?mxlsl The S t a t e Department of Education should b e required to obtain pa inventory of investment i n buildings by school d i s t r i c t e througtDaut t h e e t a t e , adjusted f o r obsolescence, and update the inventory d l y . Perhaps d o l l a r s f o r c a p i t a l expenditures could be appropriated Ccb t h e S t a t e Department of Edusatioa f o r elementary and secondary schaa%a. The Department could apportion the construction funds based on demonstrated money needs of various d i s t r i c t s .

9

Supvlementary Aide-It should not be necessary t o d i s t r i b u t e azky o#@r e t a t e a i d s t o school d i s t r i c t s f o r operating expenditures, outrZds the b a i c formula a s we have proposed. The s t a t e d o l l a r s now us& far these supplementary a i d s should be used t o help finance t h e b a s i c formula. SuppLementary payments only serve to d i e t o r t t h e equarieation accomplished i n t h e regular formula. Supplementary a i d s t b be d%&continued should include t h e d i s t r i c t ealee tax sharing f o r s-1 d i e t r i c t s and a i d s paid t o school d i s t r i c t s f o r t a c o n i t e prapeSW or . excessive r a i l r o a d , a i r p o r t o r o t h e r property-tax-exempt land i f t the d i s t r i c t . I f some other form of general school a i d , such a s f e d e r a l impacted a r e a a i d , is p d d t o a school d i s t r i c t , t h a t d i s t r i c t ' s state a i d e g t i t l m e n t should be reduced by t h a t umount. 8.

111.

Educational Obiectivee--Each l o c a l school board needs t o receive, from i t s i n s t r u c t i o n a l s t a f f , an annual report of t h e educatllonal objectives of t h e school system and t h e extent to which those objectives were reached during the year i n each scbot, using measurements a s determined by t h e i n s t r u c f i o n a l s t a f f , W e recammend t h a t such reports be required and t h a t copies be submftted t o t h e S t a t e Department of Education.

Provertv Tax Relief Pamengs A.

Replacement f o r P r o ~ e r t vMade Exempt

W e reconmend as follows: 1. The Legislature ehould place a c e i l i n g a t the present $80 million l e v e l , on t h e current d i s t r i b u t i o n of payment8 f o r farm and business property made exempt. No u n i t of government should receive more i n f u t u r e years f o r replacement of exempt property than i t now receives. 2-

The s t a t e revenue which o t h e w i s e would be needed i f i f u t u r e years t o finance higher reimbursement pa;ymeats f o r exempt property ( t h e 3screas6 was $22 million between 1969 and 1970) should be used instead t o help finance an impreved school a i d formula. This would o f f s e t t h e l o s s i n

s t a t e payments t o echo01 d i s t r i c t s under our previous recommendation t h a t t h e d i r e c t s a l e s tax s h a r e which 'now goes t o school d i s t r i c t s b e channeled i n t o t h e Municipal Aid Fund.

3.

As 1967 recedes f a r t h e r i n t o t h e p a s t , t h e d i s t r i b u t i o n of t h e $80 m i l l i o n w i l l become less and l e s s r e p r e s e n t a t i v e of t h e a c t u a l l o c a t i o n and value of exempt property. l'he L e g i s l a t u r e should g r a d u a l l y change t h e method by which t h e $80 m i l l i o n is d i s t r i b u t e d t o l o c a l government i n l i n e w i t h o t h e r recammendations i n t h i s r e p o r t . (See Page 42 f o r a d d i t i o n a l d i s c u s s i o n of t h e s e recommendations.)

B.

Homestead Reimbursement We recommend a s follows:

1. The s t a t e should keep the homestead c r e d i t reimbursement payment a t i t s p r e s e n t l e v e l of $106 m i l l i o n and n o t d i s t r i b u t e an a d d i t i o n a l $100 m i l l i o n i n homestead c r e d i t s i n f u t u r e y e a r s , as i t i s p r e s e n t l y conanitted t o do. The formula f o r d i s t r i b u t i o n of t h e $106 m i l l i o n should b e changed t o provide more immediate, continued r e l i e f f o r lower income homeowners. This can be accomplished by changiqg t h e formula from 35X of t h e f i r s t $714 ( f o r non-debt purposes) t o 56% of t h e f i r s t $250 of t h e homestead t a x ( f o r both debt and non-debt purposes). Such a c r e d i t could be given t o a l l homesteads i n Minnesota without exceeding t h e p r e s e n t $106 m i l l i o n . I n f a c t , i t is p o s s i b l e t h a t i n t h e f i r s t few years t h e percentage could exceed 50% of t h e f i r s t $250 without i n c r e a s i n g t h e s t a t e ' s o b l i g a t i o n beyond $106 m i l l i o n , because t h e r e a r e a number of lower-valued homesteads which do n o t have a g r o s s t a x of $250. 3.

The a d d i t i o n a l $100 m i l l i o n , r a t h e r than going f o r homestead c r e d i t , should be used t o h e l p f i n a n c e i n c r e a s e d s t a t e s u p p o r t of e d u c a t i o n , which w i l l reduce t h e need f o r l o c a l property t a x t o f i n a n c e school districts.

4.

I f f u r t h e r homestead t a x c r e d i t s a r e d e s i r a b l e , they should b e handled through c r e d i t s o r deductions on t n e s t a t e income t a x , as p r e s e n t l y provided f o r r e n t e r s and s e n i o r c i t i z e n s .

(See Pages 42-43 f o r a d d i t i o n a l d i s c u s s i o n of t h e s e recommendations) Federal Revenue D i s t r i b u t i o n F e d e r a l revenues have become Pncreasingly important i n r e c e n t y e a r s a s a major component of t h e s t a t e - l o c a l I i s c a l system. I n f a c t , i t might b e b e t t e r t o ref e r t o the system as t h e f e d e r a l - s t a t e - l o c a l f i s c a l system. I n t h e y e a r ending June 30, 1957, t o t a l f e d e r a l revenues provided t o s t a t e and l o c a l governments i n Minnesota was $89 m i l l i o n . I n t h e y e a r ending June 30, 1968 t h e f i g u r e had grown t o $365 m i l l i o n , according t o the Minnesota P u b l i c Examiner. ( ~ v e nt h i s amount is emall r e l a t i v e t o t a z a l o u t l a y s of f e d e r a l d o l l a r s i n Minnes o t a f o r all, purposes, i n c l u d i n g s o c i a l s e c u r i t y payments, s a l a r i e s f o r f e d e r a l employees working i n Minnesota, and s o f o r t h . I n t h e y e a r ending June 30, 1968,

t h a t f i g u r e t o t a l e d $3.1 b i l l i o n i n Minnesota, according t o a r e p o r t prepared by the Office of Economic Opportunity .) The f e d e r a l government has about 400 separate a i d programs through which its grants a r e made. We have had extensive discussions with f e d e r a l , s t a t e and l o c a l o f f i c i a l s who a r e intimately involved with the grant-in-aid system. We have concluded t h a t a key problem with the system i s t h a t given the t i g h t r e q u i r a e n t s as t o how funds a r e t o be handled decision-making i s fragmented among a number of d i f f e r e n t agencies, which severely r e s t r i c t s t h e f l e x i b i l i t y of general policy-makers a t the s t a t e and l o c a l level. Further, there is cons i d e r a b l e overlapping among d i f f e r e n t a i d programs administered by d i f f e r e n t agencies f o r e s s e n t i a l l y the same purposes.

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Same beginning s t e p s have been taken t o improve the system by giving s t a t e government a g r e a t e r r o l e i n s e t t i n g p r i o r i t i e s and by packaging a i d programs i n block grants. But forces t h a t do not want general government t o exercise policy d i s c r e t i o n and t h a t have benefited from c e r t a i n narrow g r a n t programs a r e even f i g h t i n g these beginning s t e p s

.

I n an attempt t o broaden the focus of the f e d e r a l grant-in-aid system, an e n t i r e l y new approach i s now under consideration an approach which would not replace That approach is c a l l e d general b u t would' supplement c a t e g o r i c a l grants-in-aid. f e d e r a l revenue sharing.

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A number of proposals now a r e before Congress t o dedicate a c e r t a i n percentage

of f e d e r a l taxes d i r e c t l y t o the s t a t e s and l o c a l gwernments fox general Purposes. There appears t o be broad b i - p a r t i s a n support f o r the idea. The specif i c plan has y e t t o be agreed upon. Among the iesuea are: How much authority should be given t o s t a t e governments i n d i s t r i b u t i n g funds; what portion of the funds should be guaranteed t o l o c a l governments ; what l o c a l gwernments should be e l i g i b l e t o share, and what formula t o use i n determining each l o c a l government's share. Federal revenues increase a t a r a t e of $15-20 b i l l i o n a year, without any increase i n tax r a t e s , which is a much b e t t e r growth revenue source than those presently a v a i l a b l e t o s t a t e s and l o c a l governments. A.

S t a t e I n i t i a t i v e on Categorical Grants-in-Aid--We support and urge Congress i o n a l approval of proposals t o consolidate grants-in-aid on a broad scale. And we urge t h a t Congress r e s i s t proposals t o re-fragment grants-in-aid where consolidation has occurred, such a s i n criminal j u s t i c e and h e a l t h planning. But equally *portant, we believe i t is not necessary f o r IUnnesota t o wait f o r f u r t h e r f e d e r a l a c t i o n t o improve t h e d i s t r i b u t i o n of c a t e g o r i c a l grantin-aid funds within t h e s t a t e . The s t a t e i t s e l f ' s h o u l d exercise every opportunity t o take i n i t i a t i v e , because f e d e r a l changes a r e l i k e l y t o be slow. Accordingly, we recommend as follows : 1. The Legislature should i n s t r u c t the regional (such a s the Metropolitan Council) and s t a t e agencies which now a r e charged with review of f e d e r a l grant applications (under regulations of the f e d e r a l Bureau of the Budget) t o a t t a c h p r i o r i t i e s f o r funding of applications, as w e l l as t o review applications f o r conformance t o regional o r s t a t e planning. The f e d e r a l government has no way t o make an e f f e c t i v e judgment on t h e r e l a t i v e needs

of one community a g a i n s t another. This e v a l u a t i o n only can take p l a c e w i t h i n t h e s t a r e and the region. Even though f e d e r a l r e g u l a t i o n s may n o t r e q u i r e a statement a s t o p r i o r i t i e s , i t i s l i k e l y t h a t f e d e r a l agencies .could n o t escape taking t h e recommendations very s e r i o u s l y , i f n o t accepting them. Such procedures might w e l l avoid a r e p e a t of d e c i s i o n s such as occurred r e c e n t l y on a sewage g r a n t i n the Twin C i t i e s a r e a . The g r a n t w a s awarded t o a community with a s u b s t a n t i a l amount of l o c a l t a x a b l e v a l u e a t t h e same time another g r a n t was being r e j e c t e d f o r another community, one with much l e s s l o c a l t a x a b l e value. The L e g i s l a t u r e a l s o should i n s t r u c t t h e r e g i o n a l and s t a t e agencies t o prepare and publish r u l e s of procedure f o r recommendit~gp r i o r i t i e s . A l though t h e i r own p l a n s f o r r e g i o n a l o r s t a t e developnent may be incomp l e t e , t h e i r g u i d e l i n e s on p r i o r i t i e s would b e based on more information than would b e a v a i l a b l e t o t h e f e d e r a l government.

B.

2.

To a s s u r e t h a t s t a t e and r e g i o n a l agencies f u l l y u t i l i z e t h e p o t e n t i a l of "packaging" g r a n t a p p l i c a t i o n s t o t h e f e d e r a l government, even where gratlts-in-aid have n o t been o f f i c i a l l y consolidated, w e recommend t h a t t h e L e g i s l a t u r e r e q u i r e t h a t each g r a n t a p p l i c a t i o n by a s t a t e o r reg i o n a l agency, when submitted f o r review b e f o r e t r a n s m i t t a l t o Washington, c a r r y with i t a statement on t h e e x t e n t t o which o t h e r agencies were cons u l t e d on t h e a p p l i c a t i o n f o r p o s s i b l e c o n f l i c t s and t h e p o s s i b i l i t y of combining t h e a p p l i c a t i o n with o t h e r s having s i m i l a r goals.

3.

The L e g i s l a t u r e should r e q u i r e t h e a p p r o p r i a t e s t a t e agency, perhaps t h e S t a t e Planning Agency o r t h e Minnesota P u b l i c Examiner, t o prepare an annual r e p o r t on f e d e r a l g r a n t s t o every i n d i v i d u a l u n i t of government and agency i n t h e s t a t e . Some f e d e r a l a i d s a r e d i s t r i b u t e d f i r s t t o t h e s t a t e and then t o l o c a l u n i t s of government. Others go d i r e c t l y t o the l o c a l u n i t s of government. It c u r r e n t l y i s impossible t o know how much f e d e r a l a i d goes t o which u n i t s of government f o r what purposes.

Federal Revenue Sharina--We support and u r g e Congressional approval of federa l revenue s h a r i n g w i t h s t a t e s and g e n e r a l u n i t s of l o c a l government. With revenue s h a r i n g , g e n e r a l u n i t s of l o c a l government w i l l b e making choices among competing programs, which produces more i n c e n t i v e s f o r economy than do categorical-type aids which a r e earmarked f o r only one f u n c t i o n , u s u a l l y narrowly defined. Moreover, revenue sharing r e p r e s e n t s an u r g e n t l y needed source of revenue f o r hard-pressed s t a t e s and l o c e l government. Based on our review of t h e v a r i o u s p l a n s f o r revenue-sharing, we reconmend a s follows:

1. We recommend t h a t a s u b s t a n t i a l p o r t i o n of t h e d o l l a r s f o r revenue-shari n g be guaranteed f o r l o c a l government, even though t h e funds might be channeled through s t a t e government. This i s kfiown as a "mandatory p a s s -through. " 2.

W e recommend, however, t h a t t h e d e c i s i o n s as t o how t h e "pass-through" s h a r e should b e apportioned among t h e v a r i o u s l e v e l s and u n i t s of government below t h e s t a t e be l e f t t o s t a t e d i s c r e t i o n because of wide d i f f e r ences i n r e s p o n s f b i l i t y of l o c a l government from s t a t e t o s t a t e . This is i n l i n e with1 our earlier p o l i c y recommendations t h a t t h e L e g i s l a t u r e must make t h e b a s i c revenue a l l o c a t i o n d e c i s i o n s f o r s t a t e and l o c a l government. The federal i n t e r e s t should b e s a t i s f i e d if t h e r e is a

guaranteed and s u b s t a n t i a l pass through t o l o c a l gaverrunea? as n e c e s s a r y t o a s s u r e adequate a t t e n t i o n t o urban problems. S t a t e s could b e r e q u i r e d t o r e p o r t t o t h e f e d e r a l governn;ent a n n u a l l y on how fun& were d i s t r i b u t e d t u l o c a l government t o meet urban problems.

3.

I f t h e f e d e r a l government i s t o s p e c i f y trhat l o c a l u n i t s of government a s most p r o p o s a l s wculd do we b e l i e v e d i r e c t s h a r i n g are t o share should h e l i m i t e d t o i n c o r p o r a t e d g e n e r a l u n i t s of g o v e m a e n t . I f t h e f e d e r a l plan provides t h a t unincorporated a r e a s a r e t o s h a r e d i r e c t l y , a s proposed i n some p l a n s , we b e l i e v e t h a t o t h e r s t a t e payments t o uninc o r p o r a t e d a r e a s s h o u l d b e a d j u s t e d t o o f f s e t t h e f e d e r a l payments. School d i s t r i c t s s h o u l d n o t s h a r e d i r e c t l y , b u t a s i g n i f i c a n t p o r t i o n of t h e d o l l a r s which a r e n o t d i r e c t l y passed through t o l o c a l government s h o u l d b e used by t h e s t a t e f o r e l e m e n t a ~ yand secondary e d u c a t i o n .

4.

We have recommended e a r l i e r t h a t t h e d i s t r i b u t i o n of s t a t e s a l e s t a x funds t o m u n i c i p a l government b e based on l o c a l l y - r a i s e d revenue a s a p e r c e n t of t o t a l l o c a l l y - r a i s e d revenue, w i t h adjustments made f o r l o c a l a b i l i t y t o pay. One f e d e r a l revenue-sharing p l a n under s e r i o u s cons iciera t i o n proposes t h a t t h e funds be d i s t r i b u t e d t o each u n i t of governmetlt based on i t s l o c a l l y - r a i s e d revenue a s a p e r c e n t of t o t a l l o c a l l y - r a i s e d revenue f o r a l l t h e u n i t s , b u t w i t h no a d j u s t m e n t s made f o r l o c a l a b i l i t y t o pay. Without t h e a d j u s t m e n t s , some u n i t s of goverxment, w i t h o u t s u b s t a n t i a l need f o r f u n d s , would r e c e i v e much more t h a n o t h e r u n i t s of government where needs a r e g r e a t e r . Some suburban a r e a s , p a r t i c ~ l a r l ~ , would b e short-changed. We b e l i e v e t h a t , i f t h e l o c a l l y - r a i s e d revenue approach i s t o be used i n t h e f e d e r a l s h a r i n g formula, adjustments b e p e r m i t t e d , a t l e a s t on a s t a t e o p t i o n b a s i s , f o r d i f f e r e n c e s i n a b i l i t y t o pay.

