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State budget

For Immediate Release
Contact: Julie Liew, jlliew@flaherty-hood.com
PDF version

ST. PAUL—It took years of advocacy by city leaders and a late-night special session to get there, but funding for the Local Government Aid (LGA) program is finally being restored to its 2002 high-water mark.

The tax bill passed by the Legislature in the wee hours of Saturday morning contains a $26 million increase in LGA for 2020, followed by an additional $4 million boost in 2021, bringing total funding for the program to $564 million. The bill is now headed to Gov. Walz’s desk. He is expected to sign it, along with other key budget bills, on Tuesday.

“Our No. 1 priority for this year was to get LGA funding back up to the 2002 level,” said Ron Johnson, who serves as president of the Coalition of Greater Minnesota Cities (CGMC) and is a member of the Bemidji City Council. “I’m ecstatic that the Legislature and Governor were able to work together to make that goal a reality. Cities all across the state, and especially in Greater Minnesota, are going to benefit from this important investment.”

This increase has been a long time coming for the nearly 90% of cities in Minnesota who rely on LGA to help pay for city services (such as public safety, street maintenance, parks and libraries) and restrain property taxes. While LGA has received occasional boosts in funding in recent years, cities have still been playing catch-up since drastic cuts to the program in the mid-2000s.

“As city officials, we work hard to keep our city budgets and property tax levies in check, but it is difficult when costs for everything from employee health insurance premiums to construction materials continue to rise,” Johnson said.

“A great thing about LGA is that it gives cities the flexibility to make investments wherever they are most needed,” he added. “With this bump in funding, some cities will be able to hire an additional firefighter or replace a beaten up old snowplow, while others might use the extra LGA to hold down their levies.”

Bradley Peterson, executive director of the CGMC, credited tenacious city leaders, Gov. Walz, House Tax Chair Rep. Paul Marquart (DFL-Dilworth) and other state lawmakers for their hard work in getting the LGA increase through the Legislature this year.

“Successes like this have many parents,” Peterson said, noting that LGA is a prime example of an issue where the divided state government was able to reach a compromise for the good of the state.

In addition to LGA, there were other bright spots for Greater Minnesota in the special session.

The Legislature approved funding to help address the child care shortage in Greater Minnesota, including $750,000 to be divided between the six Minnesota Initiative Foundations for child care provider training and business assistance and an additional $750,000 for child care grants, of which at least 60% must go to Greater Minnesota. It also passed $40 million for rural broadband, $18 million for clean water infrastructure grants, $3.5 million for the Greater Minnesota Business Development Public Infrastructure Grant Program and $1.35 million for the Greater Minnesota Job Training Incentive Program.

However, there were some major disappointments in the session as well.

After legislative leaders were unable to agree on adopting any new revenues for transportation, the Legislature passed a pared down transportation bill that included no funding for small-city streets and no additional funding for the Municipal Street Aid or Corridors of Commerce programs.

And perhaps the biggest disappointment of the session was the failure to pass a bonding bill. Johnson said city leaders were counting on a bonding bill to help pay for critical infrastructure needs such as repairs to wastewater treatment plants and other city facilities, road improvements and new or expanded child care facilities.

“In some ways this was a bittersweet legislative session for Greater Minnesota overall,” Johnson said. “We are pleased with the LGA increase, but the lack of a bonding bill or comprehensive transportation bill means many important projects will have to be pushed aside for at least another year.”

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The Coalition of Greater Minnesota Cities is a nonprofit, nonpartisan advocacy organization representing 97 cities outside of the Twin Cities metropolitan area. The Coalition educates legislators about issues important to Greater Minnesota. Visit the CGMC online at greatermncities.org and follow us on Twitter @greatermncities.

The Legislature is back in session! Governor Walz called a special session for 10 a.m. Friday with the goal of passing the state budget. While the Governor and legislative leaders have expressed preference for a one-day special session, it remains unclear whether it will stretch into the weekend. Throughout the week committee chairs, legislative leaders and nonpartisan legislative staff were hard at work hammering out the final details on the big-ticket budget bills. By Thursday evening most of the conference committees had completed negotiations and released proposed bills that will be voted on by the full House and Senate during the special session.
 
