Looking for a new miracle, or at least a new idea

"The Minnesota Miracle is dead."

That's a little strong, thought I, when I overheard a Minneapolis city official say it at a not-for-attribution event. The 1971 measure remembered as miraculous was a state takeover of local school funding. No undertaker needed there. Schools still look to St. Paul for most of their money.

But the Miracle involved more than schools. There was also the notion that no matter where he or she lived, a Minnesotan deserved decent police, fire, sewer, street and other city services, at a reasonable price. If a city couldn't provide those things itself via its property tax, the state should and would tap its income and sales tax proceeds to help.

That notion isn't quite dead. Most state politicians still pay lip service to the "should."

But the "would" is a promise on life support. The rising cost of the budget's Big Two -- education and health care -- is squeezing every other line in the state budget. Aid to cities, counties, and townships has been lagging since 2003.

The result? Take a look at your property tax bill this year, compared with just a few years ago. This year, total property tax collections in this state will exceed income tax receipts. That puts Minnesota back into pre-Miracle tax territory.

Those trends are about to accelerate. Cities and counties will take another hit from the Legislature this spring, even as the next two-year state budget is built with an unusually large chunk of one-time money. When that chunk melts away in 2011, the state aid floor could fall out from under local governments.

A New Minnesota Miracle is in the Legislature's hopper this year, but it's all about school funding. A New Minnesota Miracle for local governments looks even more pressing.

"By 2011, something's got to change," Alexandria Mayor Dan Ness said last week. Something just might -- judging from the number of ideas that are suddenly popping up at the Capitol. Last week, I came across three:

•Let regional centers keep some of the sales tax revenue generated within their borders, in lieu of some or all of their state aid.

That idea, with slight variations, has a following among Ness, St. Cloud Mayor Dave Kleis, and other outstate mayors. Ness is quick to add that he doesn't want retail-rich cities to leave small towns in distress. He'd favor the sharing of sales tax proceeds within regions.

•Get the state out of the business of trying to control the property tax. Instead, the state should take over all school and human services funding, drastically shrinking school and county property taxes. Then tell cities that the property tax is theirs to manage -- while still sending a little state relief to homeowners who are overburdened as a result.

That's a too-brief rendering of an elegantly complicated tax reform proposal being touted by former state revenue commissioner John James. The Independence Party's attorney general candidate in 2006, James is a creative tax wonk who's spent 25 years thinking about how to make the tax system serve Minnesota better. His ideas are always worth a listen.

•Cut back on state aid to counties, but give counties permission to levy up to a half-cent sales tax to recoup their losses. Use the state's savings to beef up aid to cities.

This isn't just a stray thought. It's a provision in the House tax bill, and a pet idea of the chair of the House property tax division, Rep. Paul Marquart, DFL-Dilworth. It's one of a number of intriguing features in a House tax bill that deserves high marks for creativity.

"I'm afraid that for the next two or three bienniums, we're going to be in a fiscal crisis, and there will be a continual attack on the local aid programs," Marquart said. He's concluded that local governments can't function well on property taxes and state aid alone. They need a new source of revenue, he says.

That argument may not find sympathy in the governor's office. Letting county commissioners raise taxes isn't likely to be any more popular there than letting legislators do it.

I listened for a fourth new idea Friday, when Gov. Tim Pawlenty raised the local aid topic with a state Chamber of Commerce audience. I heard this: "It is not written in stone that just because they get their local government aid reduced, the only option they have is to raise property taxes," Pawlenty said. "There are lots of other options in many of these cities." He mentioned draining the reserve funds most cities need for cash flow, and freezing employee wages, which most already plan to do.

My new-idea count stands at three. And hoping.

Lori Sturdevant is a Star Tribune editorial writer and columnist. She is at lsturdevant@startribune.com.