Deciphering the maintenance of effort issue

A last-minute addition to the 2008 omnibus tax bill has snowballed into a fair amount of confusion and frustration in many quarters of the state. Here’s a thumbnail sketch of the issue:

The legislature’s final omnibus tax bill included one sentence with potentially big implications: it suspended county maintenance of effort (MOE) and other county matching funds requirements while levy limits are in place. Levy limits put a limitation on how much local governments can raise total property taxes (their “levy”) from year to year.

The current contention around the MOE issue is just a symptom of an underlying problem: there is a lot of work to be done to restore state and local partnerships. Vital services have been underfunded by the state while the need for services has grown. Counties are on the front-lines in trying to meet their residents’ needs and they are under extreme financial pressures, pressures that are only heightened by levy limits.

Here’s the relevant text from the tax bill (HF 3149):

25.12 Sec. 5. [275.76] MAINTENANCE OF EFFORT AND MATCHING
25.13 REQUIREMENTS SUSPENDED.
25.14 Notwithstanding any law to the contrary, all maintenance of effort and matching
25.15 fund requirements for counties, including, but not limited to, those under sections
25.16 116L.872, 119B.11, 134.34, 145A.131, 145.882, 242.39, 245.4835, 245.714, 254B.02,
25.17 254B.03, 256B.0625, 256F.10, and , are suspended for the taxes payable years that
25.18 levy limits are in effect.

What do all of those statute numbers refer to? They refer to quite a number of important programs delivered by counties, including employment and training programs, regional library systems, services for persons with a mental illness, chemical dependency services, etc.

Maintenance of effort, or MOE, is like a string attached to money that the state gives to counties and other local units of government to provide services. In return for state dollars, the local unit of government is required to maintain a certain level of local spending, so that state and local governments are partners in funding the service.

For example, state law stipulates that counties must maintain a level of expenditures for mental health services “so that each year’s county expenditures are at least equal to that county’s average expenditures for those services for calendar years 2004 and 2005.”

The provision that suspended county matching funds requirements would mean counties could choose to spend less money on services. Soon after the end of the session, concerns where raised as to whether the language matched legislative intent. Ultimately, the Governor and legislature came up with the solution that the Governor would sign the tax bill, and the legislature would repeal this provision of law early in the 2009 Legislative Session. This signals to counties that they should not assume they are exempt from MOE as they put together their budgets for 2009. This agreement was put into writing in the form of a letter from legislative leaders to the Governor. This is not common practice, but also not the first time an approach like this has been taken.

Other possible outcomes not chosen would have been to leave the language in effect, or for the Governor to veto the entire tax bill, which would either mean no tax bill at all for 2008 or the need to call a special session to re-pass the bill with the MOE provision taken out.

-Katherine Blauvelt

About Katherine Blauvelt

Katherine Blauvelt served as the Minnesota Budget Project’s policy analyst from 2007 to 2009.
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One Response to Deciphering the maintenance of effort issue

  1. Jeff Van Wychen says:

    The “maintenance of effort” controversy highlights two problems. First is the hypocrisy of the state imposing levy limits on local governments. During the tenure of Gov. Pawlenty, counties and cities have been far more frugal than state government; for the state to impose new restrictions on county and city revenues in the form of levy limits is absurd. Second, the “global agreement” negotiation process adopted by the Governor and the legislature in recent years makes it more likely that ideas will be inserted into law that were not debated and evaluated through the regular legislative process. This can lead to unintended consequences, such as what we are seeing with the MOE language.

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