Seven ways to look at local government aid

What exactly is the purpose of local government aid (LGA)? It depends who you ask. The two study groups currently discussing LGA reform are a useful way to consider the complexities of LGA and ambiguity of its purpose. (See this Strong Towns article for a good primer on the program.)

The tax reform advisory group for local government aid was formed by Governor Dayton, is composed entirely of mayors and the co-chairs are democrats from larger cities. Let’s discuss each of these groups individually. First, since the governor represents the entire state, they may be more prone to emphasize the fairness gained from distributing money to cities based on the externalities and overburden. For example, I live in Brooklyn Center, attend school in Minneapolis, work in St. Paul and often visit cities “up north” such as Brainerd. I may use services in these cities such as roads or police protection but pay taxes primarily in Brooklyn Center. I get the benefit of the service but don’t pay the entire cost. Cities such as Minneapolis which has hospitals, a University and sports stadiums bring in people from all over the state who use services but don’t pay as much for them. From the standpoint of one representing the entire state, LGA can be seen as bringing more fairness to the system by not requiring the residents of an overburdened locality to bear the entire cost of services.

Mayors, republican and democrat alike, are often very reliant on LGA and would be reluctant to see it go away. It helps them provide services while keeping property taxes lower. Mayors from larger cities benefit greatly from LGA due to overburden and have a great incentive to keep it around. Democrats are prone to emphasize that LGA evens out service levels across the state, so that one locality does not offer drastically different services than another.

Adding these constituencies together, the purpose of LGA is more likely to emphasize fairness due to overburden and equalizing service levels, and helping to keep property taxes down.

The legislative local government aid study group is chaired by two republicans from outer ring suburbs (Lino Lakes and Circle Pines,) and includes members from local government. Legislators, since they represent a distinct geography, may have mixed feelings about LGA depending on where they are located. In 2012, Lino Lakes will receive no LGA while Circle Pines is set to receive $6 per capita. Minneapolis will receive $168 per capita. Legislators from these districts may wonder why the state is distributing money away from their residents to the central cities. State legislators may also not be worried about property tax increases since it would be easier for local officials to take the heat. It is unlikely that the representative from Lino Lakes would be held responsible if the city of Brainerd needs to raise property taxes, for example.

Republicans tend to emphasize the fact that LGA may increase the spending of local governments on non-essential services and makes it more difficult for local officials to be held directly accountable for their spending. It is more difficult for a resident of a city to see the direct connection between the taxes they pay and the services they receive when property taxes are substituted with grant money from the state. Republicans also emphasize that property taxes will not increase as much as spending by local governments will decrease if LGA is taken away (see Peter’s post on the flypaper effect.)

Adding these constituencies together, the purpose of LGA is more likely to be defined as ensuring a basic level of essential services and less about property tax relief. The LGA program may be eliminated for large cities and reformed to make local governments more accountable for their spending.

This is obviously is not meant to represent the positions of any one member of these study groups, but is more an exercise to demonstrate how complex this issue is and that the purpose of LGA  can be understood differently based on one’s ideology, position and constituency. It’s politics. When comparing the eventual recommendations from these two study groups, consider how the composition of each group affects how they define the purpose of LGA, and in turn their suggested reforms.