Should the suburbs receive LGA?

D.J Tice of the Star-Tribune recently put forth a column on property taxes that has pushed several buttons including some at the Minnesota Chamber of Commerce (at least according to Twitter). The column cites the most recent Residental Homestead Property Tax Burden Report for Minnesota. According to the data-centric report, metro county residents already pay larger portions of their incomes in property taxes. Says Tice:

But will continuing to shower rural Minnesota governments with state tax dollars correct the real inequities in Minnesota’s property tax? Or should relief be targeted to specific taxpayers, wherever they live, who actually face high relative property tax burdens?

Translation: Greater Minnesota cities should quit whining about cuts to Local Government Aid (LGA) because they’re already getting a good deal.

Tice, and others who subscribe to philosophy above, should not have to dig deep to discover several caveats in the Voss Report, as the study is sometimes called. There is a section entitled “Important Factors that Determine Homestead Property Tax” right in the introduction that explain how property tax comparisons are not exactly apples to apples. I’ll mention three factors that should be obvious.

  • Greater Minnesota has a large percentage of rural homesteads in unincorporated areas (townships). Townships do not receive or provide city services. Therefore, township residents pay lower taxes. They also do not receive the same level of services. Reporting by region, as the Voss report does, lumps townships and rural cities together; and then compares the group with the metro area, which is almost all incorporated. Already, there is a data mismatch.
  • The Voss report does not factor commercial and industrial wealth (ergo ,tax revenue) that is much higher in the metropolitan area. The report only analyzes homestead property taxes.
  • By definition, the property tax is based on property value, not income. Tice’s conclusion is based on a false premise that income and property are, or should be, related. One can debate the administrative complexity of property taxes. And, one can debate whether or not those who build more expensive homes should be “punished” with higher taxes. Finally, we can debate if property taxes should be supplemented or replaced with earnings taxes, sales taxes, etc. But, those are separate discussions. Tice essentially argues that the suburbs should receive more assistance (or similarly, Greater Minnesota should receive less assistance) on the basis that the suburbs have larger, more expensive homes.

The Voss report is a data-centric report. It is great for “numbers guys” like me who love data. But, once one gets past the surface of the charts and graphs, the report is not quite as eye-popping as Tice and others may believe. LGA and the “Minnesota Miracle” is based on the premise that all Minnesota cities should have equivalent access to municipal services without regard to property wealth. The Voss report does not damage this premise in any way.

Author’s Note: I am about as weary as writing about LGA as many probably are of reading it. It is, however, hard to dismiss when so much misinformation and faulty analysis persists.