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( S e w p a g e 43 f o r a d d i t i o n a l d i s c u s s i o n of t h e s e recommendations.) C o n s t i t u t i o n a l Amendnent on Tax-Exempt P r o p e r t y A cons t i t a t i o n a l amendment g i v i n g t h e S t a t e Legis l a t u r e b r o a d e r a u t h o r i t y t o determine what s h ~ l cl o n s t i t u t e tax-exempt p r o p e r t y w i l l b e v o t e d on i n t h e Novem-

b e r 1970 g e n e r a l e l e c t i o n . The cons t i t u t i o n ncw p r o v i d e s a s f 0110~s : " P u b l i c h r y i n g grounds, p u b l i c s c h o o l houses, p u b l i c h o s p i t a l s , academies, c o l l e g e s , u ~ ~ i v e r s i t i,e and s a l l seminaries of l e a r n i n g , a l l c h u r c l ~ e s , church p r o p e r t y and houses of worship, i n s t i t u t i o n s of p u r e l y p u b l i c c h a r i t y , and p u b l i c p r o p e r t y used e x c l u s i v e l y f o r any p u b l i c purposes s h a l l b e exempt from t a x a t i o n . " I1 The L e g i s l a t u r e The proposed amendment would add t h e f o l l o w i n g language: by law d e f i n e o r l i m i t t h e p r o p e r t y exempt under t h i s s e c t i o n , o t h e r t h a n churc h e s , houses of worship, and p r o p e r t y s o l e l y used f o r e d u c a t i o n a l purposes by academies, c o l l e g e s , u n i v e r s i t i e s , and s e n i ~ l a r i e sof l e a r n i n g . I 1

The amount of tax-exempt p r o p e r t y v a r i e s c o n s i d e r a b l y from connnunity t o community, having major e f f e c t on l o c a l t a x b a s e i n some l o c a l i t i e s and n e g l i g i b l e e f f e c t i n others. We endorse t h e c o n s t i t u t i o n a l amendment as opening p o s s i b l e a d d i t i o n a l revenue e have n o t reviewed t h e q u e s t i o n of what t y p e s s o u r c e s f o r l o c a l governments. W of p r o p e r t y t h e L e g i s l a t u r e s h o u l d remove from tax-exempt s t a t u s should t h i s amendment b e approved.

DISCUSSION OF RECOtC.iENGAT~O~1s j'rl rt:

I.,%at ape t h e inpi t :=;inns c f &,vici:::!,t +i:e responsib? lied fcr m i s i n g revePll.r6z t l ~ cZeveZ of gousrnment L)~I ends h p spendixg it?

This q u e s t i o n a r i s e s a t whatever l e v e l of government revenue d i s t r i b u t i o n t&.~s place. Local g0vernner.t o f f i c j . a l s tend t o f e e l . t h a t c o n t r o l over o p e r a t i o n a l decisI n n s w i l l be assumed b y t h e h i g h e r l e v e l or' government which provides t h e f u n d s * W f i c i a l s a t t h e h i g h e r l e v e l of government tend t o f e e l f i a t I ~ c a oi f f i c i a l s woa't b e a s c a r e f u l i n spending t h e money they g e t from o t h e r s o u r c e s a s they a r e w i t h money they r a i s e d i r e c t 1.y from l o c a l taxpayers. Both t h e s t a t e and f z d e r a l gcvernment, of c c u r s e , already provide s u b s t a n t i a l funds f o r lower l e v e l s of government. The Minnesota Taxpayers A s s o c i a t i o n r e p e r t e a i n i t s f i s c a l review of t h e 1969 L e g i s l a t u r e t h a t n e a r l y 52% of a l l s t a t e expendit u r e s i r , t h e 1969 bieanj-ilm w i l l b e d i s t r i b u t e d t o l o c a l gWer-ent. W e b e l i e v e a s h i f t i n t h e s t a t e - l o c a l f i s c a l p o l i c y under which t h e L e g i s l a t u r f : a i s t r j . b u t e s more revenuc b u t l e s s l o c a l revenue-raising a u t h o r i t y t o l o c a l governzent i s d e s i r a b l e f o r t h e s e reasons :

*

The s t a t e has b e t t e r revenue s o u r c e s , w i t h b u i l t - i n growth, than do l o c a l govermlents. The s t a t e s z l e s and income taxes a r e f a r more responsive t o changes .in t h e economy than t h e p r o p e r t y t a x , which i s t h e major s o u r c e of l o c a l revenuc-raising a u t h c r i t y given hy t h e s t a t e t o l o c a l governxTents. A grant-in-aid

s y s t e n can b e much more a d a p t a b l e t o d i f f e r e n t i a l needs f o r funds than the a c c i d e n r a l d i s t r i b u t i o n of t a x base among d i f f e r e n t ~ommlmities.

*

" *

*

Locally imposed t a x e s , p a r t i c u l a r l y i n urban a r e a s w i t h many independent u n i t s of government, such a s t h e w i n C i t i e s a r e a , terlcl t o b e n e f i t t h e few c0mmllniti.e~wkicll happen t o have t h e t a x r e s o u r c e s l o c a t e d within their bard e r s a t t i i ~C::pense of o t h e r s . Furtllzrynore, a fragmented ttix system can Con*. t r i b u t e t o ansound developmental d e c i s i o l ~ s . Cornunities a r e l i k e l y t o g i v e more e ~ c o u r a g i ~ n @tio> t those kinds of development which produce good t a x b a s e , rejiardless oi ~ t h jmplications ~ r of such d e c i s i o a s , s ~ c :a s~ impact on land u s e S t a t e revenue d i s t r i b u t l o n can c o n t r i b u t e t o a more a n i form l e v e l of s e l ~ r i ~ e i n those f u n c t i o n s f o r which i t is d e s i r a b l e , from a s t a t e w i d e s tand?dn;, t.0 work toward unif orinity , f o r exanple, e.Lmentary and aecocdary education. more unifonn d i s t r - i b u t i o n of revenues among u n i t s of l o c a l government t h e s t a t e can be a s f g n f L i c a n t f a c t o r i n producing economies. L.?-ien there wide d i f f e r e n c e s i n tax r e s o u r c e s a v a i l a b l e t o neighboring c o m u n i t i e s 7 t h e 11 whip-sc;:;~" e f f e c t can occur. Under t h i s e f f e c t , t h e t a x - r i c h c o ~ ~ m i t i ecan s s e t t h e pace, s a y , on s a l a r y l e v e l s f o r p u b l i c employees, f o r c i n g tile taxPoor communities t o f a l l i n l i n e , even though they c a n ' t a f f o r d i t . Wit11 a more u ~ i f d i s t r i b u t i o n of revenues, t h e formerly t a x - r i c h communities won' t be a s disposed t o s e t such high l e v e l s . With s t a t e revenue d i s t r i b u t i o n , s t a t e government w i l l have t h e o ~ p o r t u ~ i ~ y ; . a s i t desires., t o u s e revenue d i s t r i b u t i o n t o accomplish o t h e r , though relat e d , ends, such as modernizati.nn of l o c a l government.

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07

. Only i n one p'ace, t h e S t a t e L e g i s l a t u r e , is i t r e a l l y p o s s i b l e t o ritabl.ish in t h e balance o: :axation mrxq th:.: d i f k e r e n t types of t a x sources. t h e Legis1atu:-o, t o o , s l ~ o c l c l',be major d e c i s i o n s b e made on the pverali l e v e l of t a x a t i o n i n tile s t a t e .

Miat would this pucioge of pp;;p~solo cost the s t a t e in the f - ~ ~ rys et c r if i :*)ertt,into ~ffect? P

We a r e n o t recommending i n t h i s r e p o r t t h a t t h e aggregate l e v e l of t a x a t i o n , a t t h e s t a t e and l o c a l l e v e l combined, b e i n c r e a s e d o r decreased. A s we s a i d e a r l i e l , we are s p e c i f i c a l l y n e u t r a l on t h i s questicfi. We a r e , however, i n a very r e a l Sense

p l ~ c i n gt h e S t a t e L e g i s l a t u r e i n a s t r o n g e r p o s i t i o n than now t o i n £1.uence t h e AGgreg a t e l e v e l of t a x a t i o n . Our recommendations on changing t h e d i s t r i b u t i o n of funds under t h e Property Tax Relief and Refornl Act do n o t i n v o l v e t h e q u e s t i o n of a d d i t i o n a l commitinents of S t A t e d o l l n r s . I n f a c t , our recornendations on t h e property tsx r e l i e f payments r e p r e s e n t a way of s t o p p i n g c e r t a i n commitments by t h e s t a t e which otherwise would e s c a l a t e alirnma t i c a l l y .

Our recommendations on s h i f t i n g t h e r e s p o n s i b i l i t y f o r f f n a r ~ c i n gt h e o p e r a t i n g expenditures of p u b l i c schools c l e a r l y i n v o l v e c m t i m p l i c a t i o n s f o r t h e s t a t e gQver81ment. Our rec~mrnenlati~ons mecn t h a t revenues r a i s e d d i r e c t l y by t h e s t a t e w i l l inc.rease, b u t t h i s w i l l be o f f s e t by a corresponding decrease i n t h e l o c a l revenues I ~ v i e dby school d i s t r i c t s . I n t h e y e a r ending .June 30, 1969, l o c a l school d i s t r i c t s l v v i e d about $270 m i l l i o n f o r o p e r a t i n g expenditures f o r s c h o o l s , an amount which ~ l r l i e rour recommendation would have been c o l l e c t e d by t h e b t a t e and d i s t r i b u t e d back t n school d i s t r i c t s

.

Some persons may say t h a t our recommeadations on s c h o o l f i n a n c e w i l l r e q u i r e mt)rc funding because o f t h e encouragement o f f e r e d t o d i s t r i c t s now spellding below tIic average amount p e r p u p i l u n i t . Others may say t h a t we are too s e v e r e i n hoidi.rg dnwn o b l i ~ a t i o n sby t l i ? s t a t e t o f i n a n c e s c h o o l d i s t r i c t s n a ? spending above t h e 1.

\

1

ye. f l ~ wdo

these p ~ ~ o p o s c laffect s inciividzln.l c~mmunit?:es?

T t is very d i f f i c u l t , given t h e information we have a v a i l a b l e , t o p r e d i c t i n doll;:rs and c e n t s tenns t h e o v e r a l l impact of t h e s e proposals. It i s p o s s i b l e ,

t:llnugh, t o i n d i c a t e r e l a t i v e l y wilere most of t h e b c n e f i t w i l l be concentrated.

Both t h e s c h o o l and t h e municipal a i d formulas a r e i n t e n d e d t o provide g r e a t e r a i d t o t h o s e communities with higher-than-average c o s t s and less-than-.average ':-tcaI wealth.

.;trite

colnmunities i n t h e s t a t e would r e c e i v e a s u b s t a n t i a l decrease i n t h e l o c a l ?rnTerrY tax r a t e (by one-third o r more, depending upon the coillmunity) i f t h e s t a t e ?. : lnances the average o p e r a t i n g c o s t s of t h e p u b l i c s c h o o l s . W e must keep i n mind, o f r e o r s e , t h a t correspo~ldinglys t a t e - c o l l e c t e d taxes ( p r o p e r t y o r non-property, O r some . i x thc?reof) would i n c r e a s e by t h e amount of t h e decrease i n l o c a l taxes. :ill

On

munici.pal government s i d e , a l l m u n i c i p a l i t i e s would r e c e i v e l a r g e in-

~-r.lst.si n t h e i r s h a r e s of t h e s t a t e $$ales tax. A t tlle s m e time, t h e e s c a l a t i o n .n Payments t o 1o c a l government f o r exempt b u s i n e s s and farm property would Cease*

I I I

These two a c t i o n s i n t h e aggregate would balance each o t h e r , b u t some m u n i c i p a l i t i e s would r e c k i v e more than a t h e r s i n accord w i t h t h e "need" f o m u l a as we prOpQ8e- The h a l t i n e s c a l a t i o n of t h e replacement payments hardly would b e n o t i c e d by t h o s e u n i t e w h i a haven' t been r e c e i v i n g much i n t h e past. For t h o s e who have, they no longer u o i ~ l dbe a b l e t o count on l a r g e i n c r e a s e s .

klrr give greatest priority to c i t i e s and villczges in sharing of state salas

reatdpta?

i

We e s r i o u s l y considered v a r i o u s o p t i o n s on t h e q u e s t i o n of w h i k u n i t s of f4e concluded t h a t c i t i e s ernment sbould s h a r e d i r e c t l y i n the s t a t e s a l e s tax. W v i l l a g - should r e c e i v e t h e major s h a r e s , with county governments r e c e i v i n g t h e e f u l l y a p p r e c i a t e the tendency t o amounts a t t r i b u t a b l e t o unincorporated a r e a s . W want t o t r e a t a l l u n i t s of government "equally ," b u t t h a t u s u a l l y m e a n s g i v i n g a l l l ~ n i t sof government a s h a r e simply because they e x i s t . S t a t e and l o c a l tax t e v e n u a , n a t u r a l l y , w i l l a l w ~ y sb e s c a r c e resources. They must b e placed where they can b e used most e f f e c t i v e l y . Here a r e some of t h e i s s u e s we faced:

Need f o r Revenue--Mut\icj.palit:ies appealed w i t h o u t s u c c e s s t o t h e 1969 Legisl a t u r e f o r a d d i t i o n a l non-properq sources of revenue t o meet e v e r - i n c r e a s i m c o s t s . While t h e 1967 Property Tax Relief and Reform Act provided a b e g i n n i w n t h e amounts were n o t s u f f i . c i e n t , p a r t i a l l y because t h e funds were d i s t r i b u t e d among s o many u n i t s and l e v e l s of government, thereby d i l u t i n g t h e i r o v e r a l l impact. Although t h e zverage per c a p i t a expenditure by municipal g m e r m e n t is about $70 s t a t e w i d e , m u n i c i p a l i t i e s now r e c e i v e only s l i g h t l y mare than $6 Per c a p i t a from t h e s t a t e s a l e s tax. Under our proposal, t h e per c a p i t a on t h e average would double, w i t h the higher-cost ~ n u n i c i p a l i t i e sr e c e i v i n g even more.

-- P o s s i b i l i t

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v f t-iunl c i p a l Non-Property Taxes--Some m u n i c i p a l i t i e s , p a r t i c u l a r l y t h e centi;l & t i e s of Minneapolis ar.d S t . P a u l i n t h e Twin C i t i e s r e g i o n , are s e r i o u s l y exploring p o s s i b i l i t i e s of e n a c t i n g t h e i r own municipal non-~roPertY taxes Such steps, while perhaps s e r v i n g t o meet some short-term needs, would have s e r i o u s d e t r i m e n t a l e f f e c t s on t h e o v e r a l l system. C e r t a i n municipalit i e s would f i n d i t v e r y p r o f i t a b l e t o e n a c t non-property s a l e s o r income t a x e s , while o t h e r s , with similar needs, would f i n d i t ahlost impossible because of l a c k of l-ocal tax resources. Munic.Lpal non-property t a x e s i n t h e Twin C i t i e s a r e a would set up f u r t h e r b a r r i e r s t o r a t i o n a l growth plans. The L e g i s l a t u r e must provide a d d i t i o n a l revenue t o m u n i c i p a l i t i e s t o dissuade those who, i n urgent need of revenue, a r e considering t h e go-it-alone a~l?roa&*

- &e-vVe&f

Government Where Property Tax R e l i e f i s Most ~ e s i r a b l e - - W i t h addit i o n a l s t a t e s a l e s t a x revenue a l o c a l government w i l l be a b l e t o reduce its r e l i a n c e upon t h e p r o p e r t y t a x . While t h e need t o reduce such r e l i a n c e w i t h every u n i t and l e v e l of government, the need is f a r g r e a t e r a t t h e m u i c i p a l l e v e l than t h e county l e v e l . m e property t a n base is d i s t r i b u t e d f a r more d i f f e r e n t i a l l y anong m u n i c i p a l i t i e s . County government can b e n e f i t from growth i n the Property t a x base throughout a county. The broader the a r e a Over which the property tax i s imposed, t h e l e s s d i s p a r a t e i s i t s impactGiven t h i s fact. property t a x r e l i e f can b e accomplished much more effectively if non-Property C e v O - r ~ u e are ~ d i s t r i b u t e d n o r e a t t h e municipal l e v e l than a t

t h e county l e v e l . Furthermore, c o u n t i e s already r e c e i v e a s u b s t a n t i a l l y 12rg e r s h a r e (29%) of s%ntr h i ~ h : ~ au3cr y funds than do m u n i c i p a l i t i e s (9%. A l s o , i t should be ren~uiberedthar. u-nder our p r o p o s a l county governments would r e c e i v e t h e amounts a t t r i b u t s b l e t o unincorporated a r e a s . That amount , governments r e c e i v e no d i r e c t i s $5.7 m i l l i o n i n 1970. C ~ r r e ~ t i ycouilty s h a r e of t h e s a l e s tax funus, except by r e c e i v i n g t h e very s m a l l at?ou;it;s a t t r i b u t a b l e t o unorganized t e r r i t o r y . Role of --

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Unincorporated Area--We can f i n d l i t t l e j u s t i f i c a t i o n o t h e r than t h e i r e x i s t e n c e t o g i v e unincorporated a r e a s (towns a i ~ dtownships) a d i r e c t s h a r e i n t h e s t a t e s a l e s t a x , because t h i s means t a k i n g revenue which i s much more u r g e n t l y needed by o t h e r governments. The average property t a x r a t e f o r town gwernment i n 1969 was 1 8 n l i l l s , compared t o 97 mi!-1s f o r munic i p a l government. I f t h e r e a r e c e r t a i n unincorpcrated a r e a s becoming urbeni z e d , i t i s b e t t e r t h a t they i n c o r p o r a t e a s m u n i c i p a l - i t i e s and thereby become e l i g i b l e f o r d i r e c t s a l e s tax s h a r i n g . A d i r e c t s h a r e t o unincorporated a r e a s only s e r v e s t o r e i n f o r c c a form of government which probably is approp r i a t e f o r s p a r s e l y populated a r e a s , b u t h a r d l y is t h e type s u i t e d f o r cornplex urban s 2 r v i c e s .

-- Patchwork

School Aid--The g r a n t i n g of s c h o o l d i s t r i c t s a d i r e c t s h a r e i n t h e s t a t e s a l ~ st a x couih be j u s t i f i e d o r i g i n a l l y because t h e p r e s e n t f o u n d ~ t i o n a i d program is n o t adequate. But such a patchwork system of s c h o o l a i d s i s fundamentally d e f e c t i v e . We a r e recommending a major overhaul i n t h e p r e s e n t s c h o o l a i d formula, ubich e l i m i n a t e any need l o r a s e p a r a t e a i d f o r s c h o o l d i s t r i c t s on some o t h e r b a s i s .

