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Minnesota Legislature

First Reading: MOEs — looking for relief

Published (2/20/2009)
By Sonja Hegman
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Rep. Ann Lenczewski  is viewed on a computer in the House Chamber  as she speaks in support of a bill that makes changes to the 2008 tax law as specified in an agreement between legislative leaders and the governor following adjournment last May. The bill passed the House 77-52 on Feb. 16. (Photo by Tom Olmscheid)The MOE system doesn’t work.

That’s what House members are further realizing every day this session.

MOEs, or maintenance of effort, are funding mandates imposed mostly on counties that require them to fund things like libraries and mental health services at a certain level. The issue is that the funding is set based on history. So, whatever a county was paying for its regional library system when a MOE went into effect, that’s what it continues to pay today. It doesn’t matter that the economy has imploded, county aid has been cut, local government aid to cities has been cut or levy limits have been imposed. And, those library services would have to be paid first out of a county’s budget no matter what. If the county doesn’t have enough money, it would have to make cuts in other areas of its budget.

“This system is absolutely not working,” said House Taxes Committee Chairwoman Rep. Ann Lenczewski (DFL-Bloomington) during a joint Feb. 18 meeting with the House Property and Local Sales Tax Division, and two health care and human services committees.

Pat Dalton, legislative analyst with the nonpartisan House Research Department, said $95 million is the MOE library share for counties and $65 million is the share for cities. Currently, all counties and 119 cities pay the library MOE, each on a per capita basis.

The only time a city or county can reduce what it pays to the library is if its tax capacity goes down. Since it’s calculated per capita, Hennepin County, for instance, wouldn’t include Minneapolis in its MOE calculation because that city has its own library MOE. Even though the city’s library system recently merged with the county system, because it is still a part of the regional system, the city must still pay a separate MOE based on its past behavior, Dalton said.

The MOE issue surfaced last year with the omnibus tax law. A provision provided counties relief from all MOEs and matching fund requirements while levy limits are in effect. But Gov. Tim Pawlenty wouldn’t sign it unless there was an agreement to repeal the MOE suspension. So, House and Senate leadership, and the tax chairs of each body, agreed to repeal the MOE suspension early in the 2009 session. Counties were advised of this so it would not play a factor in their budgeting.

Lenczewski and Sen. Tom Bakk (DFL-Cook) sponsor HF95/SF49* to repeal the provision based on the agreement. It was passed 77-52 by the House on Feb. 16 and 49-7 by the Senate on Jan. 29. It awaits action from the governor.

Lenczewski said. “We’re all in a box and we’ve got to think our way out of this box.”

She added that there have been moments in time where grandfathered tax provisions were removed because it was shown that property tax relief is “basically based on what you used to get, not what you needed today.” It also appeared to her that maintenance of effort had never been changed.

“We, the Legislature, are going to tell local units of government, ‘You’ve got to keep spending on it even if it doesn’t make sense. And then we’re going to take away your aid. We’re going to cut your county aid. If you’re a city, we’re going to cut your LGA and then we’re going to put levy limits on you too,’” she said.

Rep. Morrie Lanning (R-Moorhead) said he’s dealt with unfunded mandates for many years as a mayor, so a willingness to discuss revising it is a welcome thing. Though he said the bill takes a step backward, he supports it because of the leadership agreement, the governor said he wouldn’t sign the bill unless the provisions were repealed and counties had already planned that the provisions would not be in effect.

“The way this MOE was slipped in at the end … there was inadequate review of this MOE provision,” Lanning said. “In spite of all this, we still need reform when it comes to MOE especially with the health care portion. My question is if we vote for this, if we take a step back, will we have reform when it comes to MOEs?”

Lenczewski said there isn’t a choice in the matter. “We have a deficit. We are all in a really tough way here. We need to find relief for these MOEs. I’m committed to working with you. You have been a leader on this and we will address this.”

Health care mandates

Lenczewski added that the two health care and human services chairmen, Rep. Thomas Huntley (DFL-Duluth) and Rep. Paul Thissen (DFL-Mpls), have “a big nut to crack here because most of the MOEs are taking place in health and human services.”

If a city or county voluntarily increases its payment in any MOE area, that becomes its new MOE requirement on an ongoing basis.

Huntley said St. Louis County has a high level of funding for child welfare management because it started funding it before that funding was a state requirement. “When the Feds do something they always punish the good people,” he said.

Dalton agreed, saying the way a lot of the MOEs are written, a county has to continue funding at the level it was at the time a match or grant came into place. “So counties tend to get punished for being ahead of the curve,” she said.

In part of the mandates in the health and human service areas, the MOE or matching fund is a function of federal government requirements, Dalton said. So, if counties don’t meet those requirements, the state has to pick them up or the federal money would be lost.

Rep. Diane Loeffler (DFL-Mpls) said all of these things are related to history that may go back 25 years, and some were imposed by the state when it decided to start a new program.

“Those who are out front get frozen into a levy forever even though it was discretionary funds,” she said.

She added that it’s pretty rare that the federal government puts a MOE requirement into anything, but it’s doing it now with the stimulus package.

Dalton said that some MOEs are statutory state mandates. Under the change in last year’s tax bill, she said the statutory requirement didn’t change, it just said the counties didn’t have to pay their MOEs. The state would have had to pay for the counties’ share because it is statutory.

On the mental health side, if counties cannot maintain their current level of funding, they must create a plan that will help them achieve that funding, said John Zakelj, a planner in the Minnesota Department of Human Services’ Mental Health Division. If they can’t come up with a plan, the county would lose lawsuit protection related to mandated mental health services.

The total of all county mental health costs for MOEs is $111 million. Of that, $66 million goes to fund services for uninsured and underinsured individuals and for services such as children’s respite care and adult housing supports that keep people out of hospitals, but are not reimbursable by health care programs, Zakelj said.

In the governor’s budget proposal, he has suggested that some county services be consolidated. This would also affect how MOEs are funded.

Rep. Tina Liebling (DFL-Rochester) asked what would happen if a consolidation went into effect. “What would happen if we didn’t make any changes to MOEs? Would we just have one pot and throw all the money into that and then have that just be for the group of counties?”

Dalton said the governor’s initiative would require counties to look at combining and providing these services regionally and there would be “a very big carrot” to do this. He is proposing that if counties don’t combine their services, their county program aid would be cut more than it would be otherwise.

Rep. Tom Anzelc (DFL-Balsam Township) said the state is asking this MOE system to do the impossible. “Largely because over the last 25 years, at a minimum, we’ve moved away from state supervision and county administration and we’ve tried to fit a one-size-fits-all system for all of these populations … without any regard to property values, without any regard for community values, without regard to the size of the population and without regard to the whole provider system. For 25 years, the system has been driven by providers and advocacy groups and the policy has been diluted. And then we require 87 county boards of commissioners to grapple with this in the real world at the local level and depend upon property taxes. It just doesn’t work.”

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