Working Toward Greater Transparency in Local Government Budgeting

Summer 2013

In an ongoing effort to discover and make more transparent the real drivers behind rising real estate taxes on properties owned or developed by its members — and paid, more often than not, by the thousands of business tenants they house — the NAIOP Minnesota Chapter has not only gained support among state legislators, but even won over some of the local government officials most directly affected.

Kaye Rakow, director of public policy, for the NAIOP Minnesota Chapter said the initiative grew out of constant questions from members about ever increasing property taxes. The usual explanations were predictable: the state blamed local spending excesses, while local leaders criticized state policies for causing budget shortfalls.

“To end the finger pointing,” said Rakow, “we set out to discover the real causes behind the need for more and more revenue, with the goal in mind of attempting to do something about the problem if we were successful.”

To launch the effort, Rakow organized a task force to examine the “nexus” of local government spending and property taxes. For more than two years, a team of chapter volunteers chaired by Paul Reinke, Silver Oak Development, interviewed city, county and school district officials, state revenue officials, legislators and other experts on finance and governance who could provide insights and information on the fiscal processes and practices of cities and counties. To assist, the task force engaged a nationally recognized St. Paul-based independent research organization, the Center for Fiscal Excellence.

“The deeper we explored,” said Rakow, ”the clearer it became that the underlying causes of rising taxes were not external conditions such as inflation, but purely local priorities and choices surrounding spending.” However, details on those decisions are often opaque to taxpayers, with cities and counties reporting spending only by category (i.e., “parks and recreation,” or “public safety”) with real cost drivers buried within their audited financial statements, well beyond the ability or patience of most taxpayers to either dig out or understand.

To proactively address the issue, NAIOP Minnesota’s public policy committee targeted the state legislature’s 2012 session. Within just a few months, Rakow and task force members assisted in drafting legislation, calling for unified reporting by “expenditure type” — what taxpayers’ money actually purchased in terms of supplies, equipment, employee compensation, pensions, healthcare, and other costs — on the part of local jurisdictions across the state. Members recruited bipartisan partners for the bill in both the House and Senate and launched a statewide campaign to gain editorial support. Despite opposition from local officials who cited the cost and inconvenience of complying, NAIOP’s team successfully shepherded the legislation through both houses and delivered it to the governor’s desk, only to have it die there, vetoed along with the larger controversial omnibus tax bill of which it was a part.

Undaunted and more convinced than ever of the value to all taxpayers of greater transparency in local government spending reports, the chapter plans to bring the bill back again in next year’s legislative session. To disprove the charge that reporting by expenditure type would be costly and consume too much staff time, Rakow and her team of NAIOP volunteers invited several cities to participate in pilot programs testing the concept.

The results from the most recent test, conducted in cooperation with the City of Edina, a suburb where many NAIOP members live and own or have developed commercial property, inspired this observation from Scott Neal, city manager: “The level of effort on our end was minimal. If we can explain our budget and fiscal situation to our taxpayers with such relatively modest effort, why wouldn’t we?”

Added Kaye Rakow: “The reactions we‘ve received from every legislator, chamber of commerce, city and newspaper editor with whom we have worked on this initiative echo Scott’s comments. That’s why we are committed toward completing this transparency initiative and reintroducing the bill in next year’s session. We are not only confident that it is worth doing, but that when passed into law, it will benefit every taxpayer in Minnesota, not just owners of business property.”