1+Vzy d i s f r i b u t e s t a t e revenue t o municipalities on the basis o f locally-raised

.nwenues as a percentwe

oS

tatcrZ

locally-raised revenues, w i t h adjustments for

o h i Z i t y t o pay? W e reviewed many p o s s i b i l i t i e s f o r d i s t r i b u t i o n of funds t o t h e v a r i o u s c i t i e s and v i l l a g e s . I t i.s n o s t d i f f i c u l t t o i d e n t i f y al.1 t h e i r d i f f e r e n c e s i n need f o r iuncis , l o c a l e f f o r t and a b i l i t y t o pay, th&n measure t h e s e d i f f e r e n c e s and final1.y i n c o r p o r a t e them i n t o a d i s t r i b u t i o n formula.

Iizre a r e some of t h e i s s u e s we faced:

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Use of Locally-Raised - Revenue; as Basis f o r Distribution--Probably t h e most popular, and e a s i e s t understood, £ o m of d i s t r i b u t i o n i s p e r c a p i t a . A Per c a p i t a d i s t r i b u t i o n appears t o c a r r y with i t an i m p l i c i t f a i r n e s s , g i v i n g every u n i t of government t h e same amount. But a p e r c a p i t a d i s t r i b u t i o n g i v e s more funds than needed t o c e r t a i n l o c a l i t i e s and d e n i e s enough t o o t h e r s . chose 1ocall.y-raised revenues a s t h e base f o r s h a r i n g because i t r e f l e c t s a c e r t a i n degree. of e f f o r t by t h e muilicipality, i t avoids g i v i n g an Unnecess a r i l y l a r g e amount of d o l l a r s t o communities w i t h low e x p e n d i t u r e s , and i t a s s u r e s t h e s t a t c ' s l a r g e s t c i t i e s of an adequate s h a r e . We would accept t h e d e f i n i t i o n of l o c a l l y - r a i s e d revenue a s used by t h e U . S . fiureau of the Census, which i n c l u d e s revenue from a l l l o c a l t a x e s , s p e c i a l assessments, l i c e n s e s , f e e s , p e r m i t s , and s o f o r t h , b u t excluding r e c e i p t s from u t i l i t y o p e r a t i o n s , such a s municipal w a t e r , municipal e l e c t r i c i t y and municipal l i q u o r s t o r e s . (Locally-raised revenue would n o t i n c l u d e , e k t h e r , Property t a x r e l i e f payments by t h e s t a t e t o t h e l o c a l i t y . )

The Minnesota P u b l i c Examiner coul-d be charged w i t h g a t h e r i n g 2nd r e ~ o r t i n g l o c a l l y - r a i s e d revenues on an an~iurilbasis f o r purposes of t h i s d i s t r i b u t i o n plan. Only s l i g h t m o d i f i c a t i o n s i n t h e P u b l i c E x m i n e r ' 8 c u r r e n t r e p o r t s would b e necessary. The P u j l i c Examiner a l s o should be given an appropria-. t i o n s u f f i c i e ~ ~t ot a s s u r e t h e s e r e p o r t s w i l i be published much quicker t h ~ the present 2 p y e a r lag.

-- Adjustments

f o r A b i l i t y t o Pay--We concluded t h a t i t is n o t enough simp:l-l' t o d i s t r i b u t e funds according t o l o c a l l y - r a i s e d revenues. One of t h e problems is t h a t c e r t a i n comnunitics with s u b s t a n t i a l t a x r e s o u r c e s a r e a b l e t o r a i s e much more i n l o c a l revenue with less e f f o r t than communities w i t h fewer resources. We found t h a t we can a d j u s t f o r a b i l i t y t o pay b y ' t a k i n g i n t o cons i d e r a t i o n assessed v a l u a t i o n and income of t h e community , These a d j u s B ~ Q n t s apeear t o have only s l i g h t e f f e c t on t h e amounts f o r t h e l a r g e s t c i t i e s s but they provide a way t o s h i f t d o l l a r s t o certain suburban a r e a s , p a r t i c u l a r l y those with low t a x base, which could n o t h e a c c m p l i s h e d simply by using l o c a l l y - r a i s e d revenues. I n making adjustments f o r a s s e s s e d v a l u a t i f r p ant; income, we s u g g e s t t h a t an index be developed t o g i v e e q u a l weigbt t o each(See Chart I i n Appendix.) For a s s e s s e d v a l u a t i o n , we recomnend t h a t t h e o f f i c i a l a s s e s s e d v a h a t i o n bz equalized f o r d i f f e r e n c e s in assessment p r a c t i c e s , which car, be accomplished by using s a l t s r a t i o data i n t h e S t a t e De9artmep.t of Tawation. Assessed v a l u a t i o n i s t h e most d i r e c t meastrre of a m u n i c i p a l i t y ' s a b i l f t y t o pay Y because every n d n i c i p a l i t y has authori.ty t o levy property taxes on t h e assessed valuation. For income d a t a we recomertd using i n d i v i d u a l a d j u s t e d g r o s s income f r m 3iinnesota incums t a x forms. T a p s y e r s would b e r e q u i r e d t o p l a c e t h e i r m u n i c i p a i i t y o r r e s i d e n c e on s t a t e ir~comet a x forms, and t h e S t a t e Department of Taxation y~oul-db e r e q u i r e d t o r e p o r t such income, i n t h e aggregate, by m ~ n i c i p a lty i i~l~urillyW . e discussed e x t e n s i v e l y whether use of income is a d e s i r a b l e measure of a b i l i t y t o pay, because c i t i e s and v i l l e g e s do n o t nokT impose income t a x s nor do thzy r e c e i v e d i r e c t s h a r e s of t h e s t a t e incone t a x based on the m o u n t r a i s e d i n t h e i r borders. W e concluded, on b a l a n c c , t h a t income should be used as an adjustment because of t h e p a r t i c u l a r l y den of t h e property t a x on lcwer-income f a m i l i e s . I f only assessed v a l u a t i o were used as an adjustment f o r a i ~ i l i t yt o pay, t h i s would f a i l to heavy take account of t h e property t a x burden on lower-income f a m i l i e s : The Twin Cities Metropolitan Area Tax Study i n 1966 r e p o r t e d t h a t p r o p e r t y t a x e s as 2 Per cent of income ranged from a high of 10.6% f o r a family of f o u r with en income frolo $2,000 t o $2,999, t o a low f o r 1.9% f o r tl family w i t h an ificcne over $15,000. To s t a t e t h e problem another way: Merely t h e presence of: a c e r t c i n amount of assessed v a l u a t i o n w i t h i n a community does n o t d e f i n e t h e c a p a c i t y of a l o c a l government t o levy p r o p e r t y t a x e s on t h a t v a l u a t i o n . 'fie income of the people who pay t h o s e property t a x e s a l s o must b e taken i n t o consideration.

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In measuring t h e s e f a c t o r s , wc suggest u s i n g v a l u a t i o n p e r c a p i t a and income Per dxgelling. A combination of p e r c a p i t a and p e r dwelling r e f l e c t s n o t only t h e population of t h e community, b u t , t o some e x t e n t , t h e d i f f e r e n t types of f a m i l i e s , such a s t h e e l d e r l y . Furthermore, income p e r dwelling is a far b e t t e r measurement of income than income per c a p i t a , The Metropolitan O x ~ n c i l should be r e q u i r e d by law t o p r e p a r e annual e s t i m a t e s of population and

number of dwelling u n i t s . This would merely r a t i f y t h e ~ o u n c i l ' sp r e s e n t p r a c t i c e . Dwelling u n i t a s d e f i n e J 1-~y t h e M e t r o p o l i t a n Council i s t h e S a m a s t h e U.S. Census d e f i n i t i o n , which b a s i c a l l y is a house, apartment o r roan occupied a s s e p a r a t e l i v i n g quarte-rs.

subst;,mtiaZZy a22 of the aut;zority a d responsibitiiy f o r finmcixy cperating costs for 7,ocaZ school d i s t r i c t s t o -Lhe state? b)Zg shift

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This i s a very fundamental q u e s t i o n , one which i s being debated e x t e n s i v e l y a t the l o c a l , s t a t e and n a t i o n a l l e v e l . We concluded t h a t s t a t e f i n a n c i n g of e d u c a t i o n i s necessary f o r t h e f o l l o w i n g reasons:

-- S t a t e ' s

R c q o n s i b i l i t y - - T h e s t a t e c o n s t i t u t i o n charges t h e L e g i s l a t u r e " t o ( A r t i c l e VTII, e s t a b l i s h a g e n e r a l and uniform system of p u b l i c schools." Sec. 1 ) The L e g i s l a t u r e can more e f f e c t i v e l y c a r r y o u t t h i s r e s p o n s i b i l i t ~ by d i r e c t l y providing f i n a n c i n g f o r s u b s t a n t i a l l y a l l of t h e o p e r a t i n g C o s t s of t h e p u b l i c s c h o o l s .

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Adequate Educational Opportuni t_y--So long as t h e r e s p o n s i b i l i t y f o r f i n a l - . c i n g e d u c a t i o n is d i v i d e d between t h e s t a t e and l o c a l s c h o o l b o a r d s , we s e e e s s e n t i a l l y p e r p e t u a l d i s p a r i t y i n t h e q u a l i t y of e d u c a t i o n from d i s t r i c t t o d i s t r i c t . The a c c i d e n t of where a p u p i l r e s i d e s i n t h e s t a t e should n o t be t h e determining f a c t o r i n t h e type of e d u c a t i o n h e w i l l r e c e i v e . D i f f e r e n c e s of two-to-one i n e x p e n d i t u r e s p e r p u p i l a r e n o t uncomon now. S t a t e forlculas f o r e q u a l i z a t i o n a r e designed t o o f f s e t t h e d i f f e r e n c e s i n l o c a l t a x r e s o u r c e s , b u t !mwever e q u i t a b l e a formula may be when proposed, t h e r e a r e almost insurmountable p o l i t i c a l problems i n t h e L e g i s l a t u r e i n g i v i n g more s t a t e funds ti-, some s c h o o l d i s t r i c t s and l e s s t o o t h e r s . It i s never p o s s i b l e t o accomplish t h e amount of e q u a l i z a t i o n needed.

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F i x i n g R e s p o n s i b i l i t y f o r Educational Expenditures--The S t a t e L e g i s l a t u r e is showing cons LJerable i n t e r e s t i n i n f l u e n c i n g t h e e x p e n d i t u r e s of l o c a l schor:l boards because l e g i s l a t o r s f e e l t h e y , r a t h e r t h a n l o c a l b o a r d s , a r e more p o l i t i c a l l y accountable. W e have no q ~ ~ a r r with el t h i s , and b e l i e v e t h a t i t i s a l l t h e more reason t o g i v e t h e L e g i s l a t u r e e s s e n t i a l l y f u l l a c c o u n t a b f l i t y f o r t h e l e v e l of e d u c a t i o n a l s u p p o r t , and w e liave no r e a s o n t o b e l i e v e t h e L e g i s l a t u r e won't provide adequate funds f o r q u a l i t y education.

:

Imagination and innovation w i l l n o t b e s t i f l e d w i t h f u l l s t a t e s u p p o r t , b u t i n some r e s p e c t s a s c h o o l d i s t r i c t can a c c e p t the c h a l l e n g e t o b e more imagi n a t i v e i n g e t t i n g t h e most mileage from t h e d o l l a r s as a p p r o p r i a t e d by the Legislature. Some concern has been expressed about l o s s of l o c a l c o n t r o l . But, f o r example, t h e s t a t e a l r e a d y is f i n a n c i n g between 90 and 97% of t h e c o s t s of many a r e a vocati.ona1 s c h o o l s , which a r e con.trolled by l o c a l s c h o o l d i s t r i c t s - We s e e no evidence t h a t s c h o o l d i s t r i c t s d o n ' t have as much c o n t r o l over t h e s e i n s t i t u t i o n s as they would l i k e .

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Xalancing Education --- w i t h Other P r e s s i n g Programs--Evtlry s c h o o l d i s t r i c t i n N i n n e s ~ t ais independent of g e n e r a l government. Mayors may b e h e l d a c c o u n ~ a b l e by some c i t i z e n s f o r t h e a c t i o n s of s c h o o l b o a r d s , b u t mayors and c i t y c o u n c i l s have no r e s p o n s i b i l i t y f o r s c h o o l s . Only a t t h e l e v e l of t h e S t a t e L e g i s l a t u r e is i t p o s s i b l e t o i n t e g r a t e e d u c a t i o n a l e x p e n d i t u r e needs w i t h

o t h e r p r e s s i n g programs. Only a t t h e l e v e l of t h e S t a t e L e g i s l a t u r e i s i t p o s s i b l e t o p l a c e t h e major d e c i s i o n s i n t h e hands of e l e c t e d policy-makers with g e n e r a l r e s p o n s i b i l i t y .

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many communities today s c h o o l p r o p e r t y Developing a Balanced Tax Systen-In --t a x e s make up t h e l a r g e s t chunk of t o t a l l o c a l government p r o p e r t y t a x e s . It h a s become i n c r e a s i n g l y recognized i n t h i s s t a t e t h a t t h e r e l a t i o n s h i p between p r o p e r t y and non-property t a x e s is o u t of b a l a n c e , w i t h t o o much emphas i s p l a c e d on p r o p e r t y t a x e s . With t h e L e g i s l a t u r e r e s p o n s i b l e f o r e s s e n t i a l l y a l l of l o c a l s c h o o l o p e r a t i o n e l f i n a n c i n g , i t w i l l b e a b l e t o i n f l u e n c e t h e property-non-property t a y b a l a n c e e f f e c t i v e l y f o r t h e f i r s t t i m e . The Legisl a t u r e would have t o c o n s c i o u s l y d e c i d e whether t o reduce t h e p r o p e r t y taxes f o r e d u c a t i o n , and, i f s o , d e c i d e what o t h e r s o u r c e o r s o u r c e s t o u s e t o p i c k up t h e d i f f e r e n c e . The L e g i s l a t u r e rcmoved t h e s t a t e government from l e v y i n g a p r o p e r t y t a x i n 1969, b u t t h i s d i d n o t s o l v e t h e problem of t h e p r o p e r t y non-property b a l a n c e .

flow do our recommendations on the school clid formula relate t o s t a t e finandng up t o t3ze level of the average pupil u n i t e q e n d i t w e ? Our proposed s c h o o l a i d formula i s designed s o t h a t i t w i l l b e workable f y e a r t o y e a r w i t h e s s e n t i a l l y o n l y one major p o l i c y d e c i s i o n r e q u i r e d by t h e Legisl a t u r e : The o v e r a l l p e r c e n t a g e o f t h e average p u p i l u n i t o p e r a t i n g e x p ~ d i r u r e which t h e s t a t e w i l l pay. I t would b e p o s s i b l e , under o u r formula, t o s t a g e t h e novement t o f u l l State SUPP o r t over a few y e a r s o r t o mave a l l a t once. We would s u p p o r t an immediate s h i f t t o 100% of t h e average p u p i l u n i t o p e r a t i n g e x p e n d i t u r e , which would r e q u i r e an i n m e d i a t e d e c i s i o n by t h e L e g i s l a t u r e on t h e o v e r a l l property-non-property t a x b a l a n c e . A s a p r a c t i c a l m a t t e r , w e do n o t s e e how 100% s t a t e f i n a n c i n g can b e p o s s i b l z w i t h o u t a s t a t e P r o p e r t y t a x l e v y . I t w i l l b e h a r d f o r t h e L e g i s l a t u r e t o mcve t o 100% s t a t e s u p p o r t g r a d u a l l y , because t h e L e g i s l a t u r e undoubtedly would b e r e l u c t a n t t o move i n t o t h e P r o p e r t y t a x i f s c h o o l d i s t r i c t s c o n t i n u e t o levy a s u b s t a n t i a l p r o p e r t y t a x as well. If t h e L e g i s l a t u r e a d o p t s f u l l s t a t e s u p p o r t , t h e n t h e e q u a l i z a t i o n a s p e c t of o u r proposed formula ( t h e v a r i a b l e s u p p o r t index which i n c r e a s e s o r d e c r e a s e s s t a t e a i d based on l e v y , a s s e s s e d v a l u a t i o n and income) would become unnecess ary

E~OU do we propose that equalization be acconplished short of s t a t e finmcing

the level o f merage pupil mit operating expenditure? Even though we recommend s t a t e s u p p o r t a t t h e average p u p i l u n i t o p e r a t i n g expend i t u r e , we r e c o g n i z e t h e very r e a l f a c t t h a t t h i s might n o t happen immediatelyS h o r t of moving t o f u l l s t a t e s u p p o r t , t h e L e g i s l a t u r e might b e i n c l i n e d t o c o n t i n u e t h e P r e s e n t method of e q u a l i z a t i o n , which, we b e l i e v e , h a s major d e f e c t s . There a r e two n a j o r p r o b l e m w i t h t h e p r e s e n t method of e q u a l i z a t i o n : F i r s t , i t a p p l i t s only t o 2 p o r t i o n of s c h o o l e x p e n d i t u r e s ; second, t h e adjustments f o r a b i l i t y t o Pay and l o c a l e f f o r t a r e i n a d e q u a t e . Because t h e f o u n d a t i o n b a s e f i g u r e (from which s c h o o l a i d i s determined) is f a r below t h e a c t u a l e x p e n d i t u r e s (more than 50% below i n some c a s e s ) a l l s c h o o l e x p e n d i t u r e s above t h e f o u n d a t i o n b a s e f i g u r e must b e assumed by each l o c a l s c h o o l d i s t r i c t u s i n g t h e l o c a l p r o p e r t y t a x b a s e o n l y , whatever i t s s i z e * Some d i s t r i c t s f i n d t h i s r e l a t i v e l y e a s i e r t h a n o t h e r s because of a l a r g e r t a x b a s e -

