FAIRMONT - It's not accurate to say elimination of the Homestead Market Value Credit means higher taxes - local governments can choose to cut spending or use reserves to ease the burden on taxpayers, according to Greg Davids.
The chairman of the Minnesota House of Representatives taxes committee was in Fairmont on Thursday to discuss the Legislature nixing the market value credit. The meeting drew local government officials and business persons from Martin and Faribault counties.
The credit was a tax break Minnesota put in place 10 years ago to lower property taxes for eligible homeowners and agricultural land owners. Problems with the credit cropped up quickly. Only for the first year was the state able to pay local governments the full amount of the credit.
"The state of Minnesota was the biggest delinquent taxpayer of all," said Davids, R-Preston.
The system couldn't last, but instead of simply eliminating the market value credit, the Legislature adopted the market value exclusion. The exclusion attempts to ease the burden on certain taxpayers by shifting it to others, namely businesses.
"Tell me how that helps our businesses ... create jobs if they have to pay more?" asked Bob Wallace, Fairmont Area Chamber of Commerce director.
It's a great question, Davids said.
Bobby Patrick, the taxes committee administrator, promised: "We're working on something," though he was elusive as to what that something is.
Businesses aren't the only ones upset about the mess created by the market value credit. Commissioner Steve Pierce said Martin County only plans to raise its levy 1.9 percent, but when people receive their tax statements, they're angry with the county for the higher taxes caused by the elimination of the market value credit.
But Davids insists taxes don't have to increase. Cities and counties can cut spending or dip into reserves. After all, he said, Minneapolis managed a zero percent levy increase.
"What's your reserve ratio?" Davids asked the local government officials in the room.
He did not actually know what local governments have for reserves. He said he stopped finding out in advance after visiting one county that "didn't have a leg to stand on."
Someone in the audience told Davids that state government should learn a lesson on frugality from cities and counties and stop spending everything it's got and set some money aside.
"Those are called rainy day funds. Let me tell you, it's raining," Davids responded.
Blue Earth Mayor Rob Hammond pointed out that auditors continue to tell his city to raise its reserves.
Pierce was annoyed with the state lawmaker, saying Davids was using "doublespeak," which Davids took offense at.
"We had a $5 billion shortfall," Davids said. "For people to sit here and say nothing is going to happen, I guess we're not on the same planet."
Following the meeting, City Administrator Jim Zarling said many state lawmakers do not understand the situation this particular area is facing. The city could take money out of reserves to decrease its levy and try to cushion the blow for taxpayers, but Zarling is cautious about using reserve funds, especially when the city has needed to dip into those funds more and more with the state's cuts to Local Government Aid.
"That's fine, you can do that," Zarling said, but if you're not careful, "you won't have any reserves left."