Cities group proposes sales tax expansion

Extending the state sales tax to non-essential personal services and to digital downloads is the latest proposal to hold off deeper cuts in state aid to rural cities.

The Coalition of Greater Minnesota Cities wants to use the tax to provide about $60 million in annual revenue. The advocacy group for rural cities also wants the Legislature to prevent Gov. Tim Pawlenty from making more unallotments to Local Government Aid this year.

Coalition Executive Director Tim Flaherty said LGA for cities makes up 2.9 percent of the state budget. However, LGA cuts make up 16 percent of the unallotments Pawlenty made last year to balance the state budget.

"Unallotment" is the executive branch power to reduce expenditures to prevent an anticipated budget deficit.

Last year, Pawlenty ordered cuts to LGA as part of his fix for a projected $2.7 billion budget deficit. This month, to deal with another deficit estimated at $1.2 billion, he's proposed another LGA cut.

The aid is an important source of revenue for municipalities in the state, particularly those in rural areas.

"We're asking greater Minnesota legislators of both parties to put down their party affiliation and work together to solve this crisis," Flaherty said in a conference call Friday morning. "Republican House members have the ability to stop further cuts."

If the Legislature approved the coalition's idea, it would face a nearly inevitable veto from Pawlenty, who will not approve any state tax increases. Senate Democrats have a majority that enables them to override a veto; House Democrats need a handful of Republicans to override.

Cities have already cut spending, increased property taxes, laid off employees and frozen wages and benefits for the ones that are left, Flaherty said.

"These cuts are devastating," said Cloquet Mayor Bruce Ahlgren, who also participated in the conference call and is a spokesman for the coalition.

While it's difficult for his city to be contemplating the first staff layoffs it's ever made, "our biggest problem is infrastructure," he said. "Something needs to be done to ensure our communities stay strong."

Flaherty said they see the expansion of the sales tax as "something that's in-between" in the legislative tug-of-war over taxes and spending.

The coalition's proposal would extend the sales tax to non-essential services that have been exempt in the past, like tattoos, body-piercing and manicures. Haircuts and styling would still be exempt from the tax.

To rural legislators who oppose the coalition's idea, Flaherty said, "If they don't like this, what do they like?"