The MacNeil/Lehrer Report; Property Tax Solution

ROBERT MacNEIL: Good evening from Minneapolis/St. Paul. If you live in the Twin Cities, area of Minnesota, this was one of the two days a year on which you could pay your property taxes. And while that`s usually not an occasion for celebration, there`s an intriguing story behind the property tax system here, and that is causing a certain amount of satisfaction in this part of the world. As the Minneapolis Star said last Wednesday, "Sometimes things work the way they`re supposed to.

And the Minneapolis property tax system is a case in point."

Since this is a problem that plagues many metropolitan areas in the country, we`re going to look tonight at the way they do it here. Jim?

JIM LEHRER: Robin, the problem is simply how to pay, the bills - for fire and police protection, for schools, for welfare and social services, for garbage collection, for all of local government`s necessities of life; particularly when the money pot, otherwise known as property taxes, is shrinking. It`s the now-familiar end result of urban sprawl and suburban growth. People leave the city for the suburbs; business and industry follow. Those left behind make increasing demands on the city`s budget for more social and other services. But because the tax base is now smaller the city can`t meet them. So even more people leave, and on and on it goes. It`s the not-so-merry-go-round of urban neglect, one that was having its effects on the forty-one communities in the seven county area surrounding Minneapolis/St. Paul, just like everywhere else in the country.

They saw their metropolitan area being turned into pockets of haves and have-nots. There were industrial suburbs, high income suburbs, low income suburbs, and two central cities, Minneapolis and St. Paul. And five years ago they made the first moves toward stopping the merry-go round and getting off. Robin?

MacNEIL: What they decided to do was to make more prosperous communities in that group Jim mentioned give up a little of their business growth each year to benefit the communities with less growth. They don`t give up actual taxes or money; what they share is the growing commercial tax base itself, the growing value of new business and buildings. Each year, using 1971 as a base year, each of the communities gives up forty percent of any growth in commercial valuation. The contributions go to a pool, which is then shared by all the contributing communities according to population. So rich suburban towns can be net losers, poorer towns and city centers can be net gainers. What the poorer communities are getting is the ability to tax some of the commerce moving into the richer towns as though it had actually moved into their own communities. Gradually the difference in the ability of various towns in the group to raise taxes begins to narrow.

A major factor in conceiving and backing the plan was the Citizens` League of Minneapolis/St. Paul. Its Executive Director is Ted Kolderie. Mr. Kolderie, your league has recently completed an analysis of how this tax- base sharing scheme is working. How is it working, in your view?

TED KOLDERIE: It`s working, we think, the way the Star editorial

said: it`s functioning slowly and gradually to lessen, over a period of years, the disparity in commercial-industrial valuations per capita among the various communities in the area. If the law were not in effect the range of disparity would be something like ten to one in dollars of commercial-industrial valuation per capita. With the law in effect, it`s down to around six to one.

MacNEIL: Presumably, if it stays in effect that will get narrower and narrower, that ratio.

KOLDERIE: Partially and gradually. It works only with commercial industrial base, and it works only with the growth, it works only with forty percent of the growth.

MacNEIL: Tell me about those communities, the presumably richer ones to start with, who have been the net losers of this. Politically are they very happy about this?

KOLDERIE: No. Although we`ve recently seen a survey done by an outside group that asked the confidential reactions of some of their finance officers, and they are inclined to say that it`s a good thing for the region.

MacNEIL: That`s the finance officers; what about the voters and the people who receive the services that the taxes in that community pay for?

KOLDERIE: Well, the governments get the money they want to spend; the net playout is on tax rates. They pay a little higher tax rates in those communities than they otherwise would. Now, the thing that really helped sell it some years ago was the fact that at some point in time you`re growing, but you`re not growing all of your lifetime. And as communities pass through these cycles of growth and stability and decline they`re going to change positions. It was a trade-off from the short-run gain for some long-run gains.

MacNEIL: You mean, you may be a grower this period of five or six years but you may not be a grower and somebody else may be and you can benefit.

KOLDERIE: When I first came to the community Minneapolis` central cities were big growth communities and valuations, and they would have gauged this very differently.