The d e f e c t s i n t h e adjustments f o r a b i l i t y t o pay and l o c a l ef f c r t a r e recognized i m p l i c i t l y I n t h e present: formula, because a " f l o o r " i s incl.uded, a l e v e l of aid below which no d i s t r i c t w i l l go, r e g a r d l e s s of t h e adjustments. The l o c a l e f f o r t adjustment I n t h e p r e s e n t formula I s d e f e c t i v e i n t h a t i t t a k e s account o n l y scllool p r o p e r t y t a x e s , n o t t h e e x t e n t t o wllich o t h e r u n i t s of government have access t o t h e same l o c a l tau base. F u r t h e r , a b i l i t y t o pcy i s measured only by a s s e s s e d v a l u a t i o n . Income of t h e r e s i d e n t s of t h e d i s t r i c t s is n o t i n c l u d e d . Under o u r proposal each d i s t r i c t would have a b a s i c per p u p i l u n i t a i d e n t i t l e ment, which w i l l be t h e same a s every o t h e r d i s t r i c t . T h i s amount would b e a d j u s t e d up o r down, depending upon t h r e e f a c t o r s , a l l of which would b e weighted e q u a l l y , (i) t o t a l n e t p r o p e r t y t a x l e v y p e r p u p i l u n i t i n c l u d i n g s p e c i a l assessments, f o r a l l t a x i n g j u r i s d i c t i o n s w i t h i n t h e boundaries of t h e s c h o o l d i s t r i c t , which w i l l account f o p t h e e x t e n t t o which o t h e r u n i t s of government have a c c e s s t o t h e same t a x b a s e ; ( 2 ) e q u a l i z e d a s s e s s e d v a l u a t i o n p e r p u p i l u n i t ; and ( 3 ) i n d i v i d u a l adjust e d g r o s s income p e r p u p i l u n i t . A h i g h e r t h a n average l e v y p e r p u p i l u n i t and a lower than average a s s e s s e d v a l u a t i o n and g r o s s income p e r p u p i l u n i t w i l l produce an i n c r e a s e i n t h e s t a t e a i d e n t i t l e m e n t . A l l t h r e e f a c t o r s a r e weighted t o g e t h e r i n a composite index. (See Chart I V i n Appendix.) County o f f i c i a l s would be r e q u i r e d t o r e p o r t t o t a l n e t p r o p e r t y tax l e v i e s f o r a l l overlapping t a x i n g j u r i s d i c t i o n s i n a s c h o o l d i s t r i c t . This would i n c l u d e spec i a l assessments, b u t i t t ~ o u l dexclude p r o p e r t y t a x r e l i e f payments froin t h e statc.. County o f f i c i a l s c u r r e n t l y r e p o r t such i n £onnation by m u n i c i p a l i t y and township. To o b t a i n income f i g u r e s by s c h o o l d i s t r i c t , taxpayers would be r e q u i r e d t o r e p o r t t h e i r s c h o o l d i s t r i c t name and number on t h e i r income t a x forms as well. a s t h e i r m u n i c i p a l i t y of r e s i d e n c e . I t i s conceivable t h a t t h e e q u s . l i z a t i o n a d j u s t m e n t s , when appl-i.ed t o some s c h o o l d i s t r i c t s , might produce a p u p i l u n i t a i d e n t i t l e m e n t above t h e r e g i o n a l average p u p i l u n i t o p e r a t i n g expenditure. This becomes p a r t i c u l a r l y l i k e l y !-:I? h l gher t h e o v e r a l l percentage of s t a t e s u p p o r t . To guard a g a i n s t such an f-,,.--:*: * . I ; r: 1?.y, we reconmend t h a t i n no' event should a s c h o o l d i s t r i c t ' s p u p i l u n i t g.::? ::..:-:!?d t h e rca f f e c t e d by I f a s i g n i f i c a n t nir..r',rr of d%?ir!. r.?:;i;::t.:.:...:r: g i o n a l average expenditure. t h i s l i m i t , which means t h a t t h e s t a t e will. b.-? : :. .; 3 a l l o i t i i ~ s 2ti l i:!:ricts ' opera t i n g e x p e n d i t u r e s , t h i s should be a pcs: ...: :;e s ; : . - ,.I? t o move t o f t : l l s t c t e s u p p o r t s o a l l d i s t r i c t s could have t h e i r o p e r a t i n g e x p c n i i t u r e s funded by t h e s t a t e a t the. r e g i o n a l average.

lu'kg use average pz4p.i l u n i t operating expenditure by regioft as the b a s i s for. s t a t e aid? Average p u p i l u n i t o p e r a t i n g e x p e n d i t u r e i s d e t e r ~ . i n e dby adding t o g e t h e r t h e number of pilpil u n i t s f o r a l l d i s t r i c t s i n a r e g i o n o r piie s t a t e , cs t!le c:.?e rr.:~y be, and d i v i d i n g t h e t o t a l into t o t a l o p e r a t i n g e x p e n d i t c r e s f o r t h e d.i:-:;::-i:::.~. We c h ~ s et h e average r a t h e r t h a n t h e median, because t h 2 average i s auto;li~cic:zlly a f f e c t e d by t h e a c t i o n s of each d i s t r i c t , whereas, t h e median w i l l change only t o t h e e x t e n t t h a t t h e p u p i l u n i t e x p e n d i t u r e a t t h e median ( t h a t i s , where 50 p e r c e n t of t h e p u p i l u n i t s a r e above and 50 per c e n t a r e below) changes. We b e l i e v e i t i s important t o t a k e d i f f e r e n c e s i n c o s t s i n t o account i n d i f f e r e n t p a r t s of t h e s t a t e . Consequen.tly, we a r e recommending t h a t t h e s t a t e s u p p o r t f i g u r e f o r each s c h o o l d i s t r i c t b e based on t h e a c t u a l average p e r p u p i l u n i t expend i t u r e w i t h i n i t s region. Rather than t a k e a r b i t r a r y boundaries f o r r e g i o n s , we

-39b

b p l i e v c i t i s r e a s o n a b l e t o u s e t h e 11 economic r e g i o n s of t h e s t a t e as d e s i g x t e d b y the Governor. 'lhe L e g i s l a t u i - e needs t o a d q t a s a g o a l b r i n g i n g a l l s c h o o l d i s t r i c t s as c l o s e to&ct,l\er i n p e r p u p i l u n i t s y c u d i n s a s p c s s i b h . Using t h e average e x p e n d i t u r e is a s t e p i n t h a t d i r e c t i o n . The LegSsl;rure c a - ~d e c i d e I n t h e f u t u r e whether t o cont i n u e t o vary t h e l e v e l of s u p p o r t aaong r e g i o n s . Using a c t u a l s c h o o l e x p c n d i t u c e s i n each d i s t r i c t a s t n e h a s i s f o r s t a t e payment would n o t c o n t r i b u t e t o reducing the d i f f e - r e n c e s i n e x p e n d i t u r e s from d i s t r i c t t o d i s t r i c t .

Throughout t h i s r e p o r t we have d i s t i n g u i s h e d hetween o p e r a t i n g and c a p i t a l exp e n d i t u r e s of t h e p u b l i c s c h o o l s . Among e d u c a t i o n a l f i n a n c e c i r c l e s i n t h e S t a t e , the term "maintenance e x p e n d i t u r e s " is used t o r e f e r t o what w e c a l l o p e r a t i n g eXpe11d i t u r e s . Our d e f i n i t i o n of c a p i t a l i n c l u d e s what e d u c a t i o n a l f i n a n c e p e o p l e c a l l " c ~ ptia l o u t l a y and d e t t s e r v i c e . "

N h ~ tis

SO

irtil;lo;/~-h.xtabout the weight-ir,g o f pupil u n i t s ?

A ~ c h o o ld i s t r i c t ' s need f o r funds 1s dependent upon t h e k i n d s of p u p i l s t o be edrrcatcd. I t c o s t s mor? t o e d u c a t e a p1,ysically handicapped p u p i l . Costs a r e highe r i n secondary s c h o o l t h a n i n c l e n e n t a r y s c i ~ o o l . I
To t a k e such d i f f e r s n c e s i n t o c o n s i d e r a t i o n , d i f f e r e n t w e i g h t i n g is a t t a c h e d t o c l i f i e r e n t p u p i l s . I'or er.anpl2, if c a s t s f o r secondary p u p i l s are 25% h i g h e r t h a n c o s t s f o r elementary p u p i l s , then we g i v e an elementary p u p i l a w e i g h t i n g of (1) and a secondary p u p i l , (1.25). Idhen w e m u l t i p l y t h e number oT p u p i l s i n each c a t e g o w F;;I tl:e w e i g h t i n g of each, and then add t h e d i f f e r e n t c c t e g o r y t o t a l s t o g e t h e r , we c3'11e up w i t h file t o t a l ilur~bercf " p u p i l u n i t s . " School a i d should n o t b e d i s t r i 5 u t e d on a s t r a i g h t p e r e n r o l l e d p u p i l b ~ s i . 3 , because t h i s woul-d u c t rcf l c c t t h e h i g h e r c o s t s of e d u c a t i n g c e r r c i n p z p i l s . We b e l i e v e t h a t a c h i e f drawback of the p r e s e n t p u p i l u n i t s y s t e a is i t s f a i l u r e t o r e c o g n i z e t h e Iliqher expe::dFt~res which a r e o r s h o u l d b e s p e n t on disadvantagcd youth. We b e l i e v e i t is xeasonab3.e t o a s s i g n a d o ~ b l ep u p l l un3.t f a c t o r t o t11c:u.

i$rhnti s the rationale fcp ozlr propos22 or! t3~eextent 50 wizinh schocl d i s f r i c t s s.-?o(~ld be able t o exercise authority ta lev9 property t m e s on t;nsCr own? The S t a t e L e g i s l a t u r e i s showing keen i n t e r e s t i n changing e x i s t i n g methods of l i n i t i n g s c h o o l d i s t r i c t s ' p r o p e r t y t a x a u t h o r i t y . C u r r e n t methods, i t i s g e n e r a l l y a y e e d , a r e d e f e c t i v e , because d i s t r i c t s a r e n o t t r e a t e d a l i k e (some d i s t r i c t s have no l i m i t whatsoever, o t h e r s have moderat2 r e s t r i c t i o n s , and s t i l l o t h e r s have s e v e r e r e s t r i c t i o n s ) and because t h e l i m i t s a r e n o t r e l a t e d t o t h e d i f f e r e n t l o c a l l e v i e s w l l i c ! ~wi.11 b e r e q u i r e d , because of d i f f e r e n c e s i n s t a t e a i d s . (Some d i s t r i c t s r e c e i v e very l i t t l e s t a t e a i d and, t h e r e f o r e , mst impose a nuch h i g h e r levy p e r p u p i l unit. t h a n d i s t r i c t s which r e c e i v e l a r g e amounts of state a i d . ) I t h a s been extremely d i f f i c u l t t o adopt workable l e v y l i m i t s which can a p p l y e t ' f e c t i v e l y t o a11 s c h o o l d i s t r i c t s .

Our ~ r o p o s a l .is t h a t t h e L e g i s l a t u r e n o t impose any l o c a l l e v y l i m i t whatsoever on a s c h o o l d i s t r i c t . However, t h e L e g i s l a t u r e should p r o v i d e a n i n c e n t i v e f o r

ncllc~ol d i s t r i c t s n o t t o spend a t s u b n t a t ~ t i d l l yh i g h e r l e v e l s than neighboring d i s T!lils, v e sugRest t h a t i f a s c h o o l d t i n t r i c t ' s p l q i l u n i t o p e r a t i n g expenditl1.j i:L.s. tll..- ndjus t e d f o r cost of l i v i n g changes, i s irore than 10% above t h e p r e v i o u s y e a r ' s r~,;:ooai o r s t n t e ~ i d ei;ye;r.ge, -d!-~icheveris h i g t l e r , t h a t its s t a t e a i d b e re2uced. A s c h o o l d i s t r i c t i n a r e g i o n w i t > an average e x p e n d i t u r e below t h e s t a t e w i d e avcrcge v ~ o l l l dn o t have i t s a i d reduced u n t i l i t s e x p e n d i t u r e s were more t h a n 10% above t h e st aLe average. We s u g g e s t a r e a s o n a b l e way t o reduce s t a t e a i d i.s t h a t f o r every d o l l a r of expcrlditure above t h e acceptab.le l e v e l , s t a t e a i d be reduced by 50 c e n t s . Each s c h o @ l d i s t r i c t w i l l be f r e e t c spend a t whatever l e v e l i t d e s i r e s , b u t t h e more i t spends above the a c c e p t a b l e level, t h e g r e a t e r its s t a t e a i d is reduced. We considered a s 1 i d i rig s c a l e t h a t would i n c r e a s e t h e p e r c e n t a g e r e d u c t i o n as e x p e n d i t u r e s i n c r e a s e d , b u t c m l c l l ~ d e c l t h a t i s unnecessary because, as c o s t s i n c r e a s e , s t a t e a i d c o n t i n u e s t o (1 1-op.

O . J ~ p r o p o s a l musc b e s e e n i n t h e c o n t e x t 3f t h e b a s i c t h r u s t of o u r s c h o o l fir.n71ce reccmmendatians : Equal e d u c a t i o n a l opporttini t y f o r p u p i l s throughout t h e state, s t a t e f i n a n c i n g of t h e o p e r a t i n g e x p e n d i t u r e s of t h e p u b l i c s c h o o l s , and naxj.m\?m o u t p u t from l i a F t e d d o l l a r s .

O u r p r o p o s a l i s i n t e n d e d t o ?],ace t h e b a s i c d e c i s i o n s on t h e level of f i n a n c i a l s u p p o r t f o r elementary 2 n d secondary e d u c a t i o n i n t h e L e g i s l a t u r e . We do n o t ifitend to s e t tip a s i t u a t i o n whereby l o c a l s c h o o l b o a r d s d e c i d e what t o spend, w i t h t h e I.lcgislature f o o t i r i g t h e b i l l . , whatever i t happens t o be. Perhaps e x p e r i e n c e w i l l show t h a t our p r o p o s a l g t l i e s t o o much leeway t o l o c a l s c h o o l b o a r d s . If s o , t h e I,eg is lclture can a d j u s t t h e f ormulz a c c o r d i n g l y .

Need f o r a Legislatively-xrn!~oued R e s t r a i n t on Local School Levying Authorit.-Ide have conclud~._dt h a t a r e s t r a i n t , imposed by t h e L e g i s l a t u r e , on l o c a l s c h o o l levy-

i . n ~a u t h o r i t y is a b s o h t e l y e s s e n t i a l f o r t h e f o l l o w i n g r e a s o n s :

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t o ac'citruplishnlent ----uf o v e r a l l goals--We do n o t s e e how i t w i l l b e p o s s i b l e t o acco~!!pli s h tllc g o a l s of e q u a l e d u c a t i o n a l o p p o r t u n i t y , State f i n a n c i n g of t11'3 o p e r a t l r ~ gc;c?endi t u r e s and naximum outpiit from l i m i t e d d o l l a r s i n t h e abqence of an e f f e c t i v e r e s t r a i n t . Without t h e r e s t r a i n t , some s c h o o l d i s t r i c t s undoubtc?,jly would go s u b s t a n t i a l l y beyold what t h e 1 , e g i s l a t u r e establishes a s a n a p p r o p r i a t e l e v e l of spending p e r p u p i l u n i t , Using t h e i r own i_,~cal taxes. Paced w i t h such a c t i o n s , t h e L e g i s l a t u r e allqays hard ~ r e s s e df o r f u n d s would f i n d i t v e r y tempting t o c u t back on t h e o v e r a l l percc?ltage of s t a t e Support i n f o l l o w i n g s e s s i o n s , thereby req u i r i n g a l l school. d i s t r j c t s t o p i c k up a g r e a t e r l o c a l s h a r e . This would r e t u r n t o t h e p r e s e n t s i t u a t i o n , whicil means widely c i i f f e r i n g e x p e n d i t u r e s p e r p u p i l u n i t , d i f f e r e n t i a l l o c a l t a x burdens, and i n s u f f i c i e n t i n c e n t i v e s t o o b t a i n g r e a t e r o u t p u t from l i m i t e d d o l l a r s .

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i n t e r - d i s t r i c t d i f f e r e n c e s i n expendi tures--Our p r o p o s a l i s intended t o h e l p b r i n g p u p i l u n i t e x p e n d i t u r e s from d i s t r i c t t o d i s t r i c t much c l o s e r t o g e t h e r than they a r e today. T h i s would b e accomplished by a coinbin a t i o n of s t a t e a i d t o t h e l e v e l of t h e average p u p i l u n i t e x p e n d i t u r e and a way to d i s c o u r a g e s c h o o l d i s t r i c t s f ram spending a t a l e v e l s u b s t a n t i a l l y e x c e e d j n ~t h e average. E q u a l i t y of e d u c a t i o n a l o p p o r t u n i t y is n o t guarant e e d , of c o u r s e , by encouraging r e l a t i v e l y t h e same e x p e n d i t u r e Per p u p i l u n i t f r o m d i s t r i c t t o d i s t r i c t . But i t a p p e a r s t o us t h a t t h i s w i l l go

-fielp_s-re&ce -

f u r t h e r than 2ny o t h e r approach. ~ u r t h e r m o r e , t o p e r p e t u a t e s u b s t a n t i a l d i f f e r e n c e s i n p u p i l u n i t expenditurzs from d i s t r i c t t o dQCgict would appear t o guarantee p e r p e t u a l d i s p a r i t y . Finally., wide c o s t d i f f e r e n c e s rep r e s e n t a s e r i o u s impediment t o accoxplishing s t a t e - q u p p o r t of t h e operati n g expenditures of t h e p u b l i c schools. To t h e e x t e n t t h a t expenditures a r e brought c l o s e r t o g e t h e r , t h i s w i l l ease t h e movement t o f u l l s t a t e support.

