Federal, State and Local Linkages
From Facilitator's Guide for Teaching "Taxes: Where Does the Money Go? Federal, State and Local Government"
by Scott Loveridge, Liz Templin, Carole Yoho,
and Nancy Lenhart.
To explain where various levels of government receive their funding, we will overview sources of revenue, including taxes, as well as the flow of tax dollars between different levels of government. Because of these transfers, some units of government spend more than they collect, while others spend less than they collect.
Main point:
One role the federal government has assumed is to lessen the differences in the ability of states and localities to provide basic services. This is done with intergovernmental aid. This is a very important concept in government revenues where dollars are passed from the federal government to state and local governments to assure minimal levels of services that would likely be underprovided if state and local governments had to pay all the costs directly.
Local governments might "underprovide" certain services because:
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Poor districts may not be able to afford to pay.
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Benefits of the service may be reaped by persons outside the district.
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Local officials and citizens feel that property taxes and charges are unfair and/or too high.
D.
Answer to Question #3:
False.
As Figure 4 shows, this is true only for townships. Intergovernmental aids are very important—most important for schools, which receive over 50 percent of their funding from the state.
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Main point:
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The federal government contributed 22 percent of state and local government revenue (all states) at the high point of federal aid in 1977-78. By '90-'91, federal aid declined to 17.1 percent. As a result, state and local governments must raise taxes or cut services.
Main point:
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Minnesota state government directs a large share of its state-raised revenue to local governments as intergovernmental aid to lessen inequalities between areas, to ensure provision of basic services, and to hold down local property taxes.
Main points:
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The Minnesota state constitution states: "The legislature may provide by law for the creation, organization, administration, consolidation, division and dissolution of local government units and their functions . . . ." In other words,
the state created local governments and defines their powers
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Increasing budget pressures on the state government have caused the state to reduce or change some of its aid programs for local governments.
H.
Answer to Question #4:
False.
As discussed under the Local Government heading, the real answer is that the state created local governments and defines their powers. The state can require that certain levels of services be provided by local governments. Local governments can choose to provide services at a level greater than the minimum, although there often are restrictions on how much additional money can be raised through the property tax.
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I.
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Optional Activity—"No-Where" County Expenditure Decisions Activity,
Appendix C
, of this facilitator's guide—or invite your local county commissioner to discuss local taxes and government spending.
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Back to Table of Contents
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A.
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Review (on overhead)
Steps for Calculating Your Property Taxes
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Main points:
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Assess the property.
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Classify the property, determine home's tax capacity.
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Prepare a local budget.
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Overlapping governments.
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Effective 1993, non-school voter-approved levies are generally to be levied on the market value of all taxable property, not on net tax capacity. School referendums for operating purposes will be levied on market value also.
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B.
Answer to Question #5:
False.
In fact, property taxes are calculated on market value, class rate, and tax rate, as discussed in
Steps for Calculating Your Property Taxes
. The class rate makes a very big difference on the amount of property tax to be paid.
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D.
Answer to Question #6:
False.
The real answer is property tax dollars are spent on county, city, school, and special district services.
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Answer to Question #8:
Either take from the Figure 5 or use local data which can be obtained from the county treasurer's office.
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E.
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Review the content of
State Role in Property Taxes
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Main points:
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Property taxes are affected through four major policy levers. The state can:
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1.
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Specify changes in the levels of some services to be provided by local government.
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2.
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Limit the total dollar amount local governments can raise from property taxes.
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3.
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Provide direct aid to local governments.
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4.
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Reduce the property tax bill of one class of property by shifting to others through:
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(a)
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Changing the property classification system.
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(b)
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Providing direct aids to taxpayers.
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(c)
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Limiting the amount of year-to-year increases on market value of certain kinds of property.
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Answer to Question #7:
False.
The real answer is that an individual's property taxes can increase for a number of reasons: an increase in the appraised value, change in property classification, decrease in intergovernmental aids, change in classification system, and/or increase in local government services.
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H.
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Summary for this section:
The property tax system in Minnesota is complex. This complexity is the result of an attempt to make the tax system more fair.
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Produced by Communication and Educational Technology Services, University of
Minnesota Extension.
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