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Talking Points: Report: Dire straits facing taxpayers if aids dry up

Many Minnesota cities are in big trouble and it could get worse.

That's the conclusion of a report, "Minnesota's Most Vulnerable Cities," by the organization, Strong Towns.

The state's current budget crisis has forced lawmakers and Gov. Tim Pawlenty to slash away at Local Government Aid and County Program Aid the last few years. For many cities and counties, like Stevens County and the cities of Morris, Alberta, Chokio, Donnelly and Hancock, that aid is a huge chunk of their annual general fund budgets. And there's plenty of informed speculation that LGA, CPA and federal aids are dinosaurs as the impact event known as a $5 billion state deficit looms over the next two years.

As such, city and county residents could see either a dramatic increase in their property taxes or a significant decline in services.

This is no joke. We don't think much about what we get for our tax dollars - safe streets, clean water, mowed parks, plowed roads - until the day comes we get less of it. Today, there's a good chance that very little of what we now pay to the state will be coming back in the form of much-needed aid, and we'll see incredibly large local tax hikes.

If you think you pay high local taxes now, just wait. Morris has a $3 million general fund budget and $2 million of that comes from state aids. Local taxes account for a little more than $300,000 of the general fund. City Manager Blaine Hill has said that if LGA and other aid goes away, the city will be able to afford its police and not much else.

The Strong Towns study reports that new legislation will carve about $113 million from LGA over the next three years. It asks the question: How large of a local tax increase would be necessary if all state and federal aids ceased and residents wanted to keep their current level of services?

The 50 "most vulnerable" Minnesota cities - those that would tax the biggest hit -- have populations of less than 5,000. Morris ranks 103rd of the 855 cities. Under the report's analysis, residents with a home valued at $100,000 would pay an addition $1,000 in property taxes. A home worth $350,000 would be hit with an extra $6,300 each year.

Hancock, with a population of 700, would see roughly the same increases as in Morris, ranking the city 75th on the "vulnerable" list.

Chokio is No. 133 and would see increases of $927 on a $100,000 home and $2,318 on a $250,000 home.

Cyrus, just over the line in Pope County, is ranked No. 155, with an $883 increase on a $100,000 home and a $2,207 hike on a $250,000 home.

Alberta is at No. 321 with increases of $535 and $1,339, and Donnelly is at No. 310, with tax increases of $546 and $1,365.

This doomsday scenario could lead some cities to just shutter up.

The owner of a $100,000 home in the state's most vulnerable city, Landfall, population 700, would see taxes increase almost $5,000 a year. The owner of that home in No. 3 Browns Valley, population 625, would take an additional hit of $3,400 a year. Madison, at No. 18 with a population of 1,658, would have to level another $1,624 annually on that $100,000 home.

Strong Towns states that revenue production is inefficient, particularly through property taxes, which it terms as "clumsy, regressive mechanisms." And spending is a problem in that citizens have grown accustomed to consuming services well beyond their ability to pay for them through property taxes.

The solutions Strong Towns offers are long-term, and there's no indication the state has any appetite in the short term to end local aids. But the report does serve as a warning about what could happen if a bad situation gets worse.