Here is where things currently stand on the CGMC’s top issues:

  • Local Government Aid – The proposed tax bill includes a $26 million increase in LGA for 2020, and an additional $4 million increase the following year, restoring LGA to its 2002 level starting in 2021.This document from MN House Research shows how much LGA each city would receive in 2020 under the bill. In addition, the bill includes a provision that says that no city will receive less LGA in 2020 than they received in 2019.
  • Clean water infrastructure – We are waiting to see if our request for $67 million for clean water grant and loan programs will be included in the bonding bill. However, the proposed Legacy bill includes $18 million for the Point Source Implementation Grant Program, which helps cities pay for water infrastructure projects.
  • City streets – The proposed transportation bill includes no funding for small-city streets (cities under 5,000 in population) and no additional funding for the Municipal Street Aid program for cities over 5,000 in population.
  • Corridors of Commerce – The transportation bill does not include any additional funding for Corridors of Commerce, but it keeps the $25 million/year ongoing appropriation for the program which had been potentially on the chopping block.
  • Child care grants – The proposed omnibus jobs bill includes $750,000 to be distributed between the six Minnesota Initiative Foundations (MIFs) for child care provider training and business development assistance. The bill also includes $750,000 for the Department of Employment and Economic Development child care grant program, of which at least 60 percent must go to Greater Minnesota.
  • Child care facilities grants – This issue remains up in the air as the Legislature attempts to craft a bonding bill.
  • Greater Minnesota Business Development Infrastructure Grant Program (BDPI) – The BDPI program is typically funded mostly through the bonding bill, so we are still waiting to see if it will be included. However, the proposed jobs bill includes $3.574 million ($1.787 million per year for two years) for the program.
  • Job training – The jobs bill includes $1.35 million for the Greater Minnesota Job Training Incentive Program.
  • Broadband – The agriculture & housing finance bill includes $40 million for the Border-to-Border Broadband Development Grant Program.

Once the special session has concluded, we will provide more in-depth analysis on how Greater Minnesota priorities fared at the Legislature this year.

After blowing past their own self-imposed deadlines, Governor Walz and legislative leaders House Speaker Melissa Hortman and Senate Majority Leader Paul Gazelka finally reached an agreement on the state budget Sunday evening. See their signed agreement.

Although Monday was the final day of the regular session — per the State Constitution — a special session will be required for the Legislature to complete its work and pass bills. Governor Walz and legislative leaders have indicated preference for a one-day special session to be held this Thursday, but the exact timing and duration of the special session are still up in the air.

As all three stated during their joint press conference Sunday evening, the agreement reflects a compromise on all sides with no clear “winner.” The two major sticking points in negotiations were the gas tax (Governor and House wanted a 20 cent increase; Senate wanted no increase) and health care provider tax (Governor and House wanted to extend the 2% provider tax set to sunset this year; Senate wanted to eliminate it). Ultimately, the final agreement included no gas tax increase and a 1.8% provider tax with no sunset.

While there is an agreement on the broad budget numbers, the various conference committees were tasked with hammering out the details by 5 p.m. Monday. Reportedly most of them failed to meet that deadline. There is talk that now the bills will be pulled out of conference committee and the final details will be decided between Governor Walz, legislative leaders and the respective committee chairs.

What does it all mean for Local Government Aid (LGA)?

The prospects for an LGA increase — which, if there is one, will be included in the tax bill — are still up in the air.

The tax bill agreement includes only three specific items: a reduction in the second-tier individual income tax rate from 7.2 percent to 6.8 percent, $20 million for the Minneapolis Employees Retirement Fund and a $50 million reduction in the state general levy, which is a statewide property tax that primarily applies to commercial-industrial property. All other issues were left up the conference committee to decide.

The tax bill was given a $0 target, which means that any increase in tax revenues must be matched by an equivalent reduction in revenues or increase in tax aids and credits (e.g. LGA). Federal conformity, Minnesota’s response to the 2017 federal tax overhaul, will play a significant role in shaping what a final tax bill looks like as the plans put forth by Governor Walz, the House DFL and the Senate GOP all generate additional revenue that could be used to pay for other priorities within the tax bill, such as increases to LGA or an expansion of the Working Family Credit.

