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.
Sources:
4. Brenden Slotterback.
http://netdensity.net/2011/03/21/1751/
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