In a survey of League cities (of which Bemidji is a member) with more than half responding, less than 40 percent of cities are optimistic about their financial circumstances in 2008 — the smallest share of cities better able to meet financial needs since 2004, the year following a 25 percent cut in state aid in reaction to the state facing a $4.5 billion budget deficit.

LMC notes that lawmakers may be facing a $1.1 billion budget deficit next year and say cities can’t afford another hit in state aid — Local Government Aid. Cities face a wide variety of challenges, the League states, among them a lagging economy, increasing health care costs, the bursting of the housing bubble, the foreclosure crisis, rising energy costs and the state budget.

In most cases, cities can only react by cutting services or raising revenues, the latter mostly involving property taxes and fees, which places a heavy burden on homeowners. The average homestead property tax ha increased 70 percent between 2002 and 2008, the League reports, partly due to rising property values.

“The property tax system is the only real tool through which to raise revenue for many Minnesota cities,” the League report states.

The 2008 Legislature, at the insistence of Gov. Tim Pawlenty, has hamstrung not only cities but also counties and other local governments by imposing a 3 percent limit on how much property taxes can rise for each of the next three years. The fear is a shift of state spending to local governments over the years, and perhaps more next year with another state budget deficit, puts cities in the role of relying more on dropping services as they can’t compensate with raising taxes.

The new law included provisions to alleviate local governments — mostly counties — of having to pay for state-mandated services if state money didn’t follow them. But legislative leaders and Pawlenty reneged on that part, saying the first bill next session will repeal that part and make retroactive that local governments repay what they dropped.

Beltrami County hopes to sway Minnesota’s other 86 counties to form a front in opposition to repealing the provision, making it clear that the state should fund what it mandates local governments to provide. Cities too need to form a front to demand a new system to share state resources to pay for essential local services when local jurisdictions lack the property tax base to pay for them.

Rather than standing firm on a no-new-taxes policy, a better solution can be found in solving how best to spend the taxes we have and at what level to ensure essential public services.