--

Broadens t h e focus of . i n t e r e s t i n q u a l i t y education--Under p r e s e n t circums t a n c e s , highly-motivated p a r e n t s who seek t h e b e s t p o s s i b l e e d u c a t i o n f o r . t h e i r c h i l d r e n concentrate- t h e i r e f f o r t s f o r adequate f i n a n c i n g i n t h e i r own l o c a l school d i s t r i c t s . This does n o t r e s u l t i n commensurate improvements i n q u a l i t y i n o t h e r d i s t r i c t s ~ c h e r ep a r e n t a l i n t e r e s t may n o t be a s g r e a t . These o t h e r d i s t r i c t s may w e l l have high c o n c e n t r a t i o n s of disadvantaged youth whose needs f o r q u a l i t y education may be g r e a t e r than t h e needs of c h i l d r e n of highly-mo t i v a t e d parents. Under our proposal t h e L e g i s l a t u r e w i l l be t h e focus of a t t e n t i o n grading e d u c a t i o n a l l e v e l s , w i t h t h e a c t i o n s b e n e f i t t i n g b o t h t h e of highly-motivated parent: and t h e l e s s f o r t u n a t e . I n e f f e c t , a who i s working f o r t h e b e s t p o s s i b l e education f o r h i s c h i l d w i l l i n g f o r t h e l e s s f o r t u n a t e a t t h e same t i m e .

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f c r upchildren parent b e work-

Fixes r e s p o n s i b i l i t y f o r t h e l e v e l of e d u c a t i o n a l spending--For y e a r s t h e S t a t e L e g i s l a t u r e and l o c a l school d i s t r i c t s have passed t h e buck, s o t o speak, on where t h e r e s p o n s i b i l i t y lies t o d e t e r n ~ i i et h e l e v e l of educa-t i o n a l support. Each h a s been a b l e t o dodge t h i s r e s p o n s i b i l i t y t o some e x t e n t . We s t r o n g l y b e l i e v e t h e r e s p o n s i b i l i t y belongs a t t h e s t a t e l e v e l . So long a s l o c a l school d i s t r i c t s have a u t h o r i t y t o levy s u b s t a n t i a l l y above what is regarded a s an a p p r o p r i a t e expenditure l e v e l , i t is p o s s i b l e f o r t h e L e g i s l a t u r e t o avoid being r e s p o n s i b l e f o r s e t t i n g t h a t l e v e l . Und e r our proposal t h e L e g i s l a t u r e w i l l determine i h e a c c e p t a b l e pslpil u n i t expenditure l e v e l and t h e e x t e n t t o which l o c a l s c h o o l d i s t r i c t s should b e r e s t r a i n e d from levying f u r t h e r .

-- S h i f t s

che emphasis on what yroduces_quality education-->lost of t h e emphasis on improving t h e q u a l i t y of e d u c a t i o n t o d a t e has foclised on how many doll a r s a r e being s p e n t . To improve q u a l i t y , i t h a s been assumed, p u p i l u n i t spending should i n c r e a s e . A t a time i n t h e p a s t , when p u b l i c investment i n education was s u b s t a n t i a l l y below p r e s e n t l e v e l s , t h i s may w e l l have been t h e case. But we a r e r a p i d l y f i n d i n g o u t i n education, a s i n o t h e r f i e l d s , such a s h e a l t h c a r e , f o r example, t h a t i t is n o t s o much t h e a d d i t i o n a l doll a r s which produces q u a l i t y , b u t how t h e e x f s t i n g d o l l a r s a r e used. Our proposal on r e s t r a i n i n g l o c a l levying a u t h o r i t y beyond what t h e Legisl a t u r e determines t o be a n a p p r o p r i a t e l e v e l i s intended t o h e l p s t i m u l a t e b e t t e r use of t h e l i m i t e d e d u c a t i o n d o l l a r s . This is i n l i n e w i t h the C i t i zens League proposal i n 1969 on making b e t t e r u s e of i n s t r u c t i c n a l personnel i n t h e p u b l i c schools i n o r d e r t o s t r e t c h t h e school s a l a r y d o l l s r . Under our levy a u t h o r i t y proposal, competition between s c h o o l d i s t r i c t s w i l l focus n o t on which school d i s t r i c t spends t h e mosf h u t which d i s t r i c t s g e t t h e most output from equiva1.ent amounts of d o l l a r s .

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k f l e c t s c o ~ c e r nover i n c r e a 2 i n g tests--Our r e p o r t h a s n o t been addressed prirnarilir LO t h e questior,:; of tetx ::urder.s and tar inckenseu. We .have tri& t o f o c u s on t h e n:atter of d i s t r i b c . t i o n of revetlues from t a x e s . X e ~ e t t h e l e ~ s , we cannot b e o b l i v i o u s . t o the. r a p i d l y i n c r e a s i n g p r o p e r & tax l e v i e s f @ ~ school d i s t r i c t s .

IJizat abou-t accountCng f o r parochial school c o . ~ ti ~n the school aid fol.muza:' C u r r e n t l y , some s c h o o l a i d s a r e d i s t r i b u t e d t o s c h o o l d i s t r i c t s on t h e b a s i s of t h e number of c h i l d r e n between t h e ages of 6 and 16 who r e s i d e i n t h e d i s t r i c t s , (This i s t h e b a s i s f o r r e g a r d l e s s of w!letber they a t t e n d t h e p u b l i c s c h o o l s o r n o t . c ! i s t r i b u t i o n of t h e s a l e s t a x payments t o s c h o o l d i s t r i c t s . ) T h i s is i n t e n d e d t o r e c o g n i z e solnewhat t h e h i g h e r p a r o c h i a l s c h o o l enrollinents i n some d i s t r i c t s which 2 r e c r e a t i n g an a d d i t i o n a l f i n a n c i a l burden f o r ,some taxpayers. But such a d i s t r i b u t i o n c l e a r l y does n o t t e l z t e t o t h e d i f f e r e n t i a l c o s t s of t h e varioils' pub]-ic s c h o o l s . We b e l i e v e such d i s t r i b u t i o n p l a n s should b e d i s c o n t i n u e d . I t was s u g c e s t e d t o u s t h a t perhays t h e l o c a l e f f o r t f a c t o r i n t h e s c h o o l a i d rormula could be ad j c s t e d t o account f o r t h e e x p e n d i t u r e s f o r p a r o c h i a l s c h o o l s . Idc- f e l r . t h a t i f t h e s t a t e is t o -,rovide a s s i s t a n c e t o p a r e n t s who send t h e i r child.r e n t o p r i v a t e s c l ~ o o l s ,t h i s should b e accomplished through c r e d i t s o r d e d u c t i o n s on each t a x p a y e r ' s incSo!ne t a x , n o t through t h e f o u n d a t i o n a i d formula. I f t h e f o ~ i n d a t i o na i d f o r ~ i l u l awas a d j u s t e d f o r t h i s purpose, e x t r a r e l i e f wculd be g r a n t e d I n a d i s t r i c t t o a l l t a x p a y e r s , n o t on1.y t h o s e who send t h e i r c h i l d r e n t o p r i v a t e s zhools.

c:i

h%y correct tile p m t l e ~;.;of exempt property replacement pqments by imposing a ii i ? ~ ag t the prssmt Zc?teZ and graduaLZy changing tke d$s t r i b u t w n ?

Me c o n s i d e r e d t h e p o s s i b i l i . t y of b a s i n g t h e psyment on t h e a c t u a l l o c a t i o n and v a l u e of t h e exempt p r o p e r t y today, b u t w e f e l t t h i s approach would be d e f e c t i v e Ln t h a t t h e c o r r e c t vallic of tile exempt: p r o p e r t y would b e very d i f f i c u l t t o d e t e r m i n e , even i f b u s i n e s s e s and f a r m e r s were r e q u i r e d t o make r e p o r t s . One of t h e reasons f o r t h e exenlption 'in t h e f i r s t p l a c e , lie u n d e r s t a n d , was t h e d i f f i c u l t y i n determini n g a c c u r a t e v a l u e of t h i s p r o p e r t y . But e q u a l l y i m p o r t a a t , t h i s approach would mean t i e i n g d i s t r i b u t i o n of non-property f u ~ d spermanently t o t h e l o c a t i o n of tax-exempt p r o p e r t y , which gives l i t t l e a s s u r a n c e t h a t t h e d o l l a r s w i l l be d i s t r i b u t e d equi-tably.

Under our approach w e would n o t make any a d d i t i o n a l pa,vments based on t h e l o c 4 t i o n of t h e p r o p e r t y , acd i n f u t u r e y e a r s we wou1.d g r a d u a l l y move from t h i s b a s i s and u s e t h e funds f o r l o c a l government i n o t h e r ways recommended i n t h i s r e p o r t . i k c a u s e of t h e needs of l o c a l governinent. we would n o t s u p p o r t t h e u s e of t h e s e f u n d s f o r o t h e r s t a t e purposes. Nhy not double t h e hon!eatead c r e d i t pqmext from i t s present level?

We reviewed the. d e s i - r a b i l i t y of l e t t i n g t h e homestead c r e d i t payment g r a d u a l l y i z c r e a s e , a u t o m a t i c a l l y , from t h e p r e s e n t l e v e l of $106 m i l l i o n t o a n u l t i m a t e $205 m'l.l.lion. But w i t h t!le d i f f i c u l t y i n f i n d i n g adequate s o u r c e s of revenue f o r l o c a l government, w e cannot j u s t i f y pouring $100 m i l l i o n i n a d d i t i o n a l funds i n t o l o c a l government b a s e d o n t h e l o c a t i o n of homesteads. Only $14 m i l l i o n is provided ann u a l l y v i a income t a x c r e d i t s f o r r e n t e r s , i n l i e u of t h e homestead c r e d i t . Giving a d d i t i o n a l homestead c r e d i t would only widen an a l r e a d y - i n e q u i t a b l e emphasis on

l~omeowncrs a s a g a i n s t r e n t e r s . Moreover, homeowners a r e a b l e t o deduct from federn]. and s t a t e income taxes t h e i n t e r e s t payments on t h e i r mortgage p l u s t h e i r property taxes. Renters, who h e l p pay t h e l a n d l o r d s ' c o s t s f o r such items, r e c e i v e no camp a r a b l e deduction on t h e i r f e d e r a l an3 s t a t e income t a x e s .

Why cizange the homestead credit t o 50% of the f i r s t $250? This approach would have the e f f e c t of g i v i n g more hamestead r e l i e f , q u i c k e r , ' t o r e s i d e n t s of lower-valued homes, whereas 3 5 I of t h e f i r s t $714 h a s t h e e f f e c t of g i v i n g more d o l l a r s of r e l i e f , quicker, t o r e s i d e n t s of more expensive homes, and delaying t h e f u l l b e n e f i t of r e l i e f t o t h e r e s i d e n t s of lower-valued homes u n t i l t h e i r t o t a l t a x b i l l i s s u b s t a n t i a l l y h i g h e r than i t now is. I n terms of a c t u a l payments t o l o c a l governments, t h e 35%-of-the-first-$714 approach means t h a t a g r e a t e r percentage of t h e homestead payments i s being made t o those C ~ m ' m n i t i ~ s w i t h t h e h i g h e r valued homes.

Doesn't our recommendation on the homestead credit deny homeowners additional praopertg tax r e l i e f while pezpetuat.itzg the rsZief given t o business for exempt persona2 property? 1 - k Cannot support expanding t h e p r e s e n t method of d i s t r i b u t i n g l a r g e amounts of d o l l a r s a s reimbursement f o r homestead t a x e s , given t h e s c a r c e tax r e s o u r c e s a v a i l a b l e . I f the L e g i s l a t u r e f e e l s t h a t t h e o v e r a l l balance between b u s i n e s s and i n d i v i d u a l t a x a t i o n i s d i s r u p t e d by changing t h e d i s t r i b u t i o n t o l o c a l u n i t s of government, t h i s car1 be c o r r e c t e d by changing o t h e r t a x e s , such as t h e l e v e l of c o r p o r a t e income t a x e s .

I n considering t h i s q u e s t i o n we a l s o recognized t h a t under our p r o p o s a l t h e a c t u a l t o t a l d o l l a r s of homestead r e l i e f w i l l n o t be decreased and, f o r some homeowners a t t h e lower income l e v e l s , t h e r e l i e f a c t u a l l y w i l l i n c r e a s e . The d o l l a r s th~1.t otherwise would go i n f u t u r e y e a r s t o double t h e p r e s e n t homestead c r e d i t w i l . 1 , we recommend, be used i n s t e a d t o f i n a n c e g r e a t e r s t a t e supp o r t of education, which w i l l reduce t!le school property t a x burden on t h e homeowner. We a l s o took n o t e of t h e f a c t t h a t , i n d i r e c t l y , i n d i v i d u a l s pay b u s i n e s s taxes . . tl~rough t h e p r i c e s f o r products they buy.

Can a federal revewe-sharing plan be neutral i n i t s tocat government impact:' Some f e d e r a l revenue-sharing p l a n s a l l e g e d i y a r e n e u t r a l i n t h e i r impact on l o c a l government s t r u c t u r e and o r g a n i z a t i o n . That i s , t h e s u p p o r t e r s of such plan3 claim t h a t they would d i s t r i b u t e funds t o a l l u n i t s of government on an e q u a l b a s i s . For example, one p l a n would d i s t r i b u t e t o a l l c i t i e s , v i l l a g e s , unincorporated a r e a s and c o u n t i e s , on t h e b a s i s of each u n i t of government's l o c a l l y - r a i s e d revenues a s a percentage of l o c a l l y - r a i s e d revenues of a l l t h e u n i t s of government. We do n o t bel.ieve i t is p o s s i b l e f o r a revenue-sharing p l a n t o b e n e u t r a l . For e x m p l e , every u n i t of government which r e c e i v e s funds from revenue s h a r i n g i s t o some e x t e n t r e i n f o r c e d , even though a s t a t e might wish t o de-emphasize some types of u n i t s and emphasl.ze o t h e r s . A f e d e r a l revenue-sharing p l a n which i t s s u p p o r t e r s claim is n e u t r a l probably i s r e i n f o r c i n g t h e s t a t u s quo i n s t e a d .

Few, i f any, f e d e r a l revenue s h a r i n g p l a n s take account of newly emerging g e n e r a l u n i t s of government, such a s t h e Metropolitan Council.

I.

Amount of S t a c e Aid Distribut& Distribution by Type of Aid of Funds f~ State Governrent t o Local Governme= ( F i s c a l y i T r ending June 30, 1970 o r December 31, 1970)

As compiled by t h e C i t i z e n s League from v a r i o u s s t a t e o f f i c i a l s

t -1Jni r i l l unit-s

-Type of Aid

D o l l a r Amount (in millions)

% of S t a t e Total

Total School Aids * WelEare Highway Homestead Tax Relief Zxempt P r a - e r t : ~ Replacer1e.nt P e r C a p i t a S a l e s Tax Payments P e r Census Child S a l e s Tax Payments C i g a r e t t e Tax Liquor Tax G i f t & I n h e r i t a n c e Tax Bank Excise Tax Mobile Hone P . e g i s t r a t l o n Tax F i r e Department Aid

* *

*

T h e Federal p o r t i o n of t h e s e i s approximately:

School Aids !Je lfare

Highway

The t a b l e above shows t h e revenues t o b e d i s t r i b u t e d by t h e s t a t e t o l o c a l rovernments f o r t h e f i s c a l y e a r ending June 30; 1970, o r t h e c a l e n d a r y e a r ending 31ecember 31, 1970, depending upon t h e type of a i d . It must he c l e a r l y understood ~t t h e o u t s e t t h a t t h i s i s an incomplete p i c t u r e of t h e a i d system. The f e d e r a l .:overnment d i s t r i b u t e s some funds t o l o c a l governments through t h e s t a t e . Those funds a r e included here. I n a d d i t i o n , however, t h e f e d e r a l government d i s t r i b u t e s iunds d i r e c t l y t o t h e l o c a l u n i t s of government, without going through t h e s t a t e . - ; t a t e government does n o t have a c u r r e n t y e a r accounting of t h o s e payments, e i t h e r .s t o t o t a l o r a s t o amount by type of u n i t . M u n i c i p a l i t i e s , c o u n t i e s and s p e c i a l l n i t s of government, such a s t h e Metropolitan Council and housing a u t h o r i t i e s , receive considerable funds d i r e c t l y from t h e f e d e r a l government. The t a b l e shows that approximately $816 m i l l i o n w i l l be d i s t r i b u t e d by t h e s t a t e t o u n i t s of Local government i n Minnesota d u r i n g t h e f i s c a l y e a r ending June

30, 1970, o r t h e calendar year ending December 31, 1970. This includes about $148.3 m i l l i o n i n f e d e r a l a i d which i s chatme:led througli the state t o l o c a l government.

