Local Government Aid (LGA)
has changed drastically in Minnesota since it was created 30 years ago. At the
time the program was enacted, local property taxes were increasing and Cities
with greater property wealth could increase services while other Cities were
challenged to provide services. Reforms were enacted to change the relationship
between the state and local governments, with new state sales taxes and
increased income taxes providing aid to local governments. The aid was intended
to provide tax relief to homeowners and buy down taxes (Office of the State Auditor).
LGA has been somewhat
controversial since its inception. Proponents argue that without it, local
government with lower property wealth would have to increase property taxes and
would struggle to provide basic services to their citizens. At the same time,
opponents argue that LGA is inefficient and that the formula for providing aid
does not accurately target cities with the greatest need (Office of the State Auditor).
LGA has changed
drastically in the past 10 years. Looking at the City of Saint Paul provides a
good indication of how the recession has hit funding availability for LGA.
About 42% of the City of Saint Paul’s general fund budget was covered through
state aid and 25% was covered through the tax levy in 2002. Today, those
numbers have been reversed (Pioneer Press). More specifically the City of Saint
Paul saw a $28 million cut in LGA from 2011 to 2012 (City of Saint Paul).
To combat these problems
and restore the benefits of LGA, the Minnesota Legislature has recently
proposed a bill to simplify the funding formula for LGA and make the program a
more sustainable resource for cities. The amendment to the formula would also
ensure that LGA is directed at cities with the greatest need. The bill would
increase LGA funding by $80 million, ensuring that no cities would see a
decrease in funding. If the bill passes, the City of Saint Paul would receive
an additional $10.1 million in LGA in 2014 (Pioneer Press).
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