After the budget agreement was announced Sunday night, we quickly sent out a news release from CGMC President Ron Johnson reiterating that Greater Minnesota communities are counting on the Legislature to pass a $30.5 million LGA increase this year. The CGMC also sent a letter from Ron to all Greater Minnesota legislators arguing that an LGA increase is necessary to provide balance to the tax bill, because 73 percent of the property tax relief provided by cutting the state general levy will go to property located in the metro.

What about a bonding bill?

Governor Walz and the legislative leaders have agreed to a $500 million bonding bill, which includes $440 million in general obligation bonds and $60 million in housing infrastructure bonds. However, the details of what will actually be included in said bonding bill have yet to be determined. From the CGMC perspective, we are hopeful for dollars for clean water infrastructure (PFA $$$), the Greater Minnesota Business Development Infrastructure grant program and child care facilities grants. Several of our member cities also have important projects vying for funding.

It is important to note that unlike other bills, the bonding bill requires a supermajority to pass. That means that it will not pass in either the House or Senate unless some legislators in both chambers vote across party lines. In comments made to reporters following announcement of the budget deal, House Minority Leader Kurt Daudt threw some cold water on the idea of any House Republicans voting for a bonding bill. However, it is quite possible that some House Republicans may choose to break from their party in order to get funding for important projects in their districts.

And CGMC’s child care proposals?

At this point there is no news to report on our two child care priorities: funding for the Minnesota Initiative Foundations (MIFs) for provider training & business assistance and bonding money to build or expand child care facilities. The MIFs proposal is still being considered as part of the omnibus jobs bill, and child care facilities grants are part of the ongoing bonding bill discussions.

Any hope for transportation?

The gas tax was one of Governor Walz’s highest profile proposals this session. He talked about the need for new transportation revenues on the campaign trail and reiterated that commitment the day after his election as governor. This session’s House transportation bill was particularly promising for CGMC priorities. It included new funding for Corridors of Commerce, significant new funding for MSA cities, and a permanent, dedicated funding stream for small cities. When the final budget deal was reached, however, all of those priorities ended up on the cutting room floor.

For cities with populations greater than 5,000, the status quo will hold. With no additional funding coming into the transportation formula, larger cities will not see increases through the municipal state aid formula.

For small cities, the jury is still out, but the path forward is difficult. Without significant new funding for transportation and a relatively small general fund target for transportation, it is difficult to see how the House and Senate come up with a compromise plan that isn’t an abject failure for small-city street funding.

Further, without new funding in the transportation system, significant investments in Corridors of Commerce may not be possible this session. Since it appears that a comprehensive transportation package is now off the table for this year, the CGMC will shift in its focus in the upcoming special session to maintaining the $25 million/year base appropriation for Corridors of Commerce, which the Senate has proposed eliminating. While the Corridors of Commerce program is not perfect and could use some tweaks in the way it scores projects for funding consideration, it remains one of the few mechanisms for funding critical highway projects in Greater Minnesota.

How will the special session play out?

The legislative leaders have hinted at holding a one-day special session on Thursday. Accomplishing that in one day would require suspending the normal procedural rules in each chamber which require action on a bill take place over multiple days. A vote to suspend the rules requires a three-fifths majority, which would require six GOP votes in the House. The House GOP caucus has threatened to vote against such a motion. Failure to suspend the rules means a special session could take several days to finish.

It’s important to note that while there is a global agreement between the Governor, Speaker Hortman and Sen. Gazelka, there are still 199 other legislators to consider — some of whom may not be happy with the terms that were agreed upon or the “cone of silence” that surrounded the negotiations. So while there are just hours until today’s midnight deadline for the regular legislative session, the Legislature’s work remains far from over.

As the special session plays out, CGMC staff will be busy following all the action at the Capitol and continuing to advocate for Greater Minnesota priorities.

Questions?

If you have any questions, please contact CGMC Executive Director Bradley Peterson at bmpeterson@flaherty-hood.com or 651-225-8840.

For Immediate Release
Contact: Julie Liew, jlliew@flaherty-hood.com
PDF version

Below is a statement from CGMC President and Bemidji City Council Member Ron Johnson on the state budget agreement:

“I’m pleased to see that the Governor and legislative leaders have come to a bipartisan agreement on the state budget. As lawmakers continue to hammer out the details, I want to reiterate that there needs to be a $30.5 million increase in Local Government Aid in order for this session to be considered a success for Greater Minnesota. This has been our No. 1 priority since the first day of the session and we will continue to lean on our legislators to make it a reality.

