This week’s CGMC Advocate debunks some of the myths regarding Local Government Aid.

The Myths and Facts About Local Government Aid

Myth #1: The LGA program is growing and is unsustainable.

FACT: LGA has not been growing.  Since 2002 LGA is down 25% NOT adjusted for inflation (paid 2010 LGA).

Myth #2: LGA was originally for the small rural cities.

FACT: The first LGA formula distributed aid on a per person basis to counties who then redistributed it to cities within the county based on their levy size.  The larger the levy, the more LGA was received.  Aid went to cities across the state regardless of their size or geographical location, based on a formula for all cities, not just small rural cities.

Myth #3: The original intent of LGA was to fund “essential services” that cities couldn’t otherwise pay for.

FACT: At no time since the inception of the program has there been a directive as to how LGA dollars were to be spent.  Again, the first formula gave more aid to cities that levied more, which has no relation to just “essential services”.

Myth #4: The program has been around for 40 years and is outdated.

FACT: Cities have different overburdens and needs beyond their control and tax bases that vary tremendously, just as they did 40 years ago.  Without LGA, cities with higher needs and lower taxes bases would have high property tax rates and lower city services, increasing the disparity among cities.  To keep the program current, the aid distribution formula has been fine-tuned and improved several times, including modest changes made as recently as 2008 to the 2003 formula created by the Pawlenty administration.  It is still as good an idea today to relieve pressure on property taxes and reduce disparities among cities as it was in 1970s.

Myth #5: The LGA formula must be unfair because there are often cases where one city that gets LGA is right next to another city that doesn’t get LGA.

FACT: Not all cities are the same, even ones that are right next to each other. Think about Brainerd and Baxter. Brainerd is an older city with a traditional small town downtown retail base.  Baxter is a newer city with new big box retail that captures many customers from across the region.  Due to the difference in the makeup of these cities Brainerd has a tax base just 65% the size of Baxter despite having nearly twice as many residents.  This results in Brainerd receiving LGA and Baxter does not.

Myth #6: The LGA formula is “political.”

FACT: The current LGA formula has been around since 2003 and has been defended and criticized by both democrats and republicans. The formula is blind to what part of the state a city is in or who their legislator is. What would be political would be changing the formula based on who is in or out of power in the legislature.

Myth #7: LGA encourages cities to spend more.

FACT: The first LGA formulas measured a city’s need based on the size of their levy. This changed in 1989 when a city’s need was based on formula factors instead of a city’s levy.  The formula factors have changed twice since 1989 but are based on statistical analysis to measure the cost to deliver overall city services within a city.  How much, how little and what a city spends its revenue on has no direct bearing on how much LGA a city receives.

Myth #8: We can’t “afford” LGA anymore.

FACT: As noted above, LGA for cities has not been growing and is currently less than 3% of the state’s general fund budget.

Myth #9: 1st class cities don’t really need LGA.

FACT: The LGA formula distributes aid to cities based on need and tax base and all first class cities qualify to receive aid.  Below are characteristics of St. Paul, Mankato and Osseo.  Can you tell which is which?

City Graph

City 1 is St. Paul, 2 is Osseo and 3 is Mankato.

Myth #10: If we reduce LGA we will help cities become more efficient, making them better places to live.

FACT: Cities across the state have made significant reductions in service, cut workforces, and delayed capital improvements over the last decade. Rather than defining Minnesota community greatness by how little service they can provide for how little cost, policymakers should focus on the overall quality of life in our cities.  The state should help ensure that all cities in Minnesota are great places to raise a family and start a business, not just cities with strong property tax bases.