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HomeMy WebLinkAbout8. LMC 2011 State Shutdown Considerations Update00 j_EAGUE oP CONNECTING & INNOVATING MINNESOTA SINCE 1913 CITIES 2011 State Shutdown Considerations State Aid and Credit Reimbursement Payments UPDATED 7 -12 -11 This document will be updated as new information becomes available. Please check www.lmc. orn Many functions of the state of Minnesota are currently shut down. The 2011 session ended on May 23 without a complete 2012 -2013 biennial state budget approved and signed into law. In the weeks following, the Governor and legislative leadership were unable to reach an agreement and state agencies without approved budgets shut down at midnight on June 30 In the wake of the shutdown, the Attorney General petitioned the Ramsey County District Court to intervene in order to keep certain "core government functions" in operation. The Attorney General defined these core functions to be those related to the protection of life and health of Minnesota citizens. On June 29, Chief Ramsey County District Court Judge Kathleen Gearin issued her order, agreeing with the Attorney General and directing core services to be funded. The League continues to post the most recent information related to impacts of the shutdown and related court decisions on its website What we know, however, continues to evolve as staff review shutdown materials prepared by state agencies and as a special master appointed by the courts begins to hear requests for state funding during the shutdown. The purpose of this memo is to offer some issues related to city budgets and aid payments that local officials might want to consider. 2011 LGA distributions Local Government Aid (LGA) is distributed in two equal installments on or around July 20 and Dec. 26 each year. The amounts scheduled to be paid this year were originally certified to each city in July 2010. The appropriation for LGA is a "standing" appropriation which means that it is defined in state statute (Minn. Star. § 477A.03, subd. 2a). As a result, even though the omnibus tax bill was vetoed, the LGA appropriation remains in place and requires no further action by the Legislature and governor. In Judge Gearin's June 29 order, she directs the Commissioner of Revenue to issue payments funded by standing appropriations, including LGA. Absent a successful appeal of the Gearin order, the League fully expects that July LGA payments will be made. To further confirm this, today (July 12) the Governor's Special Counsel David Lillehaug announced that these payments would be made when due. 145 UNIVERSITY AVE. WEST PHONE: (651) 281 -1200 EAR: (651) 281 -1299 ST. PAUL, MN 55103 -2044 TOLL FREE: (800) 925 -1122 wEB: wvTw.Lmc.oEG Cities should note, however, that negotiations between the legislature and the Governor are ongoing and that potential action in a special session over the next couple of weeks could still impact the July payments. Part of a budget solution could be reductions to the July payments. For planning purposes, keep in mind that if the Legislature and governor reach a budget agreement before the July distribution date, and their agreement includes reductions to aids and credits, any reduction would likely be applied to the next payment. For example, if a budget agreement were reached on July 10, past practice would suggest that one -half of the reduction would be applied to the July LGA payment and one -half would be applied to the December LGA payment. However, if a budget agreement is not reached until Aug. i, any LGA reduction would presumably be applied to the December payment. LGA certifications for 2012 and city budgeting Not only should LGA recipient cities be concerned about the distribution of 2011 LGA, please keep in mind that by July 31, the commissioner of revenue is required to notify cities of the amount of LGA each city will receive in 2012. This certification of LGA is used by each city to plan for its 2012 budget and ultimately to certify a proposed 2012 property tax levy for the annual truth-in-taxation process. According to information posted by the Dept. of Revenue, aid certification will not occur during the shutdown unless directed by the courts. A delay in the certifications might cause considerable difficulties for cities in determining their budgets and setting their preliminary levies. If 2012 LGA certifications are delayed until after the proposed property tax levies must be certified to the county on Sept. 15, cities will have to decide how to proceed and set their proposed levy. Given that the Sept. 15 preliminary levy is effectively the maximum a city can finalize in December, the lack of a certified LGA amount will make the preliminary levy decision a difficult exercise. Similarly, while there are no levy limits for payable 2012, action during a special legislative session could reinstate them, farther complicating the budget cycle for cities this year. If the shutdown extends for more than a couple of weeks, the League may petition the special master to seek funding for the LGA certification process. If the special master were to direct the Department of Revenue to perform the certification of LGA during the shutdown, that certification would be based on the current law LGA appropriation of $527.1 million. Any subsequent special session decision that might reduce the appropriation in solving the state deficit would not be factored in to the certified amounts. 