“Gov. Walz campaigned on increasing Local Government Aid and leaders in the House have been vocal in their support for boosting the program. As we move into a special session, it is vital that they continue to fight for communities throughout the state and pass a $30.5 million LGA increase this year.”

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With the Legislature currently on hiatus for the Easter/Passover break, CGMC staff members hit the road this week to meet with editors and reporters in Greater Minnesota to provide an update on our legislative priorities and discuss our hopes heading into the final month of the legislative session. Stops included the newspapers in Hutchinson, Willmar, St. Cloud, Fargo/Moorhead, Fergus Falls and Alexandria. (Here’s an article about our visit to the Fergus Falls Daily Journal.)

At the meetings, we shared this mid-session progress chart, which shows where the Governor, House and Senate each stand on the CGMC’s top priorities including Local Government Aid (LGA), child care, transportation and clean water infrastructure. As this end-of-session handout indicates, we also reiterated that we are calling on the Governor and legislative leaders to work together over the next few weeks to do more than simply pass a “lights on” state budget. We emphasized that in order the 2019 legislative session to be considered a success for Greater Minnesota, the Legislature and Governor must:

  • Pass a tax bill that includes a $30.5 million increase in LGA.
  • Pass a bonding bill that includes $67 million for Public Facilities Authority clean water grant and loan programs, as well as funding for child care facilities, the BDPI program and other infrastructure investments.
  • Pass a comprehensive transportation bill that raises new revenues and provides funding for city streets and the Corridors of Commerce program.

We would like to extend a special thank-you to the local city officials who joined us for some of the media visits: Willmar City Councilor Audrey Nelsen, St. Joseph Mayor Rick Schultz, Moorhead City Manager Chris Volkers and Alexandria City Administrator Marty Schultz.

Although this year’s legislative session is five months long, it’s no secret that the final two weeks of session are especially critical. This is when negotiations really heat up and final decisions are made. As we countdown to the Legislature’s May 20 deadline, it is vital that that you continue to speak up about important CGMC issues such as Local Government Aid, wastewater infrastructure, child care and transportation. To help keep legislators’ attention focused on our top priorities, we invite all Greater Minnesota city leaders to join us for an End-of-Session Lobby Day & Ice Cream Social on Wednesday, May 8. 

The tentative schedule for the day is as follows:

  • 10:30 a.m. – Legislative update and messaging (Room 500 North in the State Office Building, located across the street from the State Capitol)
  • Lunch on your own
  • Afternoon – Meetings with legislators (attendees should make appointments with their own legislators; we may also ask some attendees to participate in additional meetings with key legislators)
  • 2-3 p.m. – Ice cream social with legislators and legislative staff (L’etoile du Nord Vault Room in the Basement of the State Capitol)

Lobby Day is FREE to attend, but we ask that you register by sending an email to Meghan at RSVP@flaherty-hood.com (please include your name, city and position/title).

We hope to get as many city officials to attend as possible! Please share this Lobby Day Flyer and encourage other city officials and staff to join us.

If you have any questions, please contact Julie Liew at jlliew@flaherty-hood.com or 651-259-1917.

As the mid-point of the legislative session approaches, it is time to take a step back and examine the overall big picture.
 
The early milestones of session have been reached. Last month, Gov. Walz proposed an ambitious state budget that raises significant revenue and funds increases in his priorities: health care, education and community prosperity. A $30.5 million Local Government Aid (LGA) increase falls under the “community prosperity” heading. In addition, the Governor proposed a big bonding bill and transportation funding package that would increase the gas tax by 20 cents a gallon (among other revenue raisers).
 
Legislators have been spending significant time over the last several weeks in their respective committees hearing bills of various natures, culminating in the first committee deadline tomorrow, March 15. For the rest of March and into the first week and half of April, the House and Senate will be compiling their budget bills. This is when all of the negotiating positions will really come into focus. The Legislature will go on its traditional Easter/Passover break in mid-April and return in late April and early May for conference committees.
 