MacNEIL: What has the scheme actually done, say, for the city center of Minneapolis or St. Paul, which Jim was talking about? What have the city authorities been able to do with tax revenues there, which presumably are enhanced by this sharing scheme, which they wouldn`t have been able to do if the plan had not been in effect?

KOLDERIE: Well, the revenues really aren`t enhanced. The cities levy what they want from the tax base within the limits of the law, and they get that. Because they have a little larger base to draw from, the rates on the taxpayers in the city are a little lower than they otherwise would be. But the central cities, in terms of the distribution of tax base, have been very large gainers in the program. Since 1971 most of the growth of the valuations, the commercial-industrial valuation of Minneapolis, has been attributable to this program.

MacNEIL: But if your valuation grows, you can do one of two things or both: you can lower the rates for your taxpayers or you can leave the rates where they were and raise more taxes and provide more services.

Are there not services...?

KOLDERIE: The big thing to say, I think, is that the program works gradually and slowly and it does not provide a lot of new money. So you have to see what Minnesota did with this program for the sharing of the non-residential tax base, together with the other and very large things that Minnesota has done to provide more spendable revenue directly to local governments, particularly from non-property taxes --and interestingly, along exactly the same principle that was followed in the sharing of the property tax base, and that is that we`re going to treat the metropolitan region as a whole increasingly as the base from which we raise revenue.

MacNEIL: Just before we move on, does this scheme not limit the ability of individual communities to offer tax incentives to industry or business to come out, in competition with other communities?

KOLDERIE: Well, it doesn`t really limit their opportunity to attract those incentives. There has been some concern that it would limit their interest in attracting industry. We don`t see much practical evidence of that. Industry is fairly clean, fairly attractive, the community still keeps directly most of the valuation of what comes in; so we don`t see much negative playout on the industrial location question.

MacNEIL: Thank you. One man who was heavily involved in setting up the tax base plan is the former Minneapolis Mayor, Art Naftalin, who is now a consultant on urban problems to many cities. Mr. Naftalin, you actually helped sell this plan to the state legislature. How did you get some of these communities to give up some of their taxing power?

ARTHUR NAFTALIN: Well, by 1971, when disparities legislation was adopted, the general attitude had begun to change in a rather basic way in the seven county area. We had established in 1967 the Metropolitan Council, which is a planning and coordinating body for the seven counties, and because it was clear that in the future there would be control of development in settlements and that this would adversely affect and favorably affect certain communities, it became clear to everyone who was involved in the metropolitan movement that something ought to be done with respect to the generating of new tax base. And so I think it`d be fair to say that by 71 the sense of identity with the region had emerged, the idea that evening out of the feast-and-famine condition should prevail. And happily, that idea did surface in the legislature; it surfaced, as a matter of fact, as a result of a Citizens` League study, and one of the representatives, a gentleman by the name of Charles Weaver, was instrumental in advancing the so-called Weaver bill, and it attracted support both within the legislature, within the metropolitan area and statewide.

MacNEIL: I see. Now, is the significance of this tax-base sharing plan that we`ve been talking about, together with the council you`re talking about -- the regional Metropolitan Council -- is the significance of both of those that these are practical steps toward regional government in the metropolitan area? Is that the way you view it?

NAFTALIN: I would view the disparities, the tax-base sharing legislation, as a very strong demonstration of the commitment that the legislature and really the people of Minnesota are prepared to make to the regionalizing idea as it pertains in the seven county metropolitan area. And by the regionalizing idea, we do mean government, but by government we really mean planning and coordinating those region-wide systems which cannot be planned and coordinated in any other fashion except by having some kind of regional mechanism.

MacNEIL: Are you prepared in this area to take the further and presumably more difficult political step towards regional government in reality, that is -- at the moment in your council the members are appointed - to have elected members to the council, who would have actual powers to govern these forty-one communities in the seven counties?

NAFTALIN: Yes, there`s a clear movement in the direction of election. The legislature has on other, earlier occasions, almost adopted that. Those of us who support the elective idea would like to see that adopted in 1978. We think in time that`s going to be accomplished. It won`t greatly alter the functions or operations of the council, but we think it`ll make more clear the developing authority and the developing capability of the council to assume new responsibilities of a coordinating sort.

