Agenda - Council - 02/08/2021 - Laserfiche WebLink

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fund balance composed of cash flow funds, savings for projects, and rainy -day reserves to maintain high level bond ratings and to minimize borrowing costs. Although the size of a city's fund balance should be determined through local financial needs and local preferences, some cities are being criticized for maintaining "excessive" reserves. As the recent pandemic unfolded, there were calls to delay tax payments by property owners, citing city fund balances as evidence that cities could absorb cash flow delays. The Office of the State Auditor (OSA) report measures city fund balances on December 31, shortly after the city receives its largest sources of revenue from the property tax and state aid distributions. Measuring at this time, however, yields a picture of a high fund balance even though the city will spend down these funds to cash flow the next five to six months of its operations. Response: The state should respect local decisions on adequacy of local fund balances. The League of Minnesota Cities opposes any attempt to divert local reserves to benefit the state budget or use reserves as a rationale for state aid cuts or property tax payment delays. FF-20. Local Option Sales Tax and City Revenue Diversification Issue: Under current state law, the property tax is the only generally accessible form of local tax revenue for cities. Allowing cities to diversify their revenue stream would help prevent rapid additional future reliance on the property tax. The basic public finance rationale for diversification of local tax systems is rooted in the fact that economists generally agree that there is no perfect tax. Each tax has 141 unique strengths and weaknesses and the more intensively any single tax type is used, the more obvious its shortcomings become. For example, the property tax is generally regarded as being very stable throughout the economic cycle and it is considered to be a relatively easy tax to administer and enforce. However, when property tax burdens become too high, there may be negative consequences for other public policy objectives such as business development and home ownership. In addition to avoiding the problems created by excessive reliance on any single tax, a balanced and diversified revenue system for Minnesota cities may create a more favorable business climate and provide for greater stability of revenues to the recipient government unit throughout the course of the economic cycle. Under Minn. Stat. § 297A.99, the Legislature has created a set of local sales tax rules and a defined process by which cities and other political subdivisions can impose a general local option sales tax. Although the statutory process requires the city council to adopt a resolution supporting the local sales tax, the process continues to require the authorization of the local sales tax by the Legislature through the passage of a special law before finally seeking voter approval at a general election. City requests for sales tax authority continue to increase. In 2019, the legislature granted local sales tax authority to an additional 16 cities and in 2020, 20 cities sought new or expanded local sales taxes, however, despite following the revised process enacted in 2019, the legislature did not include any of the local proposals in the tax bills advanced in the House and Senate. Response: Cities should be able to diversify their sources of revenues. The