State law includes some flexibility for cities if unexpected cuts in state aid occur.
With the uncertain status of the state budget as a backdrop, cities are working to set their preliminary budgets and property tax levies for 2021. This process must be completed by Sept. 30.
The city’s preliminary property tax levy certified to the county by Sept. 30 is a self-imposed maximum levy. There are only a few exceptions for which the city’s final levy can exceed the preliminary levy. Examples of exceptions include new voter-approved debt or operations, natural disasters, and tort judgments. (See Minnesota Statutes, section 275.065, subdivision 6.)
Unallotment added to list of exceptions
In 2009, during the Great Recession and deep state budget cuts, the League worked with legislators to add provisions to the proposed and final levy certification process to allow for adjustments for unallotment of state aid.
Under these changes, unallotment of state aid was added to the list of exceptions for a higher final levy. Also, a provision was added (Minnesota Statutes, section 275.07, subdivision 6) that said if unallotment occurs after the final levy is certified in December, the city can recertifiy its final levy to the county by Jan. 15.
Chances of unallotment
There is currently no indication that there will be cuts in this December’s state aid to cities. But the special May budget forecast predicted the state would experience a deficit for the balance of the current biennium, which ends June 30, 2021. However, the state’s budget reserve is roughly equal to that deficit and could cover the short-term shortfall.
The state will release its next official budget forecast around Dec. 1. If that forecast indicates a worsening in the state’s budget for the balance of the current biennium, the governor and possibly legislators would need to take action to balance the shortfall with only seven months remaining in the fiscal biennium.
Levy process and authority for unallotment adjustments
Cities should certify their proposed levies by Sept. 30 assuming that they will receive their full December 2020 state aid payments. However, if there is notice of an unallotment before Sept. 30, the city can increase its proposed levy to cover the reduction before submitting it to the county.
Cities should also certify their final levy amounts by this year’s deadline of Dec. 28 assuming they will receive their full December 2020 state aid payments. If there is notice of an unallotment before a city certifies its final levy to the county, the Department of Revenue has indicated that the city can adjust its final levy by the amount of the unallotment reduction.
Cities over 499 in population are required to complete and submit a truth-in-taxation compliance form. These cities would report the unallotment amount as the reason that the final levy is higher than the proposed levy.
Reductions after the final levy is certified
If an unallotment is announced after a city has certified its final levy to the county, the city can “recertify” its levy to the county to cover the reduction. However, the recertification must occur before Jan. 19, 2021 (two business days after Jan. 15, as specified in state statute).
Whether incorporated into its final levy certification or recertified by Jan. 19, the amount that exceeds the proposed levy cannot be higher than the unallotment reduction amount.
Keep in mind that if reductions are made to next year’s certified local government aid amounts during the 2021 legislative session, they can only be replaced in a future year’s property tax levy.
For more information
If you have questions, contact any of these LMC staff members:
- Gary Carlson: firstname.lastname@example.org or (651) 281-1255
- Amber Eisenschenk: email@example.com or (651) 281-1227
- Lisa Sova: firstname.lastname@example.org or (651) 281-1208