Tuesday, March 26, 2013

Changes to Local Government Aid

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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