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State's Volatile Revenue Stream Puts Counties In Tough Spot

Picture-Hundred Dollar Bill being stretched

Tax reform is one of the big conversations in the Minnesota Legislature right now. What would a local government like to see in any tax reform that happens?

I can't speak for our local elected officials, but I've got decades of experience at Olmsted County and have a few ideas to offer.

One of the biggest problems the state has had is the uncertainty of its revenue stream. When economic times are good, there is plenty of revenue. Citizen advocacy groups work to convince the Legislature their cause is needful and the Legislature should provide new funds to fix the problem. Quite often, that means counties will be given funding to provide a new service or enhance an existing one. This is when we are riding up the rails of the roller coaster.

When economic times are tough, the state's revenues shrink. Its main revenue sources are income taxes and sales taxes. When the economy is doing poorly, both sources of revenue are reduced, and the state quite often enters into a deficit budget. This is the screaming ride down the rails of the roller coaster.

In national comparisons, Minnesota has one of the most volatile tax systems in the nation. Our quest to be fair and progressive has left us is this situation.

Why is that a problem for a county? Well, one of the basic jobs of government is to help provide stability so citizens and businesses can plan and build their lives and businesses. When the foundation of what we do is on a roller coaster of uncertain revenue, it is really hard to plan or provide stable services.

Minnesota counties are a legal arm of the state, which "hires" us to provide services they want provided at the local level. Counties are mandated by law, rules and court cases to provide about 85 percent of the services that we offer.

For example, we have to investigate reports of child abuse within 24 hours; we have to provide space and courtrooms for the state court employees, and we provide the means to vote during elections, just to name a few.

When the state's volatile revenue streams negatively affects its ability to pay for the services they require us to provide, we have a problem. Local officials are caught between the state's reduced ability to pay and the local citizens' expectations for services. Our income from the state declines, but the services we must provide do not. It's hard to provide stability when you are riding a roller coaster.

What would fix the volatility problem? You've seen the discussions in this newspaper of late. Broadening the sales tax to include more kinds of goods and services would mean that collections would not drop as much when the economy takes a turn for the worse. Another possible fix would be to set aside funds during good economic times into a rainy day fund and not give in to advocacy groups who ask the state to do more good things or to pay out the surplus in refund checks.

It's not difficult to research whether either of these ideas would work. We know for a fact from watching other states that a broader sales tax is less volatile. We also know that a meaningful rainy day fund makes our lives easier at home, so it probably would at the state level, too.

Another idea worth exploring, while tax reform is a hot topic, is transparency in what a tax is used for. People like to know what they are buying.

When you or I go to the store, we look at the product and at the price and connect the two to make a decision on whether to buy. Our state and national tax systems are messy and convoluted, and you can't connect what we pay with what we get.

If you went to the hardware store and were told to leave $100 in a basket at the door and in return you'd be allowed to pick up a mystery box with a random tool in it, would you willingly shop there? Is our tax system any more transparent?

Olmsted County can detail out average costs per person for what we provide. In 2011, it cost $40 per person to maintain, plow, grade, mow, and patch our network of over 500 miles of roads. It cost $72 per person to run our Adult Detention Center and hold approximately 150 prisoners off the streets.

You can see Olmsted's costs on our website under the Finance Department. Look for the Citizen's Quick Financial Statement.

Wouldn't it help if the state and federal governments did the same?

A broader, more stable tax system and a serious rainy day fund would smooth out the roller coaster we've been on. It would help local governments provide the stability that is our main job. Direct connections between our taxes and what they buy would also make it easier to understand what we are buying and to discuss what we want.

While we've got the car into the shop for repairs, let's do it right and see if we can fix some of the underlying problems.

*Article written by Bob Bendzick, CFO for Olmsted County. The article appeared in the Rochester Post-Bulletin on Friday, March 1, 2013.

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