2011 MVHC reimbursement distributions MVHC reimbursement distributions are made in two roughly equal installments, one -half around Oct. 31 and the other one -half on or around Dec. 26. Any MVHC reimbursement attributable to homestead property in a TIF district is only paid on Dec. 26. Recommendations from the Special Master in early July included that reimbursement payments should be paid during the shutdown. However, again, please keep in mind that legislative action during a special session between now and the payment dates in October and December might result in changes to those payment amounts. 2 / July 12, 2011 MVHC certification for 2012 Given that MVHC is a reimbursement for property taxes that would otherwise be paid by qualifying homeowners, there is technically no certification of MVHC that occurs before the Sept. 15 preliminary levy certification deadline. However, the Legislature was considering a plan to eliminate MVHC beginning in 2012 and replace it with a market value exclusion for qualifying homes. A protracted delay in any decision to repeal MVHC could result in truth -in- taxation statements that do not accurately reflect the law changes. In addition to LGA and MVHC reimbursement, there are other programs that could be impacted by the state shutdown— especially if it extends for several months. Pension amortization aid, supplement amortization aid, and additional amortization aid On July 15, the state is scheduled to distribute one -third of the annual pension amortization aid to qualifying cities. The other one -third increments are scheduled to be paid on Sept. 15 and Nov. 15. The purpose of this aid program is to amortize the unfunded accrued liability (deficit) of the local police or salaried firefighter pension fund or the unfunded accrued liability of a police or salaried firefighter consolidation account in PERA. When a pension fund or consolidation account becomes fully funded, the local unit of government no longer qualifies for these aids. There are currently four cities that are scheduled to receive amortization aid and supplemental amortization aid in 2011: Eveleth, Fairmont, Minneapolis and Thief River Falls. Supplemental amortization aid is paid each year on Oct. 1. Given that pension amortization aid is a standing appropriation, the League believes that under Judge Gearin's order, these aids will be distributed as scheduled. This interpretation is supported by the recommendations made by the Governor in a July 6 memo to the special master but as of July 11, the special master has not made a recommendation to the district court. To further confirm this, today (July 12) the Governor's Special Counsel David Lillehaug announced that these payments would be made when due. PERA aid PERA aid is paid to any county, city, town or special taxing district that had PERA covered employees in 1997. The aid is designed to offset the cost of the increase to the PERA employer contribution rates that were effective beginning in fiscal year 1998. PERA aid is distributed in two equal installments on or around July 20 and Dec. 26 each year and totals roughly $14.4 million for all local omits of government. The aid is equal to 0.7 percent of the jurisdiction's fiscal year 1997 PERA payroll and is essentially frozen at that level until the program sunsets. This aid could potentially decrease in the future if the current PERA payroll drops significantly below the fiscal year 1997 level as determined by the Minnesota Department of Revenue. This aid is appropriated from the general fund and the program will terminate on June 30, 2020. 3 / hdy 12, 2011 Given that PERA aid is a standing appropriation, the League believes that under Judge Gearin's order, these aids will be distributed as scheduled. This interpretation is supported by the recommendations made by the Governor in a July 6 memo to the special master but as of July 11, the special master has not made a recommendation to the district court. To further confirm this, today (July 12) the Governor's Special Counsel David Lillehaug announced that these payments would be made when due. State Peace Officer (Police) Aid State Peace Officer Aid, or Police Aid is provided to local units of government to subsidize the pension costs of local units of government for their peace officers. Basically the aid reimburses local government employers for the payments they make to PERA. The revenues to fiord this program are derived from a premium tax on auto insurance policies and the aid is distributed to cities on Oct. I each year. Local units apply for this aid by submitting a Form PA -1 to DOR. Each police department certifies the name, POST license number, pension fund, employment data, and number of months worked in the previous year for each licensed full -time peace officer employed by the department. DOR reviews these aid applications and determines the total number of peace officer months for each department. The total amount of aid available for distribution is divided by the total number of peace officer months to determine the aid per officer month. The total number of officer months for each department multiplied by the aid per officer month equals its initial aid. This amount is compared with the department's prior year PERA retirement obligation, and it receives the lesser of the two amounts. The total amount available for distribution is certified by the Special Taxes Division, and is based on the collection of insurance premium