If all goes according to plan, the Governor and legislative leaders have sketched out they will have agreement on overall spending targets for the major budget areas by May 6 and conference committees will be done with their work by May 13. The Governor and legislative leaders setting deadlines for themselves is new and admirable. Whether or not the deadline survives the heat of battle remains to be seen.
 
A tax bill (the usual home of any LGA increase) and bonding bill would likely be two of the final things completed this session, which means action on several of the CGMC’s top priorities will go down to the wire.
 
Without a doubt, there will be numerous twists and turns and all along the way — and the CGMC team will be on hand for all of the action. If you have any questions about where things stand in the legislative process, please reach out to CGMC Executive Director Bradley Peterson at bmpeterson@flaherty-hood.com.

Below is a column by CGMC President and Bemidji City Councilor Ron Johnson. It has appeared in the Star Tribune, Winona Daily News, Bemidji Pioneer and other newspapers.

“I am preaching to the choir but what I’m asking is for the choir to sing loudly for the next three months.”

Gov. Tim Walz was touting his plan to boost Local Government Aid funding when he said this at a Coalition of Greater Minnesota Cities (CGMC) event earlier this year. He told the audience of Greater Minnesota city officials that while he was planning to include a $30.5 million LGA increase in his then-unreleased budget, he was going to need our help to get the proposal across the finish line.

As a Bemidji city councilor and president of the CGMC, I am a proud member of LGA “choir.” I have been warming up my voice and now — with the halfway-point of the legislative session fast approaching — I’m ready to sing.

The average Minnesotan likely knows little about LGA, but it is a key reason why Minnesota consistently boasts a stronger economy and better quality of life than neighboring states. Created in 1971, the LGA program distributes aid to cities using a formula that compares a city’s property tax base to its needs. Its purpose is to ensure that all cities are able to provide a similar level of services regardless of the strength of their tax base. For some cities, LGA constitutes nearly half of their annual budget.

As the Legislature debates the merits of Gov. Walz’s budget proposal and the House and Senate craft budgets of their own, I urge lawmakers to keep the $30.5 million LGA increase in their plans. Here’s why:

LGA benefits all Minnesotans. Approximately 90 percent of Minnesota cities receive LGA — from tiny rural towns to the largest cities. It helps narrow disparities between communities so that every city can provide important services and amenities like public safety, libraries, parks and plowed streets. If you live, work, go to school, visit the doctor or shop in a Minnesota city, chances are you benefit from LGA.

LGA has not kept up with rising costs. The proposed $30.5 million increase would bring LGA funding back to its 2002 highpoint, not counting for inflation. In the ensuing years, costs have gone up for everything from employee health insurance to construction materials. When there is record-breaking snowfall, we can’t leave the streets unplowed. If there is a fire, we need equipment and trained firefighters to put it out. City officials make tough financial decisions every day, but needs do not go away. That struggle is even harder when LGA is underfunded.

LGA helps restrain property taxes. Without LGA, the average city receiving aid would have to increase its property tax rate by more than 65 percent in order to continue to provide the same level of services. LGA also has a proven track record of helping slow the growth of city levies. From 2013 to 2014, the last time there was a significant LGA increase, many communities kept their levies flat or even reduced them.

LGA has bipartisan support. Republican and Democrat legislators have teamed up to sponsor legislation to increase LGA, and their bills have support from rural and urban legislators on both sides of the aisle. Senate Majority Leader Paul Gazelka, a Republican, has also voiced support for LGA. In a time when nearly everything has become uber-political, lawmakers should embrace this opportunity to find common ground.

LGA is a small investment with a big payoff. LGA currently represents less than 3 percent of the state budget. The proposed $30.5 million increase is just a fraction of the Governor’s budget proposal. It is a relatively small price to pay to boost a program that has a tremendous impact on cities across the state.

City officials in the 758 Minnesota cities that receive LGA can attest to the integral role it plays in keeping our communities afloat and our state strong. As legislators and the Governor continue the daunting task of creating the state budget, I hope they keep the health and prosperity of our cities in mind by including the $30.5 million LGA increase in the final product.

Minnesota has a projected $1 billion budget surplus for the coming biennium (fiscal years 2020-2021), according to the February Budget and Economic Forecast released today by Minnesota Management and Budget (MMB). This amount is $492 million lower than originally forecast in November.
 
