A Permanent Solution to Permanent Aid

As I have discussed in the past the State of Minnesota through the Department of Revenue established a new way to value utility property. In doing so the value of the Sherco Power Plant and other utility property declined by 21.8% in the City of Becker. In the last hours of the legislative session the Legislature developed a plan to provide aid to those jurisdictions that lost value and therefore tax revenues as a result. The resulting aid program is described as permanent aid.

The good news is the city will be provided with $553,947 in aid for 2009. For 2010 the aid amount increases to $1,107,894. A little history, the rule change changed the way power plants are valued and was to be phased in over a period of 3 years. This was done with a 20% reduction the first year(2008), 50% the second and 100% the third. This explains the change in aid amounts. This aid was given to cities and townships that lost 4% or more of their value in utility property. The total amount of aid provided for in this amounts to approximately $6 million state wide for 2009 and 2010.

The unfortunate part about the way the law was drafted is the amount of aid decreases as the tax base increases. So any addition in tax base only offsets the amount of state aid paid. If you think about this a little you’ll see that adding commercial or industrial property to our community does nothing to reduce taxes. Adding 100 homes doesn’t help either. This only increases our costs for service with no additional revenue to provide those services. If you are a high growth community such as Becker or Monticello, both affected by this, growth becomes a detriment. Replacing that lost value is slightly more than a Medtronics Campus!

As you can imagine this really doesn’t make sense. Given this was done in the middle of the night, on the last day of the session, it would appear this was one of those unintended consequences of legislators trying to do the right thing for the right reasons. They got us the aid we needed, which is very helpful. We’re breathing a little easier now but the future is still a concern. As I discussed we can add all the tax base we want and only the state benefits with reduced aid payments. As tax base increases so do our expenses in serving these properties. So a permanent solution to the permanent aid needs to occur with the next legislative session.

With this uncertainty in future funding, the city has taken the conservative tact of reducing expenses while banking available resources. In doing so we’ve approached the budget for 2009 in a different way. Each department was given a figure in which to work with for their department that represented a cut in expenditures. Revenues will be lower with interest income and building permits off. The state imposed a 3.9% levy limit for the next three years which also adds to the constraint of finances in Becker.

In any event we have some room in time to get these things accomplished but as they say it’s always something.