MacNEIL: You are a consultant to many other cities. What application do you think these ideas have to the problems of other large urban communities?

NAFTALIN: Well, I think that it has a good deal of application, but there`s a strong resistance to the idea of surrendering any kind of coordinating authority to a regional body. I think almost any metropolitan body or metropolitan area that has a multiplicity of municipalities and counties could gain from adopting this general approach. I should-emphasize quite clearly that we don`t think that this is a usurpation of local government; we think this is an enlargement of local government. We think the Metropolitan Council is doing those things that local government is now not doing and cannot do. What we see it doing is emerging with a set of systems within which the local governments can do a better job.

If I might just take one quick moment to say that when I way mayor of Minneapolis it soon became clear to me that in so many basic areas transportation, law enforcement, housing, sewage disposal, open space that the city simply was not in a position, by itself, to attack the problems in a basic way, that it needed a larger base to operate within. And that`s what the Metropolitan Council has begun to give us in all of these areas. But it`s true, to be responsive to your question, that this is not heartily embraced everywhere in the country; but we think that it ought to be looked at very seriously by every metropolitan region.

MaCNEIL: Thank you. Jim?

LEHRER: Yes. As the Mayor just said, not everybody believes in the so- called "religion of regionalism" as the solution to local government`s problems, and one man with some reservations about it is Robert Hawkins,

Jr., State and Local Government Studies coordinator at the Woodrow Wilson International Center for Scholars here in Washington. He is the former Director of the State of California`s Local Government Reform Task Force. First, Mr. Hawkins, on the specific tax-base sharing idea that we`ve been talking about in Minneapolis/St. Paul: is that a specific system that you think would have wide application elsewhere in the country?

ROBERT HAWKINS: Jim, I think you have to go to the basic assumption underpinning tax sharing, and that is that the central city is being exploited by the suburbs. Now, it`s not clear from studies around the country whether central cities are in fact being exploited. For example, it appears in the metropolitan area oœ Washington, D.C. that suburbanites contribute a considerable amount to the treasury. The same seems to be true in Washington and San Francisco. So I think if you`re going to base it on the assumption of exploitation you probably have to go case by case across the country.

I also have reservations as to whether it`s a good idea to treat a metropolitan area as a fiscal base adequate for, basically, income redistribution, for several reasons. First, I think it introduces perverse incentives into the system.

LEHRER: Like what?

HAWKINS: For example, it seems to me that one of the things that happens is that you may start subsidizing inefficient and unresponsive systems rather than producing incentives for them to become productive political economies in their own right.

LEHRER: Gentlemen in Minneapolis/St. Paul, don`t take offense here, I`m talking hypothetically; but let`s say the city government in Minneapolis is blowing it in a certain area and because of a tax-base sharing system they`re able to compensate for that by just sitting there. That`s what you`re talking about, right?

HAWKINS: That`s right. You see, I think one of the other assumptions that`s being made is that in fact the success of a city is rather random or accidental and therefore we should all share in the accident and success; therefore we start treating cities as victims rather than as entities capable of sustaining viable political growth. And it seems to me that there`s no way that we can have a nation of sick cities and have a healthy nation. And therefore it seems to me the task, rather than trying to go to regional revenue sharing, is how do you get cities like New York to become viable political economies capable of standing on their own two feet?

LEHRER: And you do not see this, then, as the legitimate medicine for a sick city? It`s something entirely different.

HAWKINS: I would say that if you could clearly show that suburbanites were in fact exploiting central cities, then there might be some justification for some kind of transfer tax to take care of that exploitation. But in the long run I think we are probably ignoring the problems of the central cities by thinking that regional revenue sharing is going to solve their problems.

LEHRER: Okay. Let`s go to the whole basic idea of regional government as the Mayor was just talking to Robin about. The Mayor says that really what regionalism is an enlargement of local government. Do you see it that way?

