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At the same time, the bill — expected to be signed by Gov. Tim Pawlenty — could make for an uncertain few years for cities and counties that may decide to leave projects unfinished or raise levies higher than they normally would.
"The big issue for us is in infrastructure work," said Eric Sorensen, a leading administrator in Winona, a city of about 25,000 residents in the state's southeastern corner. "We'll have to knock some projects off the agenda, like street construction. But our basic services will be covered."
In the waning days of the session, lawmakers reached a deal on capping property taxes at 3.9 percent for each of the next three years. As a compromise, the measure includes nearly two dozen exemptions that cities can use to go above the limit for essential services. The city of Minneapolis, for instance, can exceed the cap after digging heavily into revenues for traffic control in the wake of the I-35W bridge collapse.
"We did as much as we can to make the cap meaningful for taxpayers, but at the same time it provides some safety valves," said Ward Einess, the state's revenue commissioner. He said the package — which also includes refunds for some homeowners — will reduce the growth in property taxes by about 30 percent next year.
The direct-to-homeowner assistance will be funneled through a formula based on income and the size of the person's property tax bill. Researchers say 63,000 homeowners will see higher refunds and 10,000 who weren't previously eligible for the program will get a cut. The refunds range from $460 to $2,300, an upward adjustment from current law.
Mankato City Manager Pat Hentges said growth in that southern Minnesota city has brought in more revenue while also raising the demand for services. While local government aid — money the state sends to cities — makes up roughly 30 percent of Mankato's budget, the city may have to consider seeking an exemption for public safety, such as police, he said.
"This will pose some challenges for us," Hentges said. "I would have been more comfortable with a one- or two-year restriction."
Bob DeBoer, director of policy development for The Citizens League, a St. Paul think tank that advocates more efficient government, said the bill could lead to new ways of thinking about how cities deliver services. That could result in innovation and lower costs.
Even so, he said, some cities are already feeling the stress of lower revenues, "so we're not sure how effective this will be in the long run."
To cope with the cap, some cities may end up raising the full amount of their levies each of the three years as a hedge against declining revenues or unforeseen expenses in the future. Or they may press for a large jump in property taxes once the cap is lifted, officials said.
Sen. Ron Latz, DFL-St. Louis Park, foresees huge jumps in property taxes in 2011. He likened the situation to "holding your breath for a long time and then inhaling deeply to make up for the oxygen deprivation.
"By the time we're past the last year of caps and they have some freedom to raise their levies to meet their service levels, they're going to have to raise their levies even more to make up," said Latz, who voted against the measure.
That's unlikely, according to DeBoer, for a simple reason.
"City officials have to run for office," he said.