20.6%; highway use:: School a i d s make up 38.7% of t h e t o t a l ; welfare property rep! acement , 9.8X1 exempt a i d , 8.6%; homestead t a x r e l i e f , 13.1%; per c a p i t a s a l e s t a x payments, 3.2%; p e r census c h i l d s a l e s t a x payments, 2.7%: c i g a r e t t e and l i q u o r tax d i s t r i b u t i o n , 1.52; and f o u r o t h e r miscellaneous types of a i d , 1.7X. exempt School a i d s and urr property replacement and t h e honestead t a x r e l i e f payments. census c h i l d s a l e s t a x payments go only t o school d i s t r i c t s , and welfare g r a n t s only t o t h e counties. Municipalities and towns share i n t h e p e r c a p i t a s a l e s tax payments. Municipalities and towns share i n t h e c i g a r e t t e and l i q u o r revenue d i s t r i b u t i o n s . Counties and m u n i c i p a l i t i e s share i n highway user a i d . A l l u n i t s of government which levy property taxes share i n t h e

The types of a i d can be broken i n t o t h r e e major categories. The l a r a e s t , so-called "functional aids ," go f o r sc:lool, welfare, and highway. This makes UP 67.9X of t h e aids. The second l a r g e s t category i s property t a x r e l i e f reimbursement, which c o n s i s t s of homestead t a x r e l i e f , rtxempt property replacement, and, f o r school d i s t r i c t s , t h e p e r census c h i l d s a l e s t a x paypents, a t o t a l of 25.6%. This leaves only a small amount of t h e t o t a l , about 5.9I, which can be c a l l e d "general purpose" g r a n t s t o l o c a l government. This i s t h e s a l e s t a x d i s t r i b u t i o n d i r e c t l y t o m u n i c i p a l i t i e s and ~ O T J ~ S ~ ~which Q S , i s 2.7% of t h e t o t a l . , t h e c i g a r e t t e and miscellaneous o t h e r g r a n t s which amount t o only 1.7%. (The p e r census c h i l d s a l e 5 tax payments t o school d i a t r i c t ~a r e counted a s property tax r e l i e f payments, bzcause, f o r school d i s t r i c t s o u t s i d e c i t i e s of t h e f i r s t cl&.sa, the payments a r e made i n t h e form of a deduction of t h e school d i s t r i c t property tax levy.) The c h a r t on t h e following page shows how t h e $815.7 m i l l i o n i s being d i s t r i b u t e d among t h e d i f f e r e n t types of u n i t s of government, The c h a r t shows t h a t school d i s t r i c t s receive 53.8% of t h e t o t a l : c o ~ n t i e s , 3 3 . 4 % :m u n i c i p a l i t i e s , 1 1 . 4 % , and towns ( c ~ i n c o r p o r a t e da r e a s ) , 1.5%. It i s i n p o r t a n t t o recognize t h e r e l a t i v e growth which i s l i k e l y t o take place i n each type of Eraat. The p e r c a p i t a s a l e s tax a i d s w i l l grow automatically as t h e s a l e s t a x r e c e i p t s grow. Also, under present law, t h e homestead payments and e x e m p t property r e l i e f payments t r i l l i n c r e a s e automatically a s l o c a l tax l e v i e s increase. School a i d s w i l l increase a s s t a t e l e g i s l a t i v e appropriations increase. The highway payments w i l l increase a s revenues from the highway u s e r funds increase, as provided i n t h e s t a t e c o n s t i t u t i o n .

D i s tr i b u t i o n by Unit of Funds from S t a t e Government t o Local Government ( f i s c a l ydar ending June 30, 1970, o r December 3 L

-.----

?-s70)

T o t a l Within S t a t e $815.7 m i l l i o n Type of Aid

-Unit School Districts

Counties

D o l l a r Amount I_in m i l l i o n s )

Total Schcol Aids A PTRF p e r census child Hor.estcad Tax R e l i e f Exemnt pronerty replacement Bznk e x c i s e t a x Mcbile home registration t a x

$438.9 315.6 22 .O 55.2

Total We3 f a r e * Higkway * i!omes tead t a x r e l i e f Exempt pro?erty replacement Gift and i n h e r i t a n c e t a x Bank e x c i s e t a x Nobile home r e g i s t r a t i o n tax

$272.1 168.3 53.1 26 .O 19.5 3.3 1.7

41.4 3.6 1.1

% of State? = &

53.8% -33.7 2.7 6.8 5.1 .4 .1

.2

To t n l Highway PTEF p e r c a p i t a Hi!~iestead t a x r e l i e f E x e m ~ tproperty replacement Cigarette tax Liquor tax F i r e Department a i d Bank e x c i s e t a x Mobile home r e g i s t r a t i o n t a x To t a1 PTRF per c a p i t a Homes t.ead tax r e l i e f Exempt property replacement C i g s r e t te t a x Liquor t a x Rank- e x c i s e t a x Mobile home r e g i s t r a t i o n t a x

*

'he Fed-ra1

p o r t i o n of t h e s e i s approximately: 2':hool Aids We] fare Higi bw a7

.--

--

This information was asse&lr?d-by t h e C i t i z e n s League s t a f f from d a t a provided by l ~ _ a ~ \staff ,a m a d e e % + i m n t e nof c1-i 5 3 1 r l various S t a t e o f f i c t a l s . In axrunt ,sAases bution.

11.

Maior D i s t r i b u t i o n Formulas I

a i d s make up t h e l a r g e s t p o r t i o n of s t a t e payments 1. &&~~L&k--ds--ol t o l o c a l governments, t h e c h a r t on t h e previous page r e v e a l s . School a i d s a r e d i s t r i b u t e d b a s i c a l l y i n two ways, t h e foundation a i d formula, and s p e c i a l a i d s f o r such purposes a s education of handicapped p u p i l s . Foundation a i d has been t h e backbone of t h e s t a t e a i d system. It is d i s t r i buted according t o a formula which o r i g i n a l l y was set up by t h e 1957 L e g i s l a t u r e . The formula i s designed t o a d j u s t t h e amount of a i d each d i s t r i c t r e c e i v e s according t o i t s r e l a t i v e amount of property t a x base and t h e e x t e n t t o which i t meets minimum l o c a l e f f o r t standards. Under t h e formula, a foundation base f i g u r e is e s t a b l i s h e d by t h e L e g i s l a t u r e . The foundation base f i g u r e o r i g i n a l l y was $240 and has been increased every Session s i n c e 1957. For 1970-71 t h e b a s e w i l l b e $404. The foundation b a s e f i g u r e was o r i g i n a l l y intended t o r e p r e s e n t t h e median p e r p u p i l u n i t expenditure ( e x c l u s i v e of c a p i t a l o u t l a y , debt s e r v i c e and t r a n s p o r t a t i o n c o s t s ) . A s education c o s t s have r i s e n , t h e foundation base f i g u r e h a s represented a decreasing percentage of t h e a c t u a l expenditures. I n 1957-58 t h e foundation b a s e f i g u r e was 90.2% of t h e median. This percentage decreased t o 70.2% by 1968-69. The foundation base f i g u r e is n o t t h e amount p e r p u p i l u n i t which is given t o each s c h o o l d i s t r i c t . An " a b i l i t y t o pay" f a c t o r is deducted from t h e b a s e f i g u r e * The f a c t o r i s expressed i n terms of how many d o l l a r s can b e r a i s e d i n each d i s t r i c t from a uniform m i l l rate on an a d j u s t e d a s s e s s e d v a l u a t i o n . The a d j u s t e d assessed v a l u a t i o n of a school d i s t r i c t i s a h y p o t h e t i c a l v a l u a t i o n c a l c u l a t e d by t h e s t a t e t o c o r r e c t f o r d i f f e r e n c e s i n assessment p r a c t i c e s . b very rough terms, i t is about t h r e e t i m e s t h e a c t u a l o f f i c i a l a s s e s s e d v a l u a t i o n of t h e s c h o o l d i s t r i c t . For t h e 1970-71 school y e a r , t h e uniform m i l l rate on t h e a d j u s t e d assessed v a l u a t i o n , f o r purposes of determining s t a t e a i d , is 20 m i l l s .

In summary, . t h e r e f o r e , a s c h o o l d i s t r i c t ' s a i d a l l o t m e n t f o r 1970-71 w i l l be $404 p e r p u p i l u n i t less t h e amount which 20 m i l l s would raise on t h e a d j u s t e d a s s e s s e d v a l u a t i o n . The L e g i s l a t u r e , however, a l s o h a s provided a f l o o r i n t h e foundation a i d formula, which guarantees each school d i s t r i c t a t l e a s t a c e r t a i n amount p e r p u p i l u n i t , r e g a r d l e s s of how much t h e uniform m i l l r a t e would r a i s e on t h e a d j u s t e d assessed v a l u a t i o n . That f l o o r w i l l b e $143. i n t h e 1970-71 school year. 2.

P e r c a p i t a and p e r census c h i l d s a l e s t a x payments--The

1967 Property Tax

Reform and R e l i e f A c t provides t h a t one-fourth of a l l s a l e s t a x r e c e i p t s a r e t o

be d i s t r i b u t e d t o school d i s t r i c t s , m u n i c i p a l i t i e s , and townships. The d i s t r i b u t i o n of t h e funds is h a ~ d l e di n t h i s way: f i r s t a p e r c a p i t a s h a r e of t h e t o t a l amount t o b e d i s t r i b u t e d (one-fourth of t h e t o t a l s a l e s t a x r e c e i p t s ) i s determined f o r Minneapolis, S t . Paul, and Duluth. Then t h e amount which is designated f o r t h e s e t h r e e cities is divided, w i t h i n each of t h e c i t i e s , 2 / 3 f o r t h e municipal government and 1 / 3 f o r t h e school d i s t r i c t . The balance of t h e funds, a f t e r deducting t h e p e r c a p i t a s h a r e f o r Minneapolis, S t . P a u l , and Duluth, is divided i n t o two equal p o r t i o n s , one p o r t i o n f o r a l l o t h e r m u n i c i p a l i t i e s and a l l towns i n t h e state, and t h e o t h e r p o r t i o n f o r a l l o t h e r s c h o o l d i s t r i c t s i n t h e state. The m u n i c i p a l i t i e s and towns s h a r e on a p e r c a p i t a b a s i s and t h e school d i s t r i c t s , on a p e r s c h o o l census c h f l d ( c h i l d r e n between t h e ages of 6-16, i n c l d s i v e , who r e s i d e i n t h e d i s t r i c t , r e g a r d l e s s of whether they a t t e n d p u b l i c

-.

school) b a s i s . The p e r c a p i t a payment t o m u n i c i p a l i t i e s was $5.22 i n 1968: $5.31, 1969: and $6.60 i n 1970, plus an a d d i t i o n a l $2.68 p e r c a p i t a in 1973 t o compensate f o r underpayments i n t h e previous two years. The t o t a l amount d i s t r i b u t e d t o m u n i c i p a l i t i e s and school d i s t r i c t s was $37,900,000 i n 1 9 6 8 $38,600,000 i n 1969: and i s estimated a t $47,900,000 i n 1970, p l u s an a d d i t i o n a l $9,700,000 t o compensate f o r previous underpayments, f o r a t o t a l of about $57,600,000 i n 1970. 3 . Homestead c r e d i t reimbursement;-The 1967 Property Tax Relief and Ref 0rm Act provides t h a t a.percentage of a homeowner's property t a x b i l l w i l l be paid by t h e s t a t e . The percentage w i l l vary from community t o community.

Under t h e a c t t h e s t a t e w i l l pay 352 of t h a t p o r t i o n of a homeowner's Pax b i l l which i s designated t o finance governmental s e r v i c e s o t h e r than debt retirement, t o a maximum of 35% of t h e f i r s t $714 of non-debt t a x , which i s a maximum c r e d i t of $250 p e r homeowner. This means, f o r example, t h a t t h e state w i l l pay 35% of t h a t portion of a homeo~mer's b i l l f o r operating expenses of t h e p u b l i c schools, b u t t h e 35% w i l l not cover t h e p o r t i o n of t h e b i l l f o r debt retirement of t h e p u b l i c schools. The amount of debt retirement a s a percentage of t h e t o t a l t a x levy w i l l vary s u b s t a n t i a l l y i n t h e metropolitan area. Homeowriers i n cornanunities with a r e l a t i v e l y low percentage of t h e levy earmarked f o r debt retirement w i l l have a r e l a t i v e l y higher percentage of t h e i r t a x b i l l s p a i d by t h e s t a t e . Conversely, homeowners i n communities with a r e l a t i v e l y high percentage of t h e levy earmarked f o r debt r e t i o e ment w i l l have a r e l a t i v e l y lower percentage of t h e i r t a x b i l l s paid by t h e s t a t e . It means t h a t homeowners i n some communities w i l l reach t h e $250 maximum f a s t e r t h a n o t h e r s . On a $20,000 house t h e maximum i s reached when t h e non-debt m i l l r a r e i s 3 4 5 - 9 2 - O r , f o r a house of any market value, t h e maximum i s reached when the nmz-debt t a x , before t h e 352 c r e d i t , i s $714 o r more. The percentage of a homeowner's t o t a l b i l l paid by t h e s t a t e , up t o t h e $250 maximum, can be c a l l e d t h e " e f f e c t i v e c r e d i t rate." If t h e r e were no debt retirement i n t h e community, then t h e e f f e c t i v e c r e d i t r a t e would be 35%. Among t h e 74 ~ m u n i t i e sover 2,5CO poi?ulation i n t h e Twin Cities area t h e e f f e c t i v e c r e d i t r a t e v a r i e s from a low of 25.55X i n Lakeville and Lexington t o a high of 32.55% i n ~ichfield. The s t a t e payment f o r t h e 35% homestead c r e d i t t o t a l e d $95,300,000 i n 1969. The Flinnesota Department of Taxation estimates t h a t t h e 1970 payment w i l l b e $106,600,000. There were 818,616 homesteads i n 1969. I f , sometime i n t h e f u t u r e , a l l of these homesteads reach t h e $250 maximm, t h e t o t a l s t a t e payment w i l l be $204,654,OoO. Because of t h e d i f f e r e n c e i n value of homestead property, a s w e l l a s t h e difference i n t o t a l levy and percentage of t h e levy f o r debt, t h e average homestead c r e d i t p e r homestead w i l l vary s u b s t a n t i a l l y from community t o community. Com~unities with a high percentage of high valued homesteads w i l l receive a g r e a t e r ;,roportion of t h e homestead c r e d i t . 4 . Exe1n~t ~ r o a e r t ~ r lacement en .---Certainbusiness and farm propertv f o m e r l y laxable, has been made t a x exempt G d e r t h e 1967 Property Tax Relief and Reform Act. :'his Act provides t h a t a l l taxing u n i t s i n t h e state (municipalities, townships,

school d i s t r i c t s , counties, s p e c i a l d i s t r i c t s ) a r e t o b e reimbursed from s t a t e funds f o r l o s s of revenue from t h e newly-exempt personal property, Exempt property under t h i s a c t covers farm l i v e s t o c k and machinery and e i t h e r busirress i n v e n t o r i e ~o r t o o l s and equipment a s t h e taxpayer may decide, Y

The amount of reimbursement which each taxing u n i t r e c e i v e s i s dependent upon-i n a d d i t i o n t o t h e s i z e of i t s property t a x levy--how much property now tax exempt was located i n i t s borders i n 1366. The reimbursement b e a r s no r e l a t i o n s h i p t o the c u r r e n t vzlue o r type of taxable property o r t o o t h e r f a c t o r s such as popul-ation* Nor does i t r e l a t e i n any way t o t h e l o c a t i o n and value of t a x exempt property today* In f a c t , t h e r e a r e no records a v a i l a b l e on t h e c u r r e n t l o c a t i o n and value of t a x exempt property.

The s t a t e pays a c e r t a i n percentage of each taxing u n i t ' s levy, thereby reducing t h e amount of t h e levy t h a t has t o b e spread on t h e taxable property. This percentage--which i s c a l l e d t h e reimbursement ratio--will be d i f f e r e n t f o r each taxing u n i t , depending upon t h e amount of newly-exempt property t h a t was located i n i t s borders. (Before the r a t i o is applied i n school d i s t r i c t s o u t s i d e c i t i e s of t h e f i r s t c l a s s , t h e p e r school census c h i l d a i d is deducted.) the The reimbursement r a t i o is b a s i c a l l y t h e percentage which t h e levy newly-exempt property bore t o t h e t o t a l levy on a l l property i n t h e taxing u n i t i n t h e l a s t year i n which t h e newly-exempt property was taxable, s t a t e paid approximately $57,300,000 during 1968 and again i n 1969 t o a l l taxing u n i t s i n t h e s t a t e f o r replacement f o r exempt property. During 1970 and again i n 1971 t h e payment w i l l be approximately $80,000,000, according t o t h e Department of Taxation. I n t h e f i r s t two years t h e payments were made from t h e Property Tax Relief Fund, which now has been abolished and made p a r t of t h e general fund. According t o t h e a c t , t h e amount t o be p a i d is a d j u s t e d every o t h e r year, There is no l i m i t t o t h e amount t o be paid i n f u t u r e years. Also t h e areount each taxing u n i t i s t o receive w i l l be based always on t h e r e l a t i v e amount of n ~ 1 . y exempt property t h a t was located i n i t s borders when t h e a c t went i n t o e f f e c t . 5. Hffihwa~u s e r funds--Our committee concentrated its e f f o r t s on o t h e r a s p e c t s of s t a t e revenue d i s t r i b u t i o n and did not make any f i n d i n g s o r recommendations on d i s t r i b u t i o n of highway user funds. But because of t h e r e l a t i v e magnitude of t h i s source of revenue f o r l o c a l government, w e a r e including background information on i t s d i s t r i b u t i o n . (A previous r e p o r t of t h e ~i t i z e n s League, "Highways, T r a n s i t , and the. Metropolitan Council," December 6 , 1968, includes recommendations on changing t h e d i s t r i b u t i o n of highway u s e r funds t o more accurately r e f l e c t t h e needs of urban counties .) The Minnesota c o n s t i t u t i o n guarantees t o m u n i c i p a l i t i e s over 5,000 population and t o a l l counties a s h a r e of t h e S t a t e Highway User Fund. The S t a t e Highway User Fund includes revenue from two sources, t h e seven-cents-a-gallon motor f u e l tax and motor v e h i c l e l i c e n s e fees. A l l revenue from these sources, a f t e r deduction f o r c e r t a i n a d m i n i s t r a t i v e expense and t r a n s f e r s , is earmarked under t h e s t a t e c o n s t i t u t i o n f o r t h e S t a t e Highway User Fund. A three-way s p l i t of t h e Highway User Fund i s provided under llle constitution-

Basically, the s p l i t i s 622 t o t h e s t a t e , 29% t o t h e counties, and 9% t o municip a l i t i e s over 5,000 population. (A s l i g h t adjustment i n these percentages i s p e r n i t t e d , b u t it i s not s i g n i f i c a n t enough t o r e q u i r e e l a b o r a t i o n a t t h i s point.) As f a r as we know t h i s i s t h e only s t a t e fund (with t h e exception of t h e endowment apportionment f o r school d i s t r i c t s ) which c a r r i e s with i t a guarantee, under t h e c o n s t i t u t i o n , of a s p e c i f i c share f o r l o c a l government.

Whenever t h e L e g i s l a t u r e increases t h e gasoline t a x o r motor v e h i c l e l i c e n s e f e e s , say, i n response t o t h e needs f o r a d d i t i o n a l revenues f o r s t a t e highways, thg counties and m u n i c i p a l i t i e s over 5,000 population receive a s h a r e of t h e i n c r e a s e , arltomatically

.