The reduction, which did not come as a surprise to those around the Capitol, is the result of lower revenue collections and a slowing economy. The lowered expectations for economic growth are driven primarily by an aging population and tight labor market that has left Minnesota employers struggling to fill open positions. The forecast projects further long-term headwinds with an estimated $11 million deficit for the 2022-23 biennium.
 
These updated numbers do not change the CGMC’s legislative priorities, and the forecast appears to have done little to change the conversation in St. Paul. Gov. Tim Walz defended the investments laid out in his proposed budget and bonding plans. Gov. Walz said the prospect of slower economic growth validates his call for $2 billion in additional spending and rejected the idea that tax cuts are needed to fix the key issues confronting the state. The Governor said he will be reviewing his budget proposal line-by-line for potential changes, but given that his budget plan leaves $782 million unspent, he will not have to make any dramatic revisions.
 
Much like the Governor, neither the House DFL or Senate Republicans hinted at dramatic changes in their approach as a result of the updated forecast. House Speaker Melissa Hortman (DFL-Brooklyn Park) reiterated the DFL’s commitment to investments in programs like paid family leave and child care funding, which she argued can help ease the state’s labor shortage by moving Minnesotans currently not participating in the labor force off the sidelines as well as attract more workers to the state. Senate Majority Leader Paul Gazelka (R-Nisswa) released a statement saying that the budget forecast underscores the need to reject tax increases and permanent spending commitments, which mirrors what GOP lawmakers said after Gov. Walz released his budget last week.
 
You can find all the details on the February Forecast on MMB’s website.

Gov. Walz has talked openly about his intention to propose a comprehensive transportation package that includes a gas tax increase, tab fee increase and other new revenues for transportation. His administration made good on those promises in Tuesday’s budget release by proposing a package that would result in a net increase in funding by more than $8.5 billion over the next 10 years from a variety of sources. The proposal would undo past statutory dedications of general fund revenues to transportation and replaces them with constitutionally dedicated funding sources.

Here are the major highlights, courtesy of MnDOT:

  • Initiates a 20-cent gas tax increase (phased-in over two years) and indexing the gas tax to inflation (beginning in FY 2023) to raise approximately $6.5 billion over 10 years
  • Increases the registration tax (increased tax rate from 1.25 percent to 1.5 percent and base tax fee from $10 to $45; change the depreciation schedule) to raise approximately $4 billion over 10 years
  • Increases the motor vehicle sales tax from 6.5 percent to 6.875 percent to raise approximately $300 million for roads and bridges over 10 years, with additional funds raised for transit purposes
  • Authorizes $2 billion in trunk highway bonds over eight years starting in 2022
  • Proposes an increase to the Working Family Credit of $100 for each single or head of household recipient and $200 for each married filing jointly recipient to offset gas tax increases for low-income Minnesotans

More information can be found at dot.state.mn.us/transportationfunding/.

What the Walz plan means for city streets

The large increase in revenues flowing through the constitutionally dedicated system will have immediate benefits for Municipal State Aid (MSA) cities—those with a population over 5,000. Cities over 5,000 can find what the budget proposal would mean for them by clicking HERE.

For cities under 5,000, the answer is a little more nuanced. The bill does not currently include funding for the Small Cities Assistance Program, but the administration has communicated to us that they would like to work actively with the Legislature and stakeholders to find a sustainable, dedicated funding source for all cities. The primary reason small cities don’t appear in this proposal is that the Walz Administration chose to avoid putting general fund dollars toward transportation purposes, opting to rely on existing dedicated sources instead. There is not currently a constitutionally dedicated source for small city streets.

What the Walz plan means for highway expansions

While the Walz plan does not mention Corridors of Commerce by name, the total transportation funding package would fund the state’s transportation system at a level that would allow for expansion projects to be addressed in MnDOT’s regular program, not a special program like Corridors. In fact, shortly after the budget release, MnDOT released a list of projects—including some expansion projects—that the agency would intend to add to its 10-year construction plans if this full package is adopted. You can find that project list HERE.

If you have any questions about the Governor’s transportation plan and how it could impact Greater Minnesota communities, please contact CGMC transportation lobbyist Shane Zahrt at sazahrt@flaherty-hood.com.