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MTA calls on Pawlenty to target cuts to cities based on their health care spending

A St. Paul-based think tank issued a controversial report this week that says cities that get local government aid are providing “more generous” health care benefits than cities that don’t get the state aid.

If Gov. Tim Pawlenty cuts local government aid (LGA) to cities to help solve the state’s record $4.6 billion budget deficit for 2010-2011, the new report from the Minnesota Taxpayers Association’s (MTA) advocates the governor should make cuts to cities based in part on whether they have used their LGA to provide health care benefits that are richer than the state average.

“If we’re thinking about LGA cuts, let’s start by targeting cities that have state aid and assume disproportionately large shares of employee health insurance costs,” said Mark Haveman, MTA’s executive director.

Jim Miller, executive director of the League of Minnesota Cities (LMC), hopes Pawlenty doesn’t follow the MTA’s recommendation.

“It is a lot more complicated. For them to generalize from the data … I just think is kind of dangerous public policy,” Miller says.

The report, prepared by the nonpartisan MTA’s research arm Minnesota Center for Public Finance Research, is titled Health Care Spending by Minnesota’s Cities – Costs, Efficiencies and the Role of Local Government Aid. The report is online at

Cities have been receiving LGA for nearly 40 years since it was created as part of the Minnesota Miracle legislation in 1971. LGA is supposed to even out the disparities between communities with rich and communities with poor property tax bases.

The information in the report is derived from a 2008 survey of salaries and benefits conducted by three of the state’s largest municipal lobbying associations, including the LMC, which spent $624,549 on lobbying the Legislature in 2008, according to a new report (See story on page 3).

The MTA report looks at 182 of the 223 cities in Minnesota with populations of at least 2,500 people. The report accounts for 68.5 percent, or $318.6 million, of the LGA that was distributed to cities in 2008.

Haveman says the report accounts for factors like the age of the city’s population, the area’s household income and the number of employees.

All those things being equal, the report says that in 2008 cities that received LGA spent $103 or 12 percent more per month per employee on family health insurance premiums. They also paid for a greater share of the premium cost, the report says.

When it comes to health care spending, LGA is the largest factor in creating a disparity between the amounts of money that cities spend on their employees, Haveman says.

“What we found is that after controlling for other variables that affect spending, LGA enabled higher levels of spending in the state,” Haveman says.

Miller says, however, the report is flawed because it leaves out cities with populations of less than 2,500 people. There were also 41 cities, including St. Paul, that didn’t participate in the 2008 survey. In some cases, small cities don’t offer insurance, he says.

“You can’t conclude anything about the general population from the data they looked at,” Miller says.

Haveman says his group’s efforts to research the topic were hindered by the limited amount of local government finance information that cities are required to report to Minnesota’s Office of the State Auditor.

Data for so-called object code funding – which is another way of referring to things like salaries, benefits, fuel and other operating costs – aren’t collected, he says. Instead, financial information about cities is limited to the costs of programs like parks and recreation and public safety spending.

“If states and local government finances are going to intermingle, it’s imperative that we get this object code spending information,” Haveman says.

Haveman recommends legislation that would require cities to report to the state auditor spending types like salaries and fuel as well as spending programs.

The MTA report shows spending among cities on health insurance varies widely.

More than half of cities surveyed in the report spent between $600 and $900 per employee a month on health care. Thirty-one cities reported paying $1,000 a month. Four cities spent more than $1,500 a month.

The report also found that contribution levels among cities differ widely.

Health care cost increases are expected to strain state and local government budgets in the future. Haveman says he’s concerned LGA provides a cash boost that cities use to subsidize their costs rather than adopt cost-containment efforts.

“The existence of LGA makes it easier for them not to cope with [decisions about health care costs],” Haveman says.

Miller disagrees that LGA is postponing cities’ day of reckoning with health care costs.

“Could cities do a better job of trying to be more aggressive about controlling health care costs? The answer is probably yes. But they are looking at things like high-deductible plans. I don’t think they are at all oblivious to what’s going on,” Miller says.

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