Dayton proposes more money, then wants city aid to change

By Don Davis

Cities would receive more state money next year if legislators approve Gov. Mark Dayton’s budget, but after that some could get smaller checks from the Capitol.

Dayton proposes adding $80 million next year to the Local Government Aid program that primarily helps greater Minnesota and urban cities, a 19 percent increase. In two years, he proposes that a new formula be used to determine how much cities get, a formula that some fear would reduce their payments.

LGA was established to help cities lacking ability to collect sufficient property taxes to fund basic needs. The formula used to distribute the money has changed over the years, and Dayton suggests that it be simplified, which would result in more money for some cities and less for others.

The Democratic governor’s plan would spread out the money more than now, especially increasing aid to older suburbs.

“The only problem we see is that the test (of need) has nothing to do with libraries or parks, things that are very important to a lot of cities,” Hawley Vice Mayor John Young Jr. said.

Duluth Mayor Don Ness said his community would be like other cities, receiving a bit more aid next year, but it would lose $300,000 after that. Even so, he said that a balanced and predictable state budget is more important than a small change in state aid, and he thinks the Dayton budget plan would do better.

“We need to get off this roller coaster,” Ness said about the state budget, which has dealt cities varying amounts of aid in the past several years. “We need something we can count on.”

The Coalition of Greater Minnesota Cities, an organization representing Hawley, Duluth and more than 80 other cities is studying the new distribution formula.  In a few weeks, it likely will present a counterproposal to the Dayton plan.

“We don’t think this is going to be sorted out for a month,” said Tim Flaherty of the coalition.

Cloquet Mayor Bruce Ahlgren, the coalition’s president, wrote to Dayton, saying his plan does not take into account the broad range of services cities provide.

“Focusing on only a limited set of services would be a radical departure from how the program has measured city need in the past,” Ahlgren wrote.

Dayton suggests that increased LGA payments mean cities will not raise property taxes as much they otherwise would. Republicans are not so sure.

“How can you guarantee that people’s property taxes will decrease?” Sen. Carla Nelson, R-Rochester, asked, noting that property tax levels are local decisions.

Revenue Commissioner Myron Frans admitted that “local officials will make those decisions,” and he could offer no guarantee.

“We really have no idea” if LGA changes would affect property taxes, Sen. Dave Thompson, R-Lakeville, said, adding that local officials “are screwing it up” by raising taxes.

Frans said local officials have done a good job during the past decade of fiscal problems. “We don’t think at all they have messed it up, on the contrary … they have the best interests of their constituents at heart.”

The LGA distribution formula has grown to a complex math task in the decades since the program began. Factors to determine aid have ranged from the number of accidents to average household size.

Dayton suggests cutting it from the current seven-factor formula to three: population, the amount of tax-exempt property and the number of homes built before 1970.

Under the Dayton plan, each of the 729 cities that receive LGA this year would receive $30 per resident more in 2014.

Beginning in 2015, each city’s LGA change would be limited to $10 per person, with no reduction allowed to be more than $300,000 a year.

Cities receive $428 million this year and under the Dayton proposal would rise to $506 next year, where it would remain.

Eric Willette of the Minnesota Revenue Department reported that by 2018, 686 cities would get more aid, with 67 getting less — mostly higher-wealth suburbs. Also receiving less money would be many cities from 1,500 to 3,000 population.

Flaherty said that he does not see a pattern in how the Dayton plan would affect cities around the state, but overall the formula seems to favor Twin Cities communities.

“All of the cities in greater Minnesota do things that cities in the Twin Cities don’t do,” Flaherty said.

Twin Cities communities often are served by county or regional entities for things such as libraries, airports and sewage services.

Ness praised Dayton for proposing a budget that would begin to reduce property taxes. Key to the Dayton plan is a $500 property tax rebate most homeowners would receive.

Like other city leaders, he also is happy with the general direction of Dayton’s LGA plan.

“The strength of it is he does restore some of the money cut from the program in recent years,” Ness said. “He also puts an emphasis on getting support to communities that have been cut out of the program before.”

But Duluth does have concerns, the mayor added.

“Duluth doesn’t do as well as most communities,” Ness said, after the first year bump most cities would receive. “Other communities, obviously, their LGA continues to increase. From our perspective, I think there still is some room for discussion about how they are calculating need.”

In addition to hosting workers from throughout the area, Duluth attracts 3 million visitors a year, all of whom use city services. Such issues are considered in the current formula, which gives regional centers a boost for serving people who live outside city limits.

Dayton proposes changing one factor used in figuring LGA from how many pre-1940 homes to how many pre-1970 homes are in a city. Ness said that since Duluth has more homes from before 1940 than other cities, that change would hurt.

Even before Dayton’s three new factors would be applied, Duluth starts out behind, Ness said.

The city is treated like similar-sized Twin Cities suburbs, which provide fewer services and do not have complications Duluth faces, such as its 26-mile length.

Young said LGA is important economic development tool for Hawley, with 2,068 people.

A new concrete culvert business is coming to town, he said, in part because Hawley has an airport. Young said the airport is possible due to LGA.

Young, who long has been involved in statewide city organizations, said his community is in better financial shape than others around Minnesota.

He urged Dayton to keep aid flowing to smaller cities “because they are the ones that need it most.”

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