Aid, Tax, and Revenue Trends in Three Cities


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In recent decades, steep reductions in state aid to Minnesota cities have resulted in significant increases in real (i.e., inflation-adjusted) per capita city property taxes and reductions in real per capita city revenues. Aggregate city data, however, can conceal what is happening within individual cities. This article will focus on city property tax, state aid, and revenue base trends in three specific cities: Minneapolis, the metro area’s largest city; Rochester: the largest city in Greater Minnesota; and Alexandria, Minnesota’s largest sub-regional center.

The following analysis will examine changes in “revenue base” from 1990 to 2017, except that this analysis will focus on just the three cities, rather than statewide data. Please refer to the preceding article in this series for more specific information regarding the definition city “revenue base,” “state aids,” and “property taxes.” Amounts herein will be adjusted for inflation using the Implicit Price Deflator for State and Local Government Purchases and expressed in constant 2017 dollars, unless otherwise noted. In addition, amounts will be expressed in dollars per person (per capita) to adjust for the impact of population changes upon the need for city revenue.

With a 2015 population of just over 412,000, Minneapolis comprises just over nine percent of Minnesota’s city population. As a result, Minneapolis is a significant contributor to statewide city financial trends—and thus it is not surprising that trends in Minneapolis property taxes, state aids, and revenue base from 1990 to 2017 roughly resemble the statewide pattern, with real per capita property taxes increasing and real per capita state aids and revenue base falling.

There are, however, some differences between the Minneapolis experience and that of other cities. From 1990 to 2002, real per capita city property taxes in Minneapolis declined slightly, despite per capita aid reductions approximately equal to the statewide average; on a statewide basis, real per capita property taxes increased modestly from 1990 to 2002. Since 2002, Minneapolis stands out from other cities in terms of the magnitude of its real per capita state aid reductions. From 2002 to 2017, state aids to Minneapolis declined by over $300 per capita—more than double the statewide average. As a result, Minneapolis’ real per capita revenue base fell much more rapidly than the statewide average during this period, despite more rapid growth in Minneapolis property taxes.

During the entire span from 1990 to 2017, Minneapolis’ real per capita aid reduction ($359) and revenue base reduction ($187) were both much larger than the aggregate decline for all cities statewide ($211 and $60, respectively). Meanwhile, the per capita city property tax increase in Minneapolis ($172) was only modestly greater than the statewide aggregate ($151). The larger per capita revenue base reduction in Minneapolis is perhaps not surprising, given that Minneapolis had a much larger per capita revenue base to begin with due its high level of municipal overburden and other costs arising from its status as the state’s largest urban center, and as a major regional economic hub. Even on a percentage basis, however, the decline in Minneapolis’ per capita revenue base from 1990 to 2017 (16.6 percent) is nearly double the statewide aggregate (8.9 percent).

Apart from its status as the largest city in Greater Minnesota, the outstanding feature of Rochester is its remarkable population growth. From 1990 to 2015, Rochester’s population increased from just over 70,000 to nearly 112,000—adding more people than any other community in the state. Despite its unique characteristics, Rochester generally resembles other Minnesota cities in terms of its real per capita state aid and revenue base reductions and property tax increases.

Rochester’s per capita aid loss from 1990 to 2017 ($247) is somewhat greater than the statewide city aggregate ($211). Its per capita property tax increase ($205) also exceeds the statewide aggregate ($151), largely because of significant property tax increases from 2015 to 2017. The decline in Rochester’s per capita revenue base ($42) over this period is slightly less than the statewide aggregate ($60). Rochester’s robust population growth over the last quarter of a century undoubtedly contributed to the need to add new city infrastructure (streets, sewers, etc.), contributing to expenses that older, fully-developed cities did not have. Even with these spending pressures, the real per capita revenue base of Rochester nonetheless declined over this 27-year period.

Having examined two large cities, our focus now shifts to the medium-sized city of Alexandria. With a 2015 population of just over 13,000, Alexandria is the seat of Douglas County in west central Minnesota and the state’s largest “sub-regional center,” according to a 2015 statistical grouping of cities prepared by the Minnesota House Research Department. The general pattern of city property taxes, state aids, and revenue base in Alexandria approximately resembles the statewide aggregate, as well as the Minneapolis and Rochester patterns.

Alexandria’s total per capita state aid declined by $304 from 1990 to 2017, significantly greater than aggregate per capita city aid loss ($211). Two-thirds of this per capita aid loss occurred after 2002, during the state’s prolonged aid-cutting spree. Alexandria’s real per capita property taxes rose from 1990 to 1998, but had declined to approximately the 1990 level by 2003. After 2003, Alexandria property taxes increased significantly. Alexandria’s total per capita property tax increase from 1990 to 2017 was $166, only slightly greater than the statewide city aggregate increase ($151). Alexandria’s per capita revenue base decline over this period, however, was $138—more than double the aggregate decline ($60). The percentage decline in Alexandria’s per capita revenue base over this period was 18.9 percent—again more than double the statewide aggregate decline (8.9 percent).

Even though not all Minnesota cities have experienced the same pattern of declining real per capita aid and revenue base and increasing property taxes over the last 27 years, among larger cities, this is the predominant pattern.* For example, the vast majority of cities with a 2015 population in excess of 10,000—which comprise 77 percent of Minnesota’s 2015 city population—have undergone a significant decline in real per capita state aid since 1990. In addition, most of these cities’ increases in real per capita property taxes have not been sufficient to offset the decline in state aid, resulting in a real per capita decline in revenue base. This in turn translates into fewer dollars with which to fund city services and infrastructure.

 

*In general, larger Minnesota cities have experienced larger real per capita reductions in both state aid and revenue base from 1990 to 2017 than have smaller cities. The relationship between (1) 2015 city population and the 1990 to 2017 real per capita state aid decline and (2) 2015 city population and the 1990 to 2017 real per capita revenue base decline are both statistically significant at the 0.05 level.