taxes relating to auto insurance coverage. This amount is reduced by State Auditor costs prior to distribution. A portion of the excess police aid (initial aid minus the retirement obligation) is transferred to the additional amortization aid program. Given that state police aid is a standing appropriation, the League believes that Linder Judge Gearin's order, these aids will be distributed as scheduled. This interpretation is supported by the recommendations made by the Governor in a July 6 memo to the special master but as of July 11, the special master has not made a recommendation to the district court. To further confirm this, today (July 12) the Governor's Special Counsel David Lillehaug announced that these payments would be made when due. Fire state aid Fire state aid subsidizes the pensions of both salaried and volunteer firefighters. The finding for the aid is derived from a two - percent state tax on fire insurance premiums and the aid allocated based on the market value of real property in the fire district and on the population of each fire district. An additional allocation is given to relief associations with small numbers of active members to maintain a minimum amount of aid. When firefighters are covered by a pension plan, state law requires that fire state aid be used for pension purposes. Fire State Aid is distributed to cities on Oct. 1 each year. 4 / July 12, 2011 Municipal fire departments and independent nonprofit firefighting corporations apply for this aid by submitting a Form FA -I to the Minnesota Department of Revenue. This form certifies that they maintain at least the minimum equipment and manpower to qualify for the aid. The application also requires certifications of service areas for the prior year, current fire service contracts, and current apportionment agreements with other fire departments. Given that state fire aid is a standing appropriation, the League believes that under Judge Gearin's order, these aids will be distributed as scheduled. This interpretation is supported by the recommendations made by the Governor in a July 6 memo to the special master but as of July 11, the special master has not made a recommendation to the district court. To further confirm this, today (July 12) the Governor's Special Counsel David Lillehaug announced that these payments would be made when due. Taconite aid Taconite mining companies pay production taxes directly to six Minnesota counties (Cook, Lake, St. Louis, Itasca, Crow Wing and Aitkin). Minn. Stat § 298 defines how these revenues are distributed. Each county auditor from these counties is responsible for making the taconite aid payments to the various jurisdictions within the county. St. Louis County is designated as the fiscal agent for the taconite property tax relief account and is responsible for issuing taconite property tax relief checks to the other counties. The Mineral Tax Office in the Department of Revenue makes all computations regarding the amount paid by the mining companies, and the aid payments to the counties, cities, towns, and school districts within the counties. However, under a shutdown, it is unclear whether the necessary staff at the Department of Revenue and Minnesota Management and Budget will be available to perform the functions necessary to make the distributions. Taconite distributions are made on Aug. 25 and Feb. 25 each year. Today (July 12) the Governor's Special Counsel David Lillehaug announced that these payments would be made when due. Utility Valuation Transition Aid (UVTA) UVTA is paid to cities and townships to compensate for reductions in tax base due to the reassessment of public utility property being phased in over the three -year period from 2008 to 2010. Payments to affected cities and townships are made in two equal installments —on or around July 20 and Dec. 26 each year. UVTA Payments are equal to the difference between the public utility tax capacity prior to reassessment and the public utility tax capacity for the current year multiplied by the jurisdiction's tax rate. Aid continues until the "new rule" valuation exceeds its 2007 "old rule" valuation. There are currently 11 cities that receive UVTA: Becker, Cohasset, Granite Falls, Hoyt Lakes, Lastrup, Leonidas, Plummer, Red Wing, Riverton, Trail and Twin Lakes. In addition, 11 townships also receive UVTA. The total amount is approximately $1.5 million per year. 5 / Juty 12, 2011 The distribution and appropriation for UVTA is defined in Minn. Stat. § 477A.16. The funding for the program is a standing appropriation and is specified as "an amount sufficient to pay transition aid under this section is annually appropriated to the commissioner of revenue from the general find." Given that utility valuation replacement aid is a standing appropriation, the League believes that under Judge Gearin's order, these aids will be distributed as scheduled. This interpretation is supported by the recommendations made by the Governor in a July 6 memo to the special master but as of July 11, the special master has not made a recommendation to the district court. To further confirm this, today (July 12) the Governor's Special Counsel David Lillehaug announced that these payments would be made when due. Administration of local sales taxes Under current law, the Minnesota Department of Revenue administers all local sales taxes in Minnesota. At this time, it is not clear whether the administration of these local taxes will be