SPEND SMART AND KEEP THE LID ON TAXES

Why spend smarter? Demographics and globalization. The oldest baby boomers become eligible for retirement in 2011. This demographic inevitability has many implications for Minnesota.

• With workforce growth slowing to a crawl, tax revenues will not grow as quickly and easily over the next 20 years as they have over the past 20 years. Increased spending today – in the absence of structural reforms – will sow the seeds for huge budget challenges tomorrow.
• Spending pressures, particularly in health care, will increase exponentially as we age. This will – in the absence of structural reforms – increase the friction between health care and other spending priorities in the years ahead.
• Roughly half of all current state employees will become eligible for retirement in the next decade. Spending smarter will help government manage this process while continuing to improve service delivery.
• It would be very painful for a proportionately smaller workforce – in the absence of structural reforms – to bear the tax burden of a retired baby boom generation.
• In a mobile, global economy with the fastest growing markets on the other side of the world, Minnesota will have to be extremely competitive to grow and retain jobs. Being competitive requires more than a reasonable tax burden. It requires a well-educated workforce, 21st century infrastructure and a high quality of life – all of which can only be paid for with a strong economy, plenty of good jobs – and structural reforms.

SPEND SMART PRINCIPLES

1. Support job growth.
People look to the private sector for jobs and opportunity. They want government to help businesses grow and expand - not make it harder and more expensive. A strong economy creating private-sector jobs is the foundation for Minnesota’s high quality of life.

2. Live within our means.
Lawmakers should identify available revenue then decide how much to spend - not the other way around.

3. Prioritize.
Minnesota has real needs - including higher student achievement, improved infrastructure, and affordable, quality health care. Families set priorities then take care of first things first. Government should do the same.

4. Make sure you get what you pay for.
Minnesotans support programs that work. But not every program is successful. And too often we don’t even have the tools to measure success or cost effectiveness.

5. Innovate.
Look for better, faster, more effective, less expensive ways to do things. Don’t say it can’t be done. Government - like everyone else - is constantly innovating and evolving. The challenge is to lead, not follow. The more innovative our public sector is, the stronger our state will be.

Grow jobs and we’ll grow tax revenues.
Tax jobs and they’ll grow elsewhere.

• The state should increase funding for local government aid and take over more of the cost of k-12 education to reduce property taxes.
• The state should limit the ability of local governments to increase property taxes.
• Local officials should reduce and/or prioritize local spending.
• The state should reduce the property tax burden on homeowners by increasing the share of the property tax paid by businesses.

Property Tax Background: Minnesota's property tax system involves both state and local decisions.  Each year local assessors determine a property’s value.  The state establishes class rates which distribute property tax burden among different property types.  Local governments determine how much they plan to spend and how much will be raised through the property tax.  They state provides some local governments with state aid which might impact their tax and spending decisions. 

In 2001 and 2002, the state assumed more responsibility for funding k-12 education.  Because of that shift to more state funding, net property taxes payable fell from $5.0 billion in 2001 to $4.6 billion in 2002, according to the Minnesota Taxpayers Association.  Since then, property taxes have climbed to an estimated $5.6 billion for 2006, according to the Minnesota Department of Finance Price of Government Report. 

In 2006, home property was 60% of the taxable market value while homes paid 48% of the property taxes.  On the other hand, business property was 12% of the taxable market value but paid 30% of the property taxes.  This shows the impact of the state established class rates which distribute property tax burden among different types of property.