Wednesday, March 27, 2013

Local Government Aid Dispersion and Public Services

In the wake of the global recession one thing is clear, both the private and public sector will need to find ways to do more with less. Local government’s felt the growing pains of this “new normal” as policy makers cut funding in the form of aid, including local government aid (LGA).

LGA is generated too off-set the reliance of property tax revenue to cities that can achieve financial solvency exclusively through their own source revenue.  Over the last decade the portion coming from property tax has risen 37 percent and the portion coming from state and other governments has fallen 25 percent (1).  MPR states, Local government aid, sometimes called LGA, was designed to help cities that have greater needs than what they could reasonably cover in property taxes. The cities that came to depend on LGA also tended to serve as regional hubs, providing services for people not paying into property tax funds. The vision was that no matter where you happened to live in Minnesota, the quality of services would remain basically constant.”

Each year the Minnesota Department of Revenue gives each city a notice of how much it can expect in the next fiscal year in the form of LGA. Some cities receive none and other can receive up to two thirds of their budgets.

 The League of Minnesota Cities sates, $425 million in LGA will be distributed in 2012; $427.5 will be sent to cities in 2013. In 2003, before the legislature reduced LGA, cities were expecting $587 million (2). MRP  (1) states, “ Another way to see the trend is to look just at the past year. For all cities with more than 1,000 residents, property tax levies increased by $69 million. At the same time, the amount cities received from the state dropped by $259 million, according to the Minnesota Department of Revenue”.

The intent of the LGA program in the 1970’s and 1980’s was to stabilize local government revenue streams, although it is clear that it is subject to the same sources of instability as federal revenue streams ( 3).

 As  the revenue stream shrinks , how will the tax/levy structure change who will bear the brunt of the cost and who will receive the aid. Humphrey Alumni Brenden Slotterback has explored this topic in his blog Net Density.  He states that in 2011 one proposal from the legislature was to cut LGA in the metro cities and counties while preserving it for communities in greater Minnesota (4).  Slotterback provides useful spatial information from the Department of Revenue regarding dispersal and collection of LGA funds.  His maps show where LGA is going in the state, with Hennepin County, Ramsey County, and St. Louis County ( home of Duluth) receiving a combined 44% of LGA.

Slotterback raises interesting questions about LGA. He asks, “Lots of money is going to the metro, but is it being spent effectively?  There are a lot of people in the metro compared with the rest of the state, are we getting our money’s worth (or is the rest of the state getting their money’s worth)?” He states that when looking  at LGA per capita, the metro seems like a pretty good considering it’s the economic driver of the state. However, suburban metro counties receive the lowest per capita LGA in the state. Even Hennepin and Ramsey counties are receiving less LGA per capita than most non-metro counties.

He then shows a map of dollars received per one dollar sent to the state in taxes, concluding that urban counties receive less in aid and credit than they pay in taxes, with Hennepin County receiving .61 per 1.00 in taxes.

He also states, “ It may be fine for the metro to contribute more than its share to the state.  Most people (myself included) would probably agree we want consistently good roads, schools, and community services across all of Minnesota, not just in the rich parts.  However, zeroing out aid to metro communities while maintaining it for non-metro communities hardly seems like a nuanced policy solution for budget problems – especially when they are already contributing much more than they take”. Slotterback goes on to point out the importance of thinking about the economic impacts of the entire state if the urban communities can no longer provide effective government and services (4).

 The connection between LGA and economic drivers in the state is interesting to think about. Will cutting funding from LGA  make cities more efficient in the services they provide and show what they truly can afford? Or will it hamper public services, which could deter economic development and attraction of the ‘millenials’ as they enter the workforce and begin to settle into new communities.


4. Brenden Slotterback.

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