The L e g i s l a t u r e , however, does s t i p u l a t e how t h e c o u n t i e s v s h a r e is t o be s p l i t t h e i n d i v i d u a l counties and how t h e m u n i c i p a l i t i e s 1 share i s t o be s p l i t -on2 the i n d i v i d u a l m u n i c i p a l i t i e s .

among

The county s h a r e i n 1970 i s $51,248,592. The municipality share i s $16,849,042~ The c o n s t i t u t i o n r e q u i r e s t h a t t h e s e funds be used f o r highway purposes. Current s t a t e l a w provides f o r a s p l i t of t h e county funds a s follows: 10% d i s t r i b u t e d equally among t h e 87 counties, w i t h each county r e c e i v i n g 1187th.

10% d i s t r i b u t e d according t o each county's percentage of t o t a l motor v e h i c l e registrations i n the state. 30% d i s t r i b u t e d according t o each county's percentage of t o t a l miles of county s t a t e a i d highways i n t h e s t a t e .

502 d i s t r i b u t e d according t o each county's highway needs a s a percentage of t o t a l county highway needs i n t h e s t a t e . 11

Needs" f o r each county a r e approved by a comrnitree of county engineers. S t a t e law permits only c e r t a i n a s p e c t s of construction t o be covered i n needs. For example, only t h e construction c o s t s of t h e c e n t e r 24 f e e t of a s t r e e t may be included, o r , if i t i s a n u l t i - - l a n e f a c i l i t y , 12 f e e t times t h e number of lanes. This l i m i t a t i o n has t h e e f f e c t of reducing "needc" i n metropolitan counties a s a percentage of t o t a l needs and, consequently, t h e t o t a l allotment t o metropolitan counties. Current s t a t e law provides f o r a s p l i t of t h e municipal funds a s follows: 50% d i s t r i b u t e d p e r c a p i t a .

50% d i s t r i b u t e d according t o each m u n i c i p a l i t y ' s highway needs a s a percentage of t o t a l municipal needs. " ~ e e d s " f o r each municipality a r e approved by a committee of municipal engineers. Metro~ol it an counties (Anoka, Carver, Dakota, Hennepin, Ramsey , S c o t t , and 'ashlngton) receive i n t h e aggregate about 1 3 h f t h e t o t a l funds d i s t r i b u t e d t o ,.ounties- Metropolitan area m u n i c i p a l i t i e s receive about 70% of t h e t o t a l funds . ' i s t r i b u t e d t o m ~ n j - c i p a l i t i e s . k t r o p o l i t a n counties and m u n i c i p a l i t i e s combined .-eceive about 26% of t h e t o t a l funds distributed t o counties and m u n i c i p a l i t i e s .

111. Major S t a t e and Local Tax Receipts

Although t h i s r e p o r t concerns t h e d i s t r i b u t i o n of revenue, not t h e q u e s t i o n s of r e l a t i v e emphasis on d i f f e r e n t t a x sources, i t i s a p p r o p r i a t e f o r background purposes t o l i s t t h e amounts of revenue from t h e v a r i o u s major taxes. The following f i g u r e s were taken from r e p o r t s prepared by t h e Division of Research and Planning, Department of Taxation, and t h e Research S e c t i o n , Department of Education: Minnesota S t a t e and Local Tax Receipts ( F i s c a l Year Ending June 30, 1969) S t a t e Income Tax ( i n c l u d i n g i n d i v i d u a l and corporate) S t a t e S a l e s Tax Motor Vehicle ( f u e l t a x and l i c e n s e f e e s ) C i g a r e t t e Tax Alcoholic Beverages Tax Gross Earnings Tax ( r a i l r o a d , telephone, e t c . ) Other S t a t e Taxes and Licenses TOTAL S t a t e Taxes .

Property Tax (including n e t l e v i e s by a l l j u r i s d i c t i o n s , p l u s s p e c i a l assessments)

l ~ r e l i m i n a r ye s t i m a t e s f o r t h e f i s c a l y e a r ending June 30, 1970, prepared by t h e Minnesota Department of Taxation, p l a c e income t a x c o l l e c t i o n s a t $415.6 m i l l i o n and s a l e s t a x c o l l e c t i o n s , $195.5 m i l l i o n .

BACKGROLID OF TRE REPORT

The C i t i z e n s League has published s e v e r a l major r e p o r t s on various aspects of Among them a r e :

the s t a r e - ] o c a l f i s c a l system i n recent y e a r s .

* * * *

* * *

*

"Conclusions and Recommendations on t h e Impact of t h e Dulton Case and on Property Tax Assessment Reform" (May 14, 1965) "Minneapolis Financial S i t u a t i o n " (April 1 4 , 1966) "1967 Minneapolis School Financial Needs" (July 27, 1966) "Citizens League Tax Relief and Reform ~ r o ~ o s a l(May " 5 , 1967) "Breaking t h e Tyranny of t h e Local Property ax" (March 20, 1969) "Stretching t h e School Salary ~ o l l a r "(July 30, 1969) "Organizing F i s c a l Inf ormation f o r P u b l i c Policy ~ u r p o s e s " (January 2 2 , 1970) "Statement b e f o r e t h e Minneapolis Charter Commission on Proposed Non-Property Taxes f o r Minneapolis" (May 7, 1970)

The Play 5 , 1967, r e p o r t recommended a 3% s t a t e s a l e s t a x , with two-thirds of This r e p o r t was published p r i o r The Match t o passage by t h e L e g i s l a t u r e of t h e Property Tax ?.eform and Yelief Act. 20, 1969, r e p o r t i s a proposal f o r s h a r i n g t h e growth of t h e property t a x base i n the Twin C i t i e s a r e a . That r e p o r t r e f e r r e d b r i e f l y t o t h e problems of d i s t r i b u t i o n o f non-Property t a x e s , as well. Following t h e 1969 L e g i s l a t u r e , t h e Citizens League Board of Directors reviewed t h e major f i s c a l i s s u e s which remained u n s e t t l e d aEter t h e L e g i s l a t u r e adjourned and approved establishment of a research committee with t h e following assignment: the revenues returned d i r a c t l y t o l o c a l government.

Review t h e l i k e l i h o o d of a d d i t i o n a l sources of general revenue t o be made a v a i l a b l e t o l o c a l governments i n Minnesota--whether from s t a t e o r f e d e r a l sources--and t h e p o t e n t i a l amount of the d o l l a r s involved. I n v e s t i g a t e various p o s s i b i l i t i e s f o r d i s t r i b u t i o n of revenue, includi n g whether t o base d i s t r i b u t i o n on a school d i s t r i c t , cour~tyo r munic i p a l i t y ' s documented need f o r funds f o r s p e c i f i c programs and i t s a b i l i t y t o demonstrate t h e e f f e c t i v e n e s s of such programs. Make recommendations on how t h e revenue should be d i s t r i b u t e d , both among d i f f e r e n t types of u n i t s of govemnent (metropolitan, county, school d i s t r i c t , municipality and township) and w i t h i n each type of u n i t ( f o r example, among t h e various school d i s t r i c t s )

,

.

COMMITTEE MEMBERSHIP A t o t a l of 37 members p a r t i c i p a t e d a c t i v e l y i n t h e work of t h i s coromittee. chairman was William J. Hempel, a Minneapolis lawyer. Other members were:

The

James H. Adam A 1 Albrecht Thomas Berg Robert Berkwitz F r a n c i s Boddy Edward Brandt James J. Carney Thomas Connelly David Dahl Arthur Delau N e i l Dietrich Gordon M. Donhowe M r . & Mrs. Nicholas Duff Robert Ehlers* Dennis Enright Harry Fiterman Mrs. A . C . Greenman George M. Hansen

W i l l Hartf e l d t Paul Hauge Robert Heaney Lowell W. Johnson Ralyh W. Laurens James McComb* Mrs. Stanley Peterson John A. Rollwagen Arne S c h o e l l e r John Skeate Harry S l e t t e n Thomas Vasaly Robert Voss Tom Waterbury* John Weaver David Wiclcstrom John Windhorst , ~ r :

The committee was a s s i s t e d by Paul A. C i l j e , C i t i z e n s League r e s e a r c h d i r e c t o r , Andrew Lindberg, C i t i z e n s League r e s e a r c h a s s i s t a n t , Theresa Schmieg of t h e C i t i z e n s League c l e r i c a l s t a f f , and Mrs. Irma S l e t t e n of t h e s t a f f of Rapid Analysis F i s c a l Tool (RAFT). RAFT i s a cooperative e f f o r t of t h e C i t i z e n s League and t h e Upper Elldwest Research and Development Council t o develop a computerized r e p r e s e n t a t i o n of t h e Minnesota t a x system. COMMITTEE PROCEDURES The committee met 33 times from October 30, 1969, t o June 8, 1970, an average of about one meeting a week. Meetings were h e l d on a l t e r n a t e weeks i n S t . P a u l and Pli~lneapolis f o r t h e convenience of committee members and resource persons. During t h e f i r s t t h r e e months, as with o t h e r C i t i z e n s League committees, t h e emphasis was on o r i e n t a t i o n . A l a r g e number of l o c a l , r e g i o n a l , s t a t e and f e d e r a l governmental o f f i c i a l s m e t with t h e committee, r e a c t i n g t o questions and making proposals. An agenda of major questions had been prepared f o r t h e f i r s t meeting of t h e committee and was followed through most of t h e o t h e r meetings. Almost a l l meetings were 2&hour evening meetings. I n t h e late s t a g e s of d e l i b e r a t i o n s , meetings r a n a s long a s f o u r hours. I n t e r e s t e d persons o u t s i d e t h e comm i t t e e were kept informed of i t s a c t i v i t y by r e c e i v i n g copies of t h e d e t a i l e d minu t e s of each meeting. *These meluhers d i s s e n t e d from o r expressed r e s e r v a t i o n s about c e r t a i n s e c t i o n s of the r e p o r t * lhorandums prepared by Robert E h l e r s and Tom Waterbury a r e a v a i l a b l e on r e q u e s t a t t h e C i t i z e n s League o f f i c e . E h l e r s o b j e c t s t o use of average p u p i l u n i t expenditure i n t h e foundation a i d formula, t o t h e recommendation on r e s t r a i l l i n g l o c a l school d i s t r i c t levying, and t o use of l o c a l l y - r a i s e d revenue as t h e b a s i s for d i s t r i b u t i o n of municipal a i d s . James McComb o b j e c t s t o t h e recommendation on f r e e z i n g t h e homestead c r e d i t and on changing t h e c u r r e n t method of d i s t r i b u t i o n of t h e homestead c r e d i t . Waterbury s a i d h e is s k e p t i c a l about t h e recommendation on r e s t r a i n i n g l o c a l school d i s t r i c t levying and d i s a g r e e s w i t h t h e use of income a s an adjustment f a c t o r i n t h e ~ c b 0 0 1a i d formula.

The Citizens League has a limited number of copies of minutes of meetings largt A on file, which can be made available to persons who come to the league office. amount of background material assembled for the emittee also can be reviewed in the League office. Many staff personnel in various governmental offices provided invaluable assistance on request. Particularly helpful were personnel in the State Department of Taxatton, State Department of Education, Minnesota Public Examiner's office, State Auditor, and the Metropolitan Council. Requests for information were handled quickly and completely. All of the resource persons who met with the committee accepted invitations without hesitation. The conrmittee was particularly fortunate to meet with Walter We Heller, professor of economics, University of Minnesota, an originator of the idea of federal revenue sharing, and with Murray Weidenbaum, assistant secretary of the Treasury for Economic Policy, who is in charge of the Administration's revenue sharing proposal. Following is a list of resource persons who met with the committee, in addition to Heller and Weidenbaum: Arthur Naftalin, Professor of public Affairs, University of Minnesota* William J. O'Brien, State Auditor. Ravmond T. Olsen, Director, State Planning Agency. Edward A. Hunter, Deputy Director, State Planning Agency. Donald Bevis, Assistant Superintendent for Research, Development and Federal Projects, Minneapolis Public Schools. Dr. Ellen Fifer, Oirector of Health, State Planning Agency. Richard Oakes, Executive Vice President, Minneapolis Taxpayers Association. Ralph Keyes, Executive Secretary, Association of Minnesota Counties. Stanley Cowle, Hennepin County Administrator. Rollin H. Crawford, Mayor, West St. Paul, and Chairman of Government Finance Committee, Metropolitan Section, League of Minnesota Municipalities. Paul Dow, Executive Secretary, Efetropolitan Section, League of Minnesota Municipalities. Dean Lund, Executive Secretary, League of Minnesota Municipalities. F. Robert Edrnan, Consultant to Minnesota Legislature on federal grants-in-aid. Governor Harold LeVander. John Klein, Chairman, Eagan Town Board. Hale Chamvion, Vice President, University of Minnesota, and formerly Director of Finance, California, and Director, Boston Redevelopment ~ * C Y I.lovd Nielsen, Superintendent, Roseville Public School. Erlinfi 0 , Jghnsun, Sunerintendent, Anoka Public Schools. George J. Greenavalt, Superintendent, Hopkins Public Schools. Larrv Harris, Assistant to Superintendent, Minneapolis Public Schools. Gordon Minirlier, Assistant Superintendent for Personnel, St. Paul Public Schools. , -s Director of Research, State Department of Education. Rufus Logan, Commissioner of Taxation. James L Hetland, Jr , Chairman, Metropolitan Council Robert C. Ein~~reiler, Planning Director, Metropolitan Council. Allen Muplia, Manager, Metropolitan Finance, Metropolitan Council. A * Wettergren, Executive Secretarg, Minnesota School Boards Association. Loring Ellefson, Minnesota Public Examiner's office. Richard - Erdall, Alderman 13th Ward, and President, Minneapolis City Council

-7

" 0

-

*..

.

John Bergford, Alderman 7th !Jard, and Chairman, Ways and Means Committee, ?.linneapolis City C o ~ . n c i l . nomas A . Thompson, Minnea~olisCity Coordinator. John Bzandl, Dfrector, School of l'ublic A f f a i r s , University of Minnesota. Thomas Byrne, then Mayor o f S t . Paul. Robert Trudeau, Assistant Chief Acco~mtanr, City of S t . Paul.

Chart I STEPS I N APPORTIONMENT OF STATE SWPORT DOLLARS FOR MUNICIPAL GOVERNHENT recommehd one-fourth of

1.

Determine amount t o place i n Municipal Aid Fund. s a l e s tax receipts.

2.

Determine which u n i t s of government should share i n Municipal Aid Fund. We recomend c i t i e s and v i l l a g e s , with county gwermnents t o receive amounts a t t r i b u t a b l e t o unincorporated areas.

3.

Determine o v e r a l l share of Municipal Aid Fund f o r Twin Cities region. recommend a s follows:

ls?e

W e

Cities Reg ion Share 4.

Determine b a s i c entitlement of Twin C i t i e s Region share f o r each c i t y and v i l l a g e i n t h e region. We recomend a s follows: ! ~ o c a l l ~ - ~ a i s Revenue ed of Individual Entitlement Cities Region Share

5.

Village

Adjust each c i t y or v i l l a g e ' s b a s i c entitlement according t o its t a x resources. W e recommend a s follows: ,Assessed Basic Entitlement f o r each City o r Village

\

Income/ dwelling i n region

j val/capita X

,

\

Actually Paid t o

1

Ii

Income/ \dwelling ; \in localityi

I

---

City o r Village ..-

..-

2 A

APPENDIX Chart I1

EOUALZZATION "L4G11IS SCHOOL AID FORMULA I

I n t h e rccomnsendations and discussion of t h e school a i d formula, considerable e m p h a s i s i s placed on t h e f a c t t h a t t h e foundation base f i g u r e has f a i l e d t o keep

pace with increasing c o s t s of education, and t o t h a t e x t e n t t h e Impact of equalizat i o n from d i s t r i c t t o d i s t r i c t has diminished. The c h a r t below i l l u s t r a t e s t h i s by showing t h e drop i n t h e percentage which the foundation a i d base is of t h e a c t u a l operating expense per p u p i l u n i t i n s e l e c t e d Twin Cities a r e a school d i s t r i c t s : Foundation Aid Base 60-61 6 96 8 :

-

Schoo 1

District

- .

--

Operating Foundaeion Base Expense p e r as % of Operating Expense P u p i l Unit 1 60-51 68-69

$2 70

$355

$277

$476

97.4%

74.69%

B e l l e P l a i n e 716

270

355

301

479

89.7

74.1

Rloomington 271

270

355

32 1

592

84.1

59.9

Centennial 12

270

355

353

603

76.5

58.9

Edina 273

270

355

347

626

77.8

56.5

hfinneapolis S 1

270

355

355

587

76.1

60.5

Mounds View 621

270

355

324

581

83.3

61.1

Richfield 280

270

35 5

343

6 50

78.7

54.6

Rcseville 623

2 70

355

368

624

73.4

56.9

S t , Paul 625

2 70

355

356

598

75.8

59.4

South S t . Paul S6

270

355

379

636

S t i l l w a t e r 834

'270

355

- 359

664

2 70

355

32 8

555

Anoka 11

Waconia 110

'

I I

,

, ,

I - I I

Chart 111 PROPOSED STEPS I N CALCULATING SCHOOL AID

I I

1.

Determine t h e number of p u p i l u n i t s i n each school d i s t r i c t , region arid s t a t e wide, with t h e weighting f o r p u p i l u n i t s t o take i n t o consideration--in a d d i t i o n t o d i f f e r e n c e s i n grade levels--socia-economic disadvantaged p u p i l s and physically and mentally handicapped.

I

2.

Determine t h e average p e r p u p i l u n i t operating expenditure, exclusive of c a p i t a l expenditures, f o r each region i n t h e s t a t e and statewide.

I

3.

Determine t h e t o t a l a i d entitlement t o each school d i s t r i c t by multiplying the number of p u p i l u n i t s by t h e average operating expenditure p e r p u p i l u n i t in the region.

