Steve Brandt’s Thoughts in Response to Letter Re: City Income Tax

Ms. Kepler:

Thanks for taking the time to write what was obviously a quite heartfelt letter. (Open Letter to Steve Brandt, Member, Board of Estimate and Taxation by Colleen Kepler)

You are asking for a detailed look by city officials at the city budget. I agree that such an approach is needed, at least at the program level. The Board of Estimate and Taxation recently hired a sole staffer in part to undertake research projects. I intend to propose that she staff what I hope would be an external analysis of the growth in city spending. Such an analysis was recently completed in St. Paul by a group of citizens that included a former city budget director, a developer and a retired business editor, among others. I have been in contact with them.

You will be cheered to know that the Ward 13 council member also favors a program-level analysis to determine the efficacy and need for budgets at the program level. I support this as well but this would fall within the council’s budgetary process.

You should also know that the Board of Estimate and Taxation has no power to budget spending. That is reserved by the city charter to the City Council and mayor. We monitor that spending by reviewing quarterly financial reports. But we have no power to cut a program nor to fund one. Our formal powers in the charter are to set the annual property tax limit and approve bonding for capital projects.

But even with a careful look at spending, the city’s spending is likely to increase annually to some degree. Most of my household expenses, whether food or energy costs, rise each year. Some of that is salary growth. We are also an aged city with a matching infrastructure that needs constant renewal. The pandemic reduced a major source of city revenue in the form of the city sales tax and also diminished special taxes that are levied downtown. These help to subsidize the city budget. Yes, federal pandemic aid offset some of that but that aid is done and inflation has driven up costs as we well know from our household budgets. People have asked for safer streets but rebuilding the police force took a considerable increase in police pay that is only now beginning to yield results. That comes with a budgetary cost.

To me, the question — beyond a prudent look at what spending may be trimmed — is how to continue to fund budgetary growth — with property tax increases that will fall more heavily on homeowners because of the downtown tax base shrinkage, or whether we can moderate those increases by supplementing the budget with a different form of taxation.

You make clear that you oppose an income tax.

I was prompted to promote an examination of alternative sources of revenue by the complaints I’ve heard about continually rising property taxes. As someone who lives in a house now valued at roughly 12 times what I paid for it 49 years ago, I’ve experienced and paid the same increase in property taxes that you cite.

My response to the complaints of those property taxpayers on fixed or low incomes was to suggest that the city consider ways to substitute other sources of revenue so that the property tax becomes less of a budget balancer of first and last resort. There are multiple possible sources but none of them would happen without approval from both the City Council and the Legislature. Neither is likely for at least two years, if ever.

One current example of enhancing revenue is an expansion of the city tax on restaurants and liquor sales to the entire North Loop area rather than the one-third of that area that was populated with bars and restaurants when the downtown taxing district was created. This was debated at the recent session of the Legislature. It would level the playing field between such businesses inside that district and those not paying the tax now. This is relatively painless given that this is discretionary spending and falls on visitors to the city as much as residents.

I would like to examine income-based taxing options in this vein. Various localities tax income, payroll or wealth. Each has pros and cons. What I’m proposing is a careful study of each type of taxation so that we know relative advantages and disadvantages. For example, a wealth tax would pose administrative complexity while a payroll tax might affect the locational choices of businesses and an income tax could prompt some taxpayers such as yourself to relocate.

That is why I want to study the implications of using any of these sources to relieve pressure on the property tax. Ideally, I’d love to have our new staffer perform this analysis. I do know that more than 5,000 local jurisdictions around the country employ an income tax in both red states and blue. This provides a rich experience that we can draw from about whether such a tax creates unintended consequences while raising revenue.

I’ve thrown out for discussion the idea of a 1 percent tax on households with incomes of more than $200,000 annually, which is 2-1/2 times the city’s median household income. Those levels certainly would be negotiable. Some of the impact of this approach could well be mitigated by proposed income tax cuts for upper-income taxpayers now under consideration by Congress, There would be a certain equity in that given that pending federal aid cuts will strain the city budget. I understand your concerns about affording to put your children through college. However, my wife and I were able to accomplish that at a combined income of well below $200,000

You mention Detroit. It has a 2.4 percent tax rate, far above what I’ve proposed for discussion purposes. Can you provide any evidence that there was a cause-effect relationship between the Detroit income tax and what you describe as “textbook Detroit”?

Obviously, the above response contains much more nuance that I could fit into a two-minute ward convention speech. I hope that it assuages some of your concerns.

I too own property out of state and have choices. But I’m committed to Minneapolis.

Respectfully,

Steve Brandt

Steve Brandt is a former Star Tribune reporter and current President of the Minneapolis Board of Estimate and Taxation