Government Subsidies & Budget Cuts
Minnesota Health Plan
Information and Resources
by Senator John Marty
December 23, 2004

Minnesota, like most states, has faced tough budget decisions in recent years. Road maintenance and snowplowing have taken a hit. Healthcare for the uninsured was reduced. Schoolteachers have been laid off. Yet government subsidies for private business continue unabated.

The absurdity of this extravagant government spending is obvious when looking at professional sports. Taxpayers, some of whom cannot afford healthcare or basic necessities, provide funding for wealthy team owners and athletes.

Latrell Sprewell of the Timberwolves, recently complained about an inadequate contract offer because, "I got my family to feed." It must be a hungry family -- Sprewell is receiving $14.6 million this year.

Vikings owner Red McCombs, who will likely end up with well over $300 million in profit when he sells the Vikings, complains that he cannot make it economically without a new stadium.

Marie Antoinette's "Let them eat cake" is no more out of touch with reality than this. Even so, Speaker of the Minnesota House Steve Sviggum boldly predicted that the state will build a new publicly-funded ballpark next year as soon as it deals with a $1.4 billion state deficit through additional budget cuts.

Taxpayer funding for professional sports is just the tip of the iceberg. Federal, state, and local governments routinely give public funds to businesses. These payments are hidden through complex financing arrangements so it is not obvious to the public what is going on. Even some politicians agreeing to the deals may not fully understand what they are doing.

My home city, Roseville, is on the verge of giving as much as $47 million in public money to a retail and residential redevelopment. To put this $47 million in perspective, Roseville receives only about $10 million per year from property taxes from all residents and businesses -- the windfall to the developer is almost five times that!

Proponents explain that some of the land has soil contamination that needs to be cleaned up. They neglect to mention that the polluters are responsible for the clean-up costs. When government agencies make a serious attempt to collect money for pollution remediation, they usually succeed.

Even if the city was unable to collect from the polluters, only $7 million of the proposed $47 million subsidy is for clean-up costs. For supporters, that doesn't seem to matter. They claim that much of this is "free money".

Why? They plan to use Tax Increment Financing (TIF) for the project. Few people understand TIF, and most people's eyes glaze over if you try to explain it, even though cities routinely give TIF subsidies. In theory, TIF provides funding out of the incremental increase of property taxes collected after the development as compared to the property taxes before.

When this new development is completed consultants claim that the higher value of the property will yield an incremental increase in property taxes that totals about $27 million over the next twenty-five years. The city would give this tax money to the developer as a subsidy. City officials argue that this money would not otherwise be collected. Hence, they consider it "free money."

Not surprisingly, this isn't the whole story. Failure to provide a subsidy does not mean that no redevelopment will occur on such prime property. Several years ago, Minneapolis provided a large TIF subsidy to a developer of the south end of the Nicollet Mall. A competing developer pushed a plan to redevelop the property without taxpayer money.

When Minneapolis chose the first developer because that proposal included a downtown Target store, they justified the TIF subsidy by calculating the difference in taxes between the proposed development and the taxes from the prior use of the property. They ignored the comparable taxes that would have been collected by the competing -- and unsubsidized -- development.

These new developments, in cities across the state, cause higher costs for schools, cities, and counties. For example, the housing in such redevelopment brings additional school-age children into local schools. These students are no less expensive to educate than their peers, yet the schools will not collect a penny of additional revenue from the redevelopment to pay those expenses, due to the TIF subsidy. The same is true for a myriad of other government costs. Tax Increment Financing simply shifts the burden to other property taxpayers.

Roseville already has the most retail per capita in the state -- more than even Bloomington with the Mall of America. Is it in the public interest to spend $47 million or $27 or even "just" $7 million to add a new Costco store in Roseville?

When the state budget is cutting off chemotherapy treatment to cancer patients and laying off teachers in schools, it is indefensible to give multi-million dollar handouts to the businesses with the best lobbyists.

 


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