The Free Press, Mankato, MN

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March 15, 2013

Dayton laments death of first budget, still aims for property tax relief

MANKATO — Gov. Mark Dayton lamented the death of his proposal to expand the state's sales tax -- and use much of the revenue for $500 property tax rebates to Minnesota homeowners -- but he said his revised budget retains some property tax relief, targeted investments in education and a fairer overall tax system.

Dayton, speaking in a conference call with outstate Minnesota media, reviewed his tax and spending plan after revising it to reflect an improved revenue forecast for the next two-year budget cycle and to reflect the abandonment of his ambitious plan to expand the state sales tax to services and high-end clothing.

He quoted National Hockey League Hall of Famer Wayne Gretzky in explaining that an unsuccessful attempt is better than none at all.

"You never score a goal on 100 percent of the shots you don't take," Dayton said.

Business organizations strongly opposed the expansion of the state's sales tax to services, and polling of average Minnesotans showed opposition to the idea as well -- even though the expansion would have also included a reduction in the rate. Without the extra sales tax revenue, there was no way to provide the $1.4 billion in property tax rebates -- $500 for most homeowners, Dayton said.

But the revised budget includes new revenue from a boost in the income tax on the 2 percent of Minnesotans at the top of the income ladder. It also benefits from the roughly half-billion-dollar improvement in the state's projected budget shortfall, announced by state economists in late February. Much of that new revenue is aimed at increased funding for education -- from pre-school to college programs.

The income tax increase, on individuals with taxable income above $150,000 and on couples earning more than $250,000, would hit roughly 54,000 -- including 291 in Blue Earth County. The average income of the 54,000 is $617,000, Dayton said.

The budget plan also retains $120 million in additional state aid to cities and counties, however, which should allow local government leaders to provide relief to property owners when setting their 2014 budgets, according to the governor.

The $80 million increase in Local Government Aid to cities comes with a new formula for the distribution of the aid -- a formula that was panned by many outstate cities who would do better under the existing method for doling out the state aid. Dayton said he got that message loud and clear at a recent meeting of the Coalition of Greater Minnesota Cities.

"I've never had a group of people so mad at me for giving them an additional $80 million," he said.

The Coalition is working on a distribution formula that appears to satisfy most cities and Dayton indicated he would adopt that proposal as the budget is finalized in negotiations with the Legislature between now and May. The formula in Dayton's budget for now was based largely on the recommendations of a panel of 15 mayors, said Revenue Commissioner Myron Franz.

The formula developed by the 15 mayors had the benefit of being more simple than the convoluted LGA formula used for decades, Franz said, but the alternative being developed by the Coalition of Greater Minnesota Cities appears to be one that most cities believe will be fair.

"I think it will work a little bit better, and that is the key," Franz said.

The boost in state aid should make it easier for cities and counties to hold property taxes flat next year, and income-eligible homeowners and renters could see higher property tax credits if Dayton's budget is largely adopted by the DFL-controlled Legislature.

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