HAWKINS: Well, I think you have to be very careful of that one, and I know this is a position that is very popular. And in some ways I think they`re right. But in this case it seems to me what`s happened is the state has dictated a policy; it was not a regional policy that was developed, it was not a local policy that was developed, it was dictation through state legislation that there would be revenue sharing. And it seems to me that if we are talking about regional government as voluntary organizations or associations where local governments come together to fashion plans that they agree to, that indeed is an enhancement of local government. When we start getting the federal government and the state governments mandating things on local governments, it seems to me what happens is that while local governments may carry out the plans which have been mandated they are much like local government in France, where they are basically told what to do and they have some leeway in doing it but not much, which I think is a perversion of local control.

LEHRER: The question of individual communities losing their control over their own destinies, that`s the one that raises the most political hackles, is it not?

HAWKINS: It does, and I think what happens is that you get a lot of people that get very emotional about that notion, and the critical question, to me -- and I think the critical policy question -- is how do you leave local communities enough control over things that are important to them while still taking into account the negative external effects they have on their neighbors.

LEHRER: The list of things the Mayor went though, transportation, sewage and that kind of thing.

HAWKINS: Let`s take transportation, for example. There`s no question that there are regional transportation problems. There`s also no question that there are neighborhood transportation problems; the neighborhood should have some capacity to determine how those services are going to be provided to them. And this is where the rub comes in, I think, is that we have two movements going on, in a sense: the old metropolitan reform movement, which I think is losing some of its steam; and this neighborhood movement, which is a very vital and growing movement where people are saying they want to determine their own destiny. Now something has to give somewhere. If a neighborhood decides they want one kind of housing and the regional government says, "No, that`s not rational for my regional plan," one has to give if you`re going to have an effective plan. And I think that`s one of the issues that we re going to be facing in the next year.

LEHRER: All right, thank you. Robin?

MacNEIL: Let`s take up some of Mr. Hawkins` provocative ideas. Mr. Kolderie, he just finished by describing the "old metropolitan reform movement", suggesting this was an idea whose time had passed, not whose time was coming.

KOLDERIE: Well, the old metropolitan reform movement was very different; it was a consolidation movement. It was the idea that you ought to reduce the number of units and eliminate the overlapping and duplication. I think where that`s played out more than anyplace is in some of the metropolitan reorganizations in the South, where they have abolished central cities and consolidated them into larger counties -- Jacksonville would be a good example, perhaps even Indianapolis. The effort here was a totally different basis and it`s very consistent, really, with the principles the professor was talking about: to take up to the regional level only those kinds of policy questions that had to be settled there, to operate through existing structures. In no way is the metropolitan planning, which is built around the concept of things of metropolitan significance, going to change a municipality`s decision the way it does, really, in a normal neighborhood.

MacNEIL: Let me ask you to respond to a couple of others of his ideas, Mayor Naftalin. For example, he said that he thought a lot of this was based on the idea that the suburbs were exploiting the city. Is that the motivation for this here?

NAFTALIN: No, I think not. I think that the motivation is the recognition that there are certain functions, certain needs that cannot be confronted by the municipalities, whether they`re central cities or suburbs, and I listed them before. We`ve found that the central city is not going to do anything by itself in the transportation field, and that`s true over a whole series of things which require regional direction. No, I think that that`s not an accurate reading. Our motivation is not to enhance the purpose of the central cities or the welfare of the central cities. Rather, our purpose is to enhance the strength and the stability of the entire region; and if there is any exploitation that`s going on, this crosses the city boundaries and the central city and suburban, having problems that they share, rather than there being an exploitation one way or the other.

MacNEIL: How about Mr. Hawkins` point that there`s something somehow invalid about this because the state government had mandated it?

KOLDERIE: In Minnesota we have a tradition of going to the state government to get a lot of things done. That doesn`t mean that the state thought up the idea and it`s imposed among the localities. In both the case of the base sharing program and the case of the metropolitan organization program these were ideas that developed and support that developed in the Twin Cities area, not only among local officials but among the citizens and organizations, who went to the legislature to get it enacted. This is not imposed.

MacNEIL: I see. Mr. Hawkins, do you want to add to any of that?

HAWKINS: I think that one point that has to be distinguished here is between the equity question, or the income transfer question, and the regional government question. Now it seems to me, in terms of property tax transfer, that is between local jurisdictions and has very little probably to do with the regional governments question. In terms of regional governments it seems to me that the question I have -- and I don t know the area that well -- is, how much latitude and freedom do local officials and regional officials have in coming up with plans that may be contrary to state guidelines or state desires?

