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Legislators’ Perspectives On the State-City Partnership

By Marisa Helms

Headline superimposed over a grass field transitioning to a city skyline The financial viability of Minnesota cities relies on a strong relationship with the state. This partnership has fallen on hard times in recent years, but the 2013 Legislature made some changes to local government aid (LGA) that seem to indicate brighter days ahead.

These LGA reforms are expected to simplify the program’s formulas, and make an individual city’s LGA amount more predictable in the future.

City officials—many of whom were involved in developing the reforms—have celebrated these changes, which have given them new hope for a better state-local fiscal partnership. But, with a new legislative session starting on Feb. 25, what do lawmakers think of all this? Minnesota Cities checked in with a few of them to find out.

LGA is important, but complicated
While legislators said they support the LGA program and agree that the reforms are long overdue, their opinions about LGA range from tepid acceptance to passionate support.

Count Sen. Scott Dibble (DFL-Minneapolis) in the passionate camp. Dibble, who is chair of the Senate Transportation and Public Safety Division, believes LGA is a useful tool to deliver a similar quality of life to everyone across the state, regardless of where they live.

LGA makes it possible for all cities to provide “local services that affect people’s everyday lives in an immediate, tangible fashion,” Dibble says, “things like water, sanitation, safety, our parks, and libraries. It’s all the stuff that makes it possible to live in an orderly, safe, enjoyable, modern civilization and society.”

Minnesota Senator Ann Rest Sen. Ann Rest (DFL-New Hope), (pictured top left) chair of the Tax Reform Division, says LGA is part of a “respectful partnership” between the state and cities. It’s an appropriate way for the state to help communities provide necessary services while trying to ensure that property taxpayers are not overburdened.

Despite a basic agreement that the LGA program remains fundamental to the state-city fiscal relationship, some legislators believe the program continues to be plagued by a seemingly perennial problem: it’s too complicated. “You get in the weeds in a big hurry, and it’s subject to interpretation,” says Rep. Paul Torkelson (R-Hanska) (pictured bottom left) about the new formulas used to determine a city’s share of the LGA pie. (For details about LGA changes, see the article, “What’s Up with LGA Reform?,” at www.lmc.org/lgareform.)

Minnesota Representative Paul TorkelsonTorkelson, Republican Lead on the House Property and Local Tax Division, says while he appreciates efforts to simplify the program, and supports it politically, he’s actually opposed to LGA “philosophically.”

Cities shouldn’t have to rely on state assistance, he says, but he also understands that most of the 20 small cities in his district depend on LGA to fund at least half of their budgets.

“Everybody should pay their own way,” says Torkelson. “But the fact is that the property tax base varies greatly across the state, and there is still the expectation that services like police, fire, and ambulance will be available statewide. So, we have traditionally had that role of balancing the need across the state.”

A big problem, Torkelson says, is that “recipients of the program get addicted to it,” and that puts his district in a vulnerable position because, in his opinion, the LGA program favors metro communities over smaller rural cities.

Some of Torkelson’s concerns are echoed by Sen. Jeremy Miller (R-Winona), who agrees that the new LGA formulas are still too complicated and that Greater Minnesota does not fare as well as metro area cities under the 2013 reforms.

Distribution changes
Miller says his view is based on his number-crunching to see where the LGA dollars go in 2013 and 2014. In 2013, 69 percent of LGA went to cities in Greater Minnesota, and 31 percent to metro area cities. Under the reforms, in 2014 Greater Minnesota’s portion will be 66 percent, with the metro area recipients’ portion increasing to 34 percent.

Though there is nothing in the LGA reforms that specifies a distribution ratio, Miller projects declining ratios in the coming years that could dip as low as 60/40. And that worries him.

“Yes, there’s additional money going into the program. However, it’s distributed to more suburban metro communities and, therefore, the percentage for rural communities is going down,” says Miller.

Nonetheless, Miller is unequivocal in his support for the LGA program, calling it “extremely important.” “I think taxpayers should expect some sort of local-state partnership to provide core services,” Miller says. “A lot of communities, especially in Greater Minnesota, do not have the ability to raise revenue through property taxes for these core services.”

Sen. Dibble says it’s regrettable that LGA has been used to divide the different regions of the state since he believes it is really meant to unite Minnesotans. LGA has been underfunded in the past, he says, and the 2013 reforms represent a step toward correcting that problem. In addition, he believes the distribution is appropriate because the metro area adds so much “in net proceeds to the overall economic success and in tax revenues to the state.”

