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that the legislative intent is reflected in <br />the statutes. <br />Specifically, the League of Minnesota <br />Cities supports the following: <br />a) Modifying Minn. Stat. § 275.065 to <br />clearly and fully exclude cities of <br />population 500 and under from the <br />budget and levy hearing <br />requirements; <br />b) Reinstating the exception to the tax <br />hearing and notification requirements <br />for cities with more than 500 residents <br />with a proposed levy increase below <br />the implicit price deflator (IPD); and <br />c) Moving the proposed levy certification <br />deadline for all instrumentalities of <br />local government and special taxing <br />authorities to September 30. <br />In order to assist local officials with the <br />challenge of explaining legislative changes <br />to the property tax system, legislators <br />should attend and be encouraged to <br />participate in local government budget <br />hearings in their districts. <br />FF-17. City Fund Balances <br />Issue: As a component of a prudent <br />financial management plan, cities maintain a <br />fund balance composed of cash flow funds, <br />savings for projects, and rainy day reserves <br />to maintain high level bond ratings and to <br />minimize borrowing costs. Although the size <br />of a city's fund balance should be <br />determined through local financial needs <br />and local preferences, some cities are being <br />criticized for maintaining "excessive" <br />reserves. <br />The Office of the State Auditor (OSA) <br />report measures city fund balances on <br />December 31, shortly after the city receives <br />its largest sources of revenue from the <br />property tax and state aid distributions. <br />Measuring at this time, however, yields a <br />picture of a high fund balance even though <br />the city will spend down these funds to cash <br />flow the next five to six months of its <br />operations. <br />Response: The state should respect local <br />decisions on adequacy of local fund <br />balances. The League of Minnesota Cities <br />opposes any attempt to divert local <br />reserves to benefit the state budget. <br />FF-18. Local Option Sales Tax and <br />City Revenue Diversification <br />Issue: Under current state law, the property <br />tax is the only generally accessible form of <br />local tax revenue for cities. Even with the <br />restoration of $80 million in LGA funding <br />by the 2013 legislature, state aid funding <br />remains below the 2002 funding level. <br />Allowing cities to diversify their revenue <br />stream would help prevent rapid additional <br />future reliance on the property tax. <br />The basic public finance rationale for <br />diversification of local tax systems is rooted <br />in the fact that economists generally agree <br />that there is no perfect tax. Each tax has <br />unique strengths and weaknesses and the <br />more intensively any single tax type is used, <br />the more obvious its shortcomings become. <br />For example, the property tax is generally <br />regarded as being very stable throughout the <br />economic cycle and it is considered to be a <br />relatively easy tax to administer and enforce. <br />However, when property tax burdens <br />become too high, there may be negative <br />consequences for other public policy <br />objectives such as business development and <br />home ownership. <br />In addition to avoiding the problems created <br />by excessive reliance on any single tax, a <br />balanced and diversified revenue system for <br />Minnesota cities may create a more <br />favorable business climate and provide for <br />League of Minnesota Cities <br />2015 City Policies Page 102 <br />