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Alan Zemek

Tax burden an impediment for small business

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Last month I wrote a column that asked readers to consider the alternative to the way we use public finance to provide the essential services that create a modern standard of living.

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As a society, we borrow money to build roads, hospitals, schools, telecommunications systems, and those services that provide the most basic requirements of public health: clean water and sewage treatment.

These investments make all of us more productive, better educated, keep us in good health, contribute to a comfortable standard of living and quality of life, and help sustain the vitality of the community.

And there is nothing academic or abstract about this discussion. These are all real world examples taken from what has been happening here in Park Rapids in just the last few years. Just in case you hadn't noticed it, we have been busy here.

But, as the saying goes, there is no free lunch. All of these things, while wonderful to have and mostly taken for granted, have to be paid for. How we structure how they get paid for also has very significant implications for the quality of life and the vitality of the community. And the model of how they get paid for is getting out of whack.

The city of Park Rapids has a population of roughly 3,200 persons and operates on an annual budget of about $2.5 million dollars, primarily funded by property taxes, special assessments, and a significant contribution from the state of Minnesota in the form of Local Government Aid of several hundred thousand dollars a year.

If the Legislature cuts LGA to balance the state budget, which is a real possibility, we're in for a world of hurt. If that happens, everything would have to be on the table, including cutting public services such as law enforcement, which is a significant portion of the city budget.

But LGA is not the only vulnerability in the city's operating budget. A very significant percentage of the city's tax revenue comes from commercial property and the business community.

A loss of confidence by the business community in the ability of local government to adjust and adapt to the rapidly evolving economic environment we live in today would be just as devastating as the loss of LGA, if not more so.

A fact we have to face is that actually a very small handful of commercial taxpayers and business owners fund a huge portion of the city's budget. There are two taxpayers in particular that stand out. Walmart is one. RDO Lamb Weston is the other.

Northwoods Bank, Citizens National Bank and State Bank are all on the top of the list. Some of the others might surprise you. J&B Foods, Coborn's, L&M, C'mon Inn and Super 8 are up there too.

If my quick search of the public records is correct, these businesses are the top 10 taxpayers in the city and are contributing a very significant percentage of the city's operating budget. You should also note that with a couple of exceptions, these are locally owned, family run businesses.

If you think that it is fair that the business community pay a disproportionate share of the tax burden for the cost of running the city because these businesses have a greater capacity to pay, I would not argue with you.

But, ask any business owner in Park Rapids two questions: 1) How much has your tax burden increased in the last three years? 2) How much has the economic downturn since 2008 impacted your operating revenue?

I think the answer would prove the point. Things are getting out of whack.

As I have written previously, Park Rapids is essentially a community of small entrepreneurial business owners that operate on thinly capitalized margins to survive, and many do so because they have made a personal commitment to be a vital part of the community they love.

For many businesses, special assessments and property taxes equal or exceed the annual cost of an extra full time employee, someone who is always on the clock, yet never there.

Yes, taxes are a cost of doing business and services that are provided must be paid for, but when every single job counts and the employment base is so heavily skewed to small business owners and entrepreneurs, we should note that the tax burden on commercial property can become a substantial barrier to entry or exit. A high tax burden makes it more difficult for new businesses to get started. It also reduces the value of a business to an owner who might want to sell and hand it off to the next generation after a life's work.

We have two choices. We can gripe about it from the sidelines, or we can participate in a healthy dialogue about tax policy.

Whatever your opinion, I urge you to participate in the discussion. There are two important meetings today. One is with state Senator Rod Skoe on state tax policy (from 9 to 11 a.m. at Northwoods Bank) and the other is a public hearing this evening on the new storm water utility (at 7 in the lower level meeting room of the courthouse).

Whatever your opinion, please remember that ideology is the easy part. Governance is hard work, and if there was an easy answer we'd have found it already.

Alan Zemek is a Park Rapids area developer and author of "Generation Busted: How America Went Broke in the Age of Prosperity." You can follow his blog, or comment on this article on his website, www.generation busted.com.

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