-r] P u p i l Units

x

,Regional Average Operating Expenditure per P u p i l Unit

Entitlement

(This s t e p i s unnecessary i f s u b s t a n t i a l l y f u l l s t a t e funding is provided.) Mulw t i p l y t h e t o t a l a i d e n t i t l e m e n t t o each school d i s t r i c t by two f a c t o r s : (1) rhe o v e r a l l percentage of school expenditures which w i l l b e paid by t h e state and ( 2 ) a v a r i a b l e support index, which w i l l i n c r e a s e o r decrease each d i s t r i c t ' s aid e n t i t k m e n t according t o e f f o r t ( a s measured by t h e t o t a l n e t property t a x levy f o r a l l j u r i s d i c t i o n s w i t h i n t h e school d i s t r i c t ) and a b i l i t y t o pay ( a s measured by assessed valuation and i n d i v i d u a l adjusted gross income).

1 3 Entitlepent

x

Overall % of S t a t e

Support

Entitlement

Determine whether a school d i s t r i c t ' s p u p i l u n i t operating expenditure i n t h e previous year exceeded the statewide o r r e g i o n a l average, whichever i s higher, by mofe than lo%, a f t e r adjustments f o r c o s t of l i v i n g changes. I f n o t , g i v e each school d i s t r i c t i t s entitlement a s determined i n (3) o r (3a) above. If c o s t s were more, than 10% above t h e statewide o r r e g i o n a l average, whichever 5s h i g h e r , deduct i t s s t a t e a i d by 5 0 ~f o r every d o l l a r of expenditures above t h e 10%.

*

See Chart IV on reverse s i d e f o r explanation of Variable Support Index. The variable support index w i l l i n c r e a s e o r decrease a d i s t r i c t ' s a i d entith=-Ent according t o whether i t s n e t property t a x levy, assessed v a l u a t i o n and adjusted gross i o ~ l ~ l Per tr pupil u n i t , i n t h e aggregate, i s above o r below t h e average per p u p i l u n i t .

Chart V SUPPLEMENTARY INFORMATION ON UNDERSTANDING SCHOOL AID

.

It is important t o keep i n d u d four d i f f ere= p u p i l u n i t aid payments t o school d i e t r i c t s .

figures In u o d e r s w tb.

1. Total expense per p u p i l u n i t , both operating and c a p i t a l . 2.

m e r a t i n n expense per pupil u n i t , exclusive of c a p i t a l .

3.

Foundation base, which is t h e portion of the pupil u n i t aperating expense upon which a c t u a l a i d is calculated.

4.

Foundation a i d , which i a t h e a c t u a l amaunt paid per p u p i l tmit.

I n t h e 1968-69 school year the median t o t a l expense of a l l school d i s t r i c t s fn t h e s t a t e was $649. The median operating expense was $506. Ttte foundation base was $355, and the median foundatian a i d paid was $221. (Or, t h e a c t u a l aid paid was 62% of t h e foundation base, which was 70% of operating expense, which was 78% of t o t a l expense.)

1

1-

Total Expense $6491;;;;1

- - - -.--

,

uni]

-

eratin E

ense

$506/pupil u n i t 100%

-------

Foundation Base

70X

$355/pupil u n i t Foundation Aid

I

$221/pupil u n i t

A key policy recammendation i n t h e Citizens League proposal on school a i d i s that the foundation base be 100%of t h e operating expense, which means t h a t equalization of a i d would be based on t o t a l operating expense, not j u s t a portionElen t h e foundation a i d formula f i r s t went Anto e f f e c t i n 1957, i t was intended . t h a t t h e foundation base be 100%of aperaMng expense i n t h e previous year, but t h i s percenta~ehas sl-ipped more year by year.

-

-

APPENDIX Chart V I

u

REItBURSEMENT RATIOS EXEMPT PROPERTY REPIACEPENT The recommendations and discussion of t h e method by which l o c a l governments arc reimbursed f o r l o s s of property t a x revenue from newly-exempt farm and business property r e f e r t o t h e reimbursement r a t i o . The reimbursement r a t i o represents the r e l a t i o n s h i p between the levy on the newly-.exempt property i n t h e last year i t was taxable and the t o t a l levy on a l l p r o ~ e r t yi n t h e taxing j u r i s d i c t i o n i n t h a t year. The reimbursement r a t i o Is a permanent percentage f o r each u n i t of government and is t h e percentage of the current ?rear's tax levy which w i l l be paid by the state. For example, the v i l l a g e of Arden H i l l s has a reimbursement r a t i o of 33.452, highest i n the seven-county Twin Cities area. The s t a t e w i l l pay, permanently, under present law, 33.45% of the Arden H i l l s t a x levy, whatever i t happens t o be. Highest r a t i o i n the s t a t e i s 65.40% i n Great Scott Totmship i n S t , Louis County. Following a r e reimbursement r a t i o s f o r selected Tvdn C i t i e s a r e a municipalities* amol~ntof the exempt property replacement entitlement f o r 1970:

~ I - - c .the

Municipalitv -

. '

Arden H i l l s Anoka Belle Plaine T S t . Paul Minneapolis Empire T . Roseville Chanhassen South St. Paul Stillwater 1.laconi.a Eagan T Bloomington Golden Valley White Bear Lake Shakopee (Ed ina

Burnsville Richf i e l d Coon Rapi-ds hr,\b\) I r\sdale

Tonka 2 9 ~ Mounds Viw C l rclp

P!nes

lqorth bdr.:,

Reirnbursement Ratio

1970 Entitlement

RECENT CITIZENS LEAGUE REPORTS Large Trucks: A Small Piece of A Larger Problem Remaking the Minnesota Miracle: Facing New Fiscal Realities Because That's Where the Money Is: Why the Public Sector Lobbies Does the System Maltreat Children? Wiring Minnesota: New State Goals for Telecommunications Losing Lakes: Enjoyment of a Unique Metropolitan Resource is Threatened Access, Not More Mandates: A New Focus for Minnesota Health Policy Community: A Resource for the '90s The Metropolitan Council: Suengthening Its Leadership Role Building Tomorrow by Helping Today's Kids Chartered Schools = Choices for Educators + Quality for All Students Cut Tax Exemptions, Boost Equity and Accountability Stopping AIDS: An Individual Responsibility The Public's Courts: Making the Governor's Nominating Process Statutory Make the Present Airport Better-Make A New Airport Possible Cooperatively-Managed Schools: Teachers as Partners The New Weigh to Recycle First Class Property Tax System Start Right with "Right Start": A Health Plan for Minnesota's Uninsured New Destinations for Transit Commitment to Focus: More of Both State Civil Service: People Make the Difference It's Only a Game: A Lottery in Minnesota Adaptability--The New Mission for Vocational Education A Strategy for the Waterbelt Power to the Process: Making Minnesota's Legislature Work Better Accountability for the Development Dollar Building on Strength: A Competitive Minnesota Economic Strategy A Larger Vision for Small Scale Agriculture The Metro Council: Narrowing the Agenda and Raising the Stakes The Region's Infrastructure: The Problem Isn't What You Think It Is Meeting the Crisis in Institutional Care: Toward Better Choices, Financing and Results A Farewell to Welfare Homegrown Services: The Neighborhood Opportunity Use Road Revenue for the Roads That Are Used Workers' Compensation Reform: Get the Employees Back on the Job Thought Before Action: Understanding and Reforming Minnesota's Fiscal System The CL in the Mid-80s Making Better Use of Existing Housing: A Rental Housing Strategy for the 1980s Rebuilding Education to Make It Work A Positive Alternative: Redesigning Public Service Delivery Paying Attention to the Difference in Prices: A Health C m Cost Strategy for the 1980s A Subregional Solution to the East Metro Park Question Taxis: Solutions in the City; a New Future in the Suburbs Keeping the Waste Out of Waste Changing Communications: Will the Twin Cities Lead or Follow? Siting of Major Controversial Facilities Enlarging Our Capacity to Adapt: Issues of the '80s Next Steps in the Evolution of Chemical Dependency Care in Minnesota Linking a Commitment to Desegregation with Choices for Quality Schools Initiative and Referendum..."NO" for Minnesota

For titles and availabiliry of earlier reports contact the Citizens League ofice, 3384791

RECENT CITIZENS LEAGUE STATEMENTS Light Rail Transit: The Regional Transit Board's Proposal to the 1991 Minnesota Legislature Letter to Legislature from Community Information Committee re: Financing at the University of Minnesota Statement on Changing the Fiscal Disparities Law Statement to the Governor & Legislature on Transportation Financing in 1988 Statement to Legislative Commission re: Road Financing Statement to University of Minnesota Regents re: Commitment to Focus Statement to Governor and Legislature on Innovation and Cost Control (Governor's Budget) Selection of a New State Commissioner of Transportation Letter to Regional Transit Board re: Metro Mobility Price Competition Ideas Testimony to Legislature on Bloomington Stadium Site Bill Letter to Regional Transit Board re: Policy Committee's Study of Metro Mobility Statement to House Tax Subcommittee on Fiscal Disparities Statement to Legislature on Preserving Metropolitan Tax-Base Sharing Statement to Legislature & Metro Council on Bloomington Development Proposal Statement to Metropolitan Council on Organized Collection of Solid Waste Statement to Metropolitan Council on Long-Term Care Statement on Transit Alternatives Statement on Solid Waste Disposal Statement to Tax Study Commission Statement on Light Rail Transit Statement to Legislative Study Committee on Metropolitan Transit Statement to Governor's Tax Study Commission Statement to Minnesota's Highway Study Commission Statement on the Metropolitan Council's Proposed Interim Economic Policies Statement to Minneapolis. Charter Commission: Proposal to have Mayor as non-voting member of Council Statement to Metropolitan Council & Richard P. Braun, Commissioner of Transportation on hferential Treatment in I-35W Expansion Statement to Members, Steering Committee on Southwest-University Avenue Conidor Study Statement to Commission on the Future of Post-Secondary Education in Minnesota Statemcnt to the Metropolitan Health Board Appeal to the Legislature and the Governor Citizens League Opposes Unfunded Shifts to Balance Budget Longer-Tern Spending Issues Which the Governor and Legislature Should Face in 1982 Statement Concerning Alternatives to Solid Waste Flow Control Amicus Curiae Brief in Fiscal Disparities Case,filed Statement to the Minnesota State Legislature Regarding the Reconstruction Project Letter to the Joint Legislative Commission on Metropolitan Governance Statement to Metropolitan Health Board on Phase IV Report Statement to Metropolitan Council on I-35E Statement to Minneapolis Charter Commission Letter to Metropolitan Council re CL Recommendations on 1-394 Statement to the Governor and Legislature as They h p a r e for a Special Session Statement to the Minnesota State Legislature Regarding the University of Minnesota Hospitals Reconstruction Bill, as amended Statement to the Governor and Legislature Concerning ExpendituresTaxation for 1981-83. Issues by Tax & Finance Task Force For list of earlier statements,contact the League office, 338-0791

School Shopper Help for Parents T ~ SCHOOL E BOOK: 1990-91 A Comprehensive Guide to Elementary Schools, in the Twin Cities

For the first time. Minnesota parents who are selecting schools will have a concise source of comparative information. The School Book, A ComprehensiveGuide to Elementary Schools in the Twin Cities, a new publication from the Citizens League, is now available. The book profiles 449 public and private elementary schools. The book features information about each school's curriculum, foreign languages, building and facilities, extracurricular activities, number of students and teachers, class size, equipment and technology, grading system, parent organizations and communications, and services to families (e.g., latchkey, breakfast). Each school profile includes a self-description of the school's teaching philosophy and strengths. Also included in the book is information about what to consider when choosing a school, an explanation of Minnesota's school choice law, an application for the open enrollment program, and a Metropolitan Council map of public schools and districts in the region. You can get a copy of The School Book by calling the Citizens League at 612/338-0791 or by using the enclosed order form. League members can buy the book for $10.00; the nonmember price is $12.95. b

state, The 1991

Report highlights Minnesota health care marketplace Minnesota HMO Review 1989 After three consecutive years of losses, Minnesota's health maintenance organization (HMO) industry returned to profitability in 1989. Nevertheless, concerns remain over HMOs' finances and their , increasing use of hospital care. A report by the Citizens League provides valuable information about Minnesota's HM0,industry. The report, Minnesota HMO Review 1989, also analyzes key trends in enrollment, hospital utilization, and management arrangements and costs. With 1.1 million Minnesotans enrolled, HMOs affect most businesses, medical providers and families in the state. Besides losing $26 million in the late 1980s HMOs faced widely publicized provider revolts, a 9 percent enrollment decrease and tougher state rules.

Minnesota HMO Review 1989 is a valuable reference for people who need to keep up with Minnesota's dynamic health care marketplace. League members can buy the report for $5.00; nonmember price is $10.00. To order your copy, please use the enclosed form or call the League at 612/338-0791. The data set developed by the League staff in preparing its analysis is also available. Call for details. WATCH FOR NEW, EXPANDED EDITION: Minnesota Managed Care Review I990 will be published in May 1991.

,

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$10.00 $6.00

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$12.95

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CITIZENSLEAGUE Board, Officers, and Staff 1969-70 This report, New Formulasfor Revenue Sharing in Minnesota, was originally approved and published in 1970 and was reprinted in 1991. The League's board. officers, and staff at the time the ~epoftwas first published are listed below, as their names appeami in the original edition of the report. OFFICERS, 1969-70

DIRECTORS

President John W. Mooty Vice Presidents Harold D. Field, Jr. William Hempel Verne C. Johnson Richard J. Fitzgerald. Fred C. Cady Secretary John M. Sullivan Treasurer Earl F. Colbom. Jr.

Charles BacksVom Francis M. Boddy John Cmichael Norman Carpenter Mrs. Jack Davies Wallace C. Dayton Gordon M. Donhowe John R. Finnegan Mrs. David Graven John G. Hamson Paul H. Hauge Peter A. Heegard C. Paul Jones G m r E. Lockhart Donald W. McCanhy

STAFF Executive Director Ted Kolderie Research Director Paul A. Gilje Research Associates Calvin W. Clark Clarence Shallbetter Membership & Finance Director George F. Bauman

John F. McGrory William E. Mullin Wayne H. Olson Roger Palmer Leslie C. Park Roger Provost Mrs. Joseph Richardson Allen I. Saelcs Peter H. Seed Waverly Smith S. L. Stolte Harry Sutton, Jr. Everett J. Swanson Matthew 'Ihayer Mrs. T. Williams

WHAT THE CITIZENS LEAGUE IS Thc Citizens League has been an active and effective public affairs research and education organization in Ihe Twin Cities metropolitan area since 1952. Voluntccr rcscarch committees of League members study policy issues in depth and develop informational reports that propose specific workable solutions to public issues. Recommendations in these rcports often become law. Over the years, League reports have been a reliable source of information for governmental officials, community leadcrs, and citizens concerned with public policy issues of our area. The League depends upon the support of individual members and contributions from businesses, foundations, and other organizations throughout the metropolitan area. For membership iMormation, please call 6121338-0791.

OFFICERS 1990-91

DIRECTORS 1990-91

President Carl "Buzz" Curnmins Vice President Elizabeth Malkerson Secretary Beverly Propes Treasurer Daniel Peterson

Judith E. Alnes Peter Bell Earl Bowman, Jr. John Brand1 Ronnie Brooks Ellen Brown John Cairns Andrew Czajkowski Ann Sheldon Duff Kent Eklund Robert Erickson Jane Gregerson Milda Hedblom Karen L. Himle Janet Hively Bill Johnstone

STAFF

PAST PRESIDENTS

Executive Director Curtis Johnson Associate Director AUan Baurngarten Research Associate Jody Hauer Finance Director Philip Jenni Legislative & Communications Director Peter Vanderpoel . Administrative Staff Donna Daniels Dawn Latulippe Joann Latulippe Editor, Minnesota Journal Stephen Alncs

Charles S. Bellows Francis M. Boddy Alan R. Boyce Ronnie Brooks Charles H. Clay Eleanor Colbom RoUin H. Crawford Waite D. Durfee John F. Finn Richard J. FitzGerald David L. Graven Walter S. Harris, Jr. Peter A. Heegaard James L. Hetland, Jr. Terry Hoffman B, Kristine Johnson Verne C. Johnson Jean King Stuart W. Leck, Sr.

Bill Kelly Carol Kemer Jay Kiedrowski Jean King William LaRr A. Scheffer Lang Barbara Lukermann Charles Neerland Rafael Ortega David Piper Wayne Popham Stephen Schewe Thomas H. Swain James Terwedo Cam1L. Thacher Nancy Zingale

-

,

Greer E. Lockhart John W. Mooty Arthur Naftalin Charles Neerland Norman L. Newhall, Jr. Wayne H. Olson Leslie C. Park Malcolm G. Pfunder Wayne Popham James R. Pratt Lconard F. Rmbcrg John A. Rollwagen Charles T. Silverson Archibald Spencq Thomas H. Swain Peter Vandepel Frank Walters John W. Windhorst

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Membership is taxdeductible and includes a one-year subscription to the Minnesota Journal P Office

*Family membership entitles you to a second Minnesota Journal. Please indicate the name and address of the recipient.

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Join the Citizens League and help make things happen IMPACT

Being a member of the Citizens League means you care about what happens in Minnesota and believe that good public policy depends upon an informed citizenry. League membership gives you an opportunity to participate in shaping public policy. Membership also offers these additional benefits:

PUBLICATIONS

Minnesota Journal - 22 issues a year of timely public affairs news, analysis and commentary, including the League's annual property tax survey. Public Affairs Directory - a handy listing of agencies, organizations and officials involved in making public policy. The School Book - a comprehensive guide to elementary schools in the Twin Cities. Citizens League reports -full reports and statements on topics studied - available

upon request. MEETINGS

Mind-Opener breakfast meetings -every Tuesday from Labor Day to Memorial Day. Public officials, community and business leaders meet with League audiences to discuss

and debate timely issues. The DeSantis Series: Neighborhood Issues in Focus - Speakers explore issues of

neighborhood economic development. Seminars -- occasional, in-depth discussion of issues.