2014 LGA Certification Notices Distributed to Cities

The 2014 LGA payments will be distributed under a revised formula with an overall $80 million appropriation increase.
(Published Aug 5, 2013)

The Minnesota Department of Revenue (DOR) mailed 2014 local government aid (LGA) certification notices to all cities on July 31. The notices should arrive at city halls by Aug. 5.

The notices will provide your city with the final, official state certification of 2014 LGA. Since the session ended, the League has provided cities with estimates of the 2014 LGA distribution based on information provided by the House Research Department. The final certified amounts will vary from those preliminary estimates.

The Legislature did not make changes to the 2013 LGA amounts. The first half of the 2013 payment to each city was distributed to cities in late July and the second half will be distributed in late December. The total 2013 distribution to cities was $427.5 million.

Under the 2013 omnibus tax bill, the Legislature made significant changes to the LGA system, including an $80 million appropriation increase and three new “need” formulas, depending on the population of the city. The new formula will distribute $507.6 million to cities in 2014. The LGA appropriation will increase slightly to $509 million in 2015 and $511.6 million in 2016 and thereafter.

For cities under 2,500 in population, each city’s “need” is a per capita amount starting at $410 per capita and increasing to $630 per capita as city population size increases.

For cities between 2,500 and 10,000 in population, three factors will be used in the calculation of city need:

  1. The percent of the city’s housing stock built before 1940;
  2. The average household size; and
  3. The population decline (percentage) from the city’s peak population of the last 40 years.

For cities over 10,000 in population, four factors will be used in the calculation of city need:

  1. The number of jobs per capita;
  2. The age of housing stock (defined as the percent of housing built before 1940);
  3. The percent of housing built between 1940 and 1970; and
  4. A sparsity adjustment for cities with less than 150 residents per square mile.

Each city’s capacity—or its ability to locally cover its computed formula “need”—is determined by multiplying the city’s tax base (adjusted net tax capacity) by the statewide average tax rate. If there is a gap, a portion (percentage) of that gap is filled by LGA. The portion filled is the same for all cities receiving LGA that year. If a city’s capacity exceeds its need, it will not receive LGA.

For 2014 only, no city can receive less LGA than it is set to receive in 2013. Beginning with aid payments in 2015, city aid amounts can decrease if a city’s current year LGA exceeds its calculated need. Similar to recent LGA formulas, there are limits to how much a city’s aid can decrease. Beginning in 2015, the LGA loss cannot exceed the lesser of 5 percent of the previous year’s levy or $10 per capita.

For more information on the new LGA formula, contact Gary Carlson or Rachel Walker (see information at right).

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