affected by the state government shutdown. The League believes that all cities with local sales taxes received their Judy payment before June 30. If the shutdown continues into August, the League may petition the special master to seek finding for the administration and distribution of local sales taxes. City /County Type of Tax Begin Date Rate Albert Lea Sales Tax and Use Tax 4/1/06 0.50% Austin Sales Tax and Use Tax 4/1/07 0.50% Baxter Sales Tax and Use Tax 10/1/06 0.50% Bemidji Sales Tax and Use Tax 1/1/06 0.50% Brainerd Sales Tax and Use Tax 4/1/07 0.50% Clearwater Sales Tax and Use Tax 10/1/08 0.50% Cook County Sales Tax and Use Tax 4/1/10 1.00% Detroit Lakes Food and Beverage Tax 4/1/11 1.00% Duluth Sales Tax and Use Tax 1/1/70 1.00% Hennepin County Sales Tax and Use Tax 1/1/07 0.15% Hermantown Sales Tax 4/1/97 0.50% Hermantown Use Tax 1 /l /00 0.50% Mankato Sales Tax 4/1/92 0.50% Mankato Use Tax 1 /l /00 0.50% Mankato Food and Beverage Tax 4/1/09 0.50% Mankato Entertainment Tax 4/1/09 0.50% Minneapolis Sales Tax and Use Tax 2/1/87 0.50% Minneapolis Downtown Liquor Tax 2/1/87 3.00% Minneapolis Lodging Tax 4/1/02 2.625% Minneapolis Downtown Restaurant Tax 2/1/87 3.00% Minneapolis Entertainment Tax 10/1/69 3.00% New Ulm Sales Tax and Use Tax 4/1/01. 0.50% North Mankato Sales Tax and Use Tax 10/1/08 0.50% 6 / July 12, 2011 Owatonna Sales Tax and Use Tax 4/1/07 0.50% Proctor Sales Tax and Use Tax 4/1/00 0.50% Rochester Sales Tax and Use Tax 1/1/93 0.50% Rochester Lodging Tax 9/1/71 4.00% St. Cloud Area--St. Cloud, Sartell, Sauk Rapids, and St. Augusta, St. Joseph and Waite Park Sales and Use Tax 1/1/03 0.50% St. Cloud Liquor Tax 2/1/87 1.00% St. Cloud Food Tax 2/1/87 1.00% St. Paul Sales Tax 9/1/93 0.50% St. Paul Use Tax I /l /00 0.50% St. Paul Lodging Tax 50+ rooms 4/1/04 6.00% St. Paul Lodging Tax less than 50 rooms 4/1/04 3.00% Transit Improvement -- Anoka, Dakota, Hennepin, Ramsey, and Washington Counties. Sales Tax and Use Tax 7/1/08 0.25% Two Harbors Sales Tax and Use Tax 4/1/99 0.50% Willmar Sales Tax and Use Tax 1/1/06 0.50% Worthington Sales Tax and Use Tax 4/1/09 0.50% POST reimbursements Funds are available to reimburse cities for some of the costs of their peace officers' training. The Peace Officer Standards and Training (POST) Board mails reimbursement forms to cities annually, and asks cites to report which officers received continuing education training during the past year. The cities eligible for reimbursement will then receive a share of the appropriated amount for peace officer training for the year. Currently, the Peace Officers Standards and Training office is closed under the shutdown and the League believes that pending reimbursements would be delayed. The League did petition the special master to determine that the POST function for officer licensure was critical and as of July 11, we are awaiting a decision by the special master and the district court. Road funding Municipal State Aid (MSA) for cities with populations of 5,000 and greater The Minnesota Constitution requires state gasoline and motor vehicle registration fees to provide funding for certain city, county, and state roads. As of July 1, 2011, 100 percent of the revenue from state sales taxes on the sale of a new or used motor vehicle must be used for the transportation purposes. As a group, cities with populations over 5,000 receive 9 percent of the highway user taxes. It is apportioned among them on the basis of two factors: • 50 percent is distributed on the basis of money needs, as defined by law; • 50 percent is distributed on the basis of population in relation to the total population of all the other cities receiving this aid, as established by the latest federal census. 7 / July 12, 2011 Municipal state aid payments that were scheduled for July 1 were paid by the MnDOT State Aid at the end of June. Although the funding for Municipal State Aid is from a dedicated revenue source, the Department of Transportation and Minnesota Management and Budget will not be be available to perform the functions necessary to make intermittent payments. Cities under 5,000 population Smaller cities (those with populations under 5,000) are not eligible for the direct state aid (MSA) program. However, smaller cities do have access to state funding for certain county and state roads that pass through their communities. Counties, like cities, are constitutionally guaranteed a portion of the highway user distribution fund. Twenty -nine percent of the fund is dedicated for certain county roads and highways. The remaining 62 percent is dedicated to the state trunk highway system. When preparing their budgets, cities with populations under 5,000 should check with their county board to determine if the county plans to undertake any improvement projects within their limits. Construction of state aid roads may mean additional expenses for the city, such as curb and gutter construction along the new route. These expenses may have to come out of the city's general revenue if the city has not specially assessed them to the benefited property. County state aid (CSAH) aid payments that were scheduled for July 1 were paid by the MnDOT State Aid at the end of June. Although the funding for County State Aid Highway (CSAH) is from a dedicated revenue source, the Department of Transportation and Minnesota Management and Budget will not be be available to perform the functions necessary to make intermittent payments. 8 / July 12, 2011