As for how cities should spend LGA funds, most of the legislators interviewed said they believe the state should continue to allow LGA money to be used for general purposes, and should not require cities to target the funding for specific services.

Levy limits: fair trade?
In addition to LGA’s formula changes, the 2013 reforms also include a substantial increase in its appropriation. In 2014, the LGA pot increases by $80 million, for a total of $507 million. Part of the reason is that several cities will receive LGA in 2014 for the first time in many years.

The nearly 19 percent increase over 2013 is the biggest boost the program has seen after many years of legislative cuts and gubernatorial unallotments to LGA. Along with the increase, though, lawmakers also included a levy limit for the 2014 tax year.

The 2013 omnibus tax bill (Chapter 143), which included the LGA reforms, also ruled that cities with populations over 2,500 (and counties over 5,000) are not allowed to grow the limited portion of their levy by more than 3 percent for taxes payable in 2014.

Rep. Jim Davnie (DFL-Minneapolis) is chair of the House Property and Local Tax Division, and also chaired a working group that developed the new LGA formulas.

“I certainly understand local government’s unhappiness with [the levy limitation]. I’m not over-the-top comfortable with it,” says Davnie. “Still, I think it sends the right message. It’s another dimension of the [state-local] relationship: if we give you a lot of money one year, maybe we get to talk to you about limiting your own increases in revenue as well.”

Sen. Miller agrees that it can be appropriate for the state to limit cities when it comes to raising property taxes, and that “citizens expect that.”

Sen. Rest says she doesn’t foresee that the one-year levy limit will be repeated, but whether she would support any future levy limits on cities would “depend on the circumstances.”

Rep. Torkelson says he could see situations in the future where he might support levy limits even though he says they Still, he calls the 2014 levy restrictions “innocuous and hard not to support.”

“Nobody in my district has complained about levy limits lately,” Torkelson says.

Sen. Dibble says he is opposed to levy limits mainly because he “believe[s] strongly in local control.”

“We elect local officials to work with their city budgets and be accountable to the voters themselves,” says Dibble. “I get where legislators are coming from. They want to say, ‘We did this, and in exchange, we get this.’ I understand the impulse. Nonetheless, it’s not a good thing as a practice to get into local decision making. The remedy is more stability in the state-local partnership.”

Rest adds that she too is a “strong proponent of local government control and taxing authority.”

“I think we should continue to emphasize that the relationship between state and local governments is, and should remain, a partnership, and not just the state putting more and more limitations on local governments,” says Rest.

Going forward
Even with the progress made for LGA in 2013, lawmakers realize there is more work to be done this year. The buzzword at the Capitol now is “Unsession.” Gov. Dayton coined the term to signal he’s interested in ideas to simplify government and make it more efficient.

As part of that effort, Sen. Miller says he’d like to investigate the relevance of many of the unfunded mandates that the state imposes on cities. “My hope is we can look at these unfunded mandates and repeal some of those and provide additional support to our local units of government. It’s a good starting point for our Unsession,” says Miller.

Rep. Davnie says he’s uncertain lawmakers will have an appetite for making major changes next session in an election year. But he believes the future of the state-local fiscal relationship is the brightest it has been in a decade.

“I’m a strong believer that we have cemented a new chapter in LGA,” asserts Davnie. “While vigilance is valid, I don’t see LGA being the controversial issue in the foreseeable future that is has been. Politically it’s now more difficult to go after LGA. It’s never impossible, but it will be harder because of the 2013 reforms.”

Marisa Helms is a freelance writer based in Minneapolis.

Another Piece of the Partnership

Sen. Jeremy Miller (R-Winona) says the whole process of funding transportation needs to be re-evaluated. “In my opinion, the gas tax needs to be looked at and replaced with another method or model. I’m not sure what that is, but we need to have a conversation about it,” he says.

Sen. Scott Dibble (DFL-Minneapolis), though, is optimistic about transportation funding in 2014. Dibble, chair of the Transportation and Public Safety Division, says he will introduce legislation to increase funding for transportation statewide. The bill will be similar to legislation that passed the Senate last session, and will include major investments for roads and bridges through the gas tax, and investments for transit in the metro area through a sales tax.

Dibble admits it will be a challenge to raise taxes in an election year, but he says, “Transportation is one of those rock solid pieces of the economic foundation. I think we have fallen behind in a number of respects in delivering the kinds of high-quality communities that the existing and emerging workforce is looking for. I think we should invest in transportation, and the public also supports making a substantial investment.”

Note: Read more about transportation issues in "Transportation Funding: We Need Some New Ideas."

Read the January-February 2014 issue of Minnesota Cities magazine

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