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IMPROVING FISCAL FUTURES <br />FF-1. State -Local Fiscal Relations <br />Issue: Since the 1970s, services provided by <br />Minnesota cities have been largely funded <br />through a combination of property taxes, <br />state aids, and state property tax relief <br />programs. This system of municipal finance <br />has evolved to ensure that municipal <br />services can be funded without excessive <br />local tax burdens. <br />Over the past decade, the state -local <br />partnership has vacillated with the state <br />budget, challenging the ability of city <br />officials to plan for the future fiscal needs of <br />their communities. <br />Response: The League of Minnesota <br />Cities supports a strong state -local fiscal <br />partnership. The state -local fiscal system, <br />and any future modifications, should be <br />consistent with the following principles: <br />a) Accountability. Cities believe a viable <br />partnership with the state requires <br />cities and the state to communicate <br />effectively with each other and with <br />the public about their roles and <br />responsibilities. Cities and the state <br />must also exercise sound financial <br />stewardship, including maximizing <br />efficiencies in service delivery and <br />other means of cost containment <br />whenever possible. <br />b) Certainty. Cities need to have more <br />certainty and predictability in all of <br />their available revenue sources, <br />including the property tax and the <br />amount of funding they receive from <br />local government aid and similar <br />programs. The current practice of <br />almost annual adjustments to local <br />government aid (LGA) and similar <br />programs, recent unallotments of the <br />appropriation and the imposition of <br />levy limits do not allow for prudent <br />financial planning and decisions. In <br />addition, the 2011 state government <br />shutdown further decreased the <br />certainty of the system when the <br />Department of Revenue indicated that <br />despite the standing LGA <br />appropriation, the shutdown of many <br />state government operations would <br />prevent the distribution of the LGA. <br />c) Adequacy. The revenue sources <br />available to cities and the state must <br />raise adequate funds to meet city <br />needs, to fund mandates, and to <br />maintain Minnesota's long-term <br />competitiveness. <br />d) Flexibility. As cities become <br />increasingly diverse in their <br />characteristics and as existing aid and <br />credit programs have eroded, a "one - <br />size -fits -all" system that limits all <br />cities to the property tax as the major, <br />non -state aid revenue source is <br />increasingly unworkable. Some cities <br />have sufficient property tax base to <br />sustain an adequate service level, but <br />many do not. Cities should have <br />greater access to other tax and <br />revenue sources than currently <br />permitted. <br />e) Equity. All citizens should receive <br />adequate levels of municipal services <br />at relatively similar levels of taxation. <br />This means that the state should <br />provide financial assistance to cities <br />that have high costs, including costs <br />related to overburden created by non- <br />resident users of city services, low <br />fiscal capacity, or both. State <br />financial assistance should also reduce <br />tax burden disparities among <br />communities and between cities and <br />surrounding areas. <br />League of Minnesota Cities <br />2015 City Policies Page 94 <br />