NAFTALIN: As I tried to indicate earlier, it`s our general impression that the state`s direction to the Metropolitan Council exists in areas in which there is just now no direction at all. For example, in the transportation field, the mandate or the direction the state legislature gives the Metropolitan Council, and through it to the Metropolitan Transit Commission, is to develop a transit system. Now this doesn`t usurp the powers of local government, it doesn`t curtail the scope of local government at all if by local government we mean the municipalities. And the same test is generally true in the field of open space, in the field of airports, for example, in the field of sewage disposal, waste control -- all of the functions which need to be addressed on a regional basis. I think that to worry about the usurpation of local government powers when we`re dealing with an effort to confront the regional needs is to in effect divert us from where the attention should properly be directed.

MacNEIL: Mr. Hawkins, do you not share the anxiety about what`s often called the Balkanization of local government, the breaking it up into so many political units that it is part of the problems of the inner cities today, one of the contributing factors to that problem?

HAWKINS: I think that theory has been greatly overdone, overextended, and there`s evidence now to suggest that in fact some of the Balkanization may be quite rational in terms of responding to communities of interest that have different preferences for public goods and services, responding to problems that have different boundaries. The evidence on economies of scale suggest that once you get past a municipality of 250,000 you start diseconomies of scale. If anything, what the neighborhood movement is suggesting is that our large central cities that are unitary forms of government should be further Balkanized to provide them with greater voice in service delivery. So I think that theory has really been overdone.

NAFTALIN: May I respond to that, because it seems to me that we miss a critical point here. All of what Professor Hawkins has just said I don`t have any serious disagreement with. The important thing in our minds is that there are regional needs, and these regional needs interact with each other. For example, we need to protect open space at the same time that we provide for transportation. These, as I see it, are regional questions. What we need then is overall planning and coordinating that will deal with the regional needs in some kind of coherent and sensible way. The better we do this, the more the systems are placed on a regional basis, the larger is the potential of the local governments and municipalities to maximize their opportunities, and I think that`s what we`re finding in our experience here.

MacNEIL: Thank you. Jim?

LEHRER: Mr. Hawkins, is what you`re saying that the question really is difference between regional planning and regional controls? You don`t mind regional planning; it`s regional control that you think has gotten out of hand, or could get out of hand.

HAWKINS: I think it stands a good chance of getting out of hand, and I think the federal government will be the key agent that will allow it to get out of hand.

LEHRER: Is it true that the federal government is really the main impetus behind regional planning? Many of their grants are based on, "If you don`t have a regional plan, forget-it, we`re not going to give you any money." Did that play any role at all out in Minneapolis/St. Paul toward the original council of government it set up in 1967 -- the need to get federal grants and have a regional plan so you could get them?

KOLDERIE: We had in place what they required long before they came along in that 1966 law with that. We decided to go a different direction, in a stronger direction, not to organize as a council of local governments but to organize clearly a separate level of regional government, for policy purposes.

LEHRER: But it came after the federal government`s move this way, did it not?

KOLDERIE: Well, we had a Regional Planning Commission in effect in `57 which was tax supported, and a very strong one. But yes, partly the Metropolitan Council was stimulated partly by the federal law in 1966.

LEHRER: Let me ask you finally, Mr. Hawkins, if the Minneapolis/ St. Paul disparity scheme is not necessarily the one that all cities should adopt and areas should adopt, are there any alternatives to correcting these disparities?

HAWKINS: I think many of the remedies in terms of income redistribution rest with the state and the federal governments, which have larger tax bases from which to draw. But until we have some capacity to better measure service delivery in our large cities, it`s probably for naught because we don`t know what we`re really buying. And I think that`s where we have to extend our efforts now, is to understand what in fact we`re really buying when we`re buying services for the poor people in these large jurisdictions.

LEHRER: All right, thank you, Mr. Hawkins. Gentlemen in Minneapolis/ St. Paul, thank you. Good night, Robin.

MacNEIL: Good night, Jim.

LEHRER: Robert MacNeil and I will be back tomorrow night. I`m Jim Lehrer. Thank you and good night.