LGA fight ratchets up pressure on GOP legislators

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Politically, Dayton’s gambit on local aid will make budget cuts even harder

During a stop at the Capitol following Gov. Mark Dayton’s budget rollout, Minneapolis Mayor R.T. Rybak paused to ruminate about one unintended consequence of the budget battles waged through the years by the administration of Gov. Tim Pawlenty. According to Rybak, Pawlenty’s habit of taking the unallotment cleaver to local government aid programs built deep bonds between affected city officials around Minnesota.

Pawlenty’s actions “were like Match.com for mayors,” Rybak chuckled.

Now Dayton is also uniting local governments with his budget proposal. But his proposal to leave local aids and credits untouched has local officials cheering.

“Gov. Dayton’s budget not only sends the message that greater Minnesota will stay open for business,” exulted Park Rapids Mayor Nancy Carroll, “but that the entire state – whether you live in Warroad, Worthington or Woodbury – is a valued part of the future of Minnesota.”

Local government leaders are turning up the heat on legislators contemplating ways to solve a $6.2 billion state budget deficit. The first battle has already concluded with Dayton’s veto of the GOP’s so-called phase one budget bill, which included $487 million in cuts to local government aid. In the early months of the session, local government officials – and, in a few cases, local chambers of commerce in swing districts represented by freshmen Republicans – have been outspoken about holding LGA harmless.

Republicans, well aware that cutting aid to local governments poses a political liability in the 2012 election, are meanwhile stepping up their critiques of the status quo – and working overtime to devise new ways of benefiting local governments that do not rely on general fund dollars.

Senate Taxes Chairwoman Julianne Ortman, R-Chanhassen, who said the local aid cuts in the phase one bill weren’t onerous for local government because they continued cuts that lawmakers made in 2010, maintains that LGA is fundamentally flawed.

“We know the whole system needs an overhaul,” Ortman said.

Ortman said that local aid programs are supposed to provide property tax relief. But she added that state aid accounts for more than 60 percent of some cities’ spending. Ortman wants to look at alternatives to LGA.

“It seems like the whole issue of the relationship between cities, counties and the state has boiled down to LGA and county program aid,” she said. “It’s boiled all the way down so that there is nothing left but salt there. It seems that’s the only thing they want from us. We’ve tried to expand the debate to say, what about the sales tax? Are there some other things we can do for you?”

Greater Minnesota legislators who represent cities that receive LGA are under pressure to maintain funding. A number of local newspapers in swing districts have offered sharply written editorials warning that LGA cuts will result in property tax increases.

The pressure has mounted as a handful of local chambers of commerce have been successfully courted by the Coalition of Greater Minnesota Cities to oppose LGA cuts in the op-ed papers of local newspapers. In doing so, a vocal minority of local chambers has bucked the statewide Minnesota Chamber of Commerce, which contends LGA is unsustainable and needs to be reformed.

Senate Minority Leader Tom Bakk, DFL-Cook, said the importance of local aid will make it difficult for Republicans to back deep cuts: “I think some of the people who took the vote to cut aid to cities and counties a week ago, as they learn what the formula is about and how it relates to effective tax rates in communities, may consider a different vote when we get into May.”

When the House took its first floor vote on the phase one bill, four Republicans voted against them. Two of them, Reps. Rich Murray, R-Albert Lea, and Debra Kiel, R-Crookston, voted against the bill after their local chambers and mayors publicly opposed LGA cuts.

But Republicans and business-supported groups like the Minnesota Chamber of Commerce and the Minnesota Taxpayers Association contend that LGA has flaws that bear serious financial consequences for the state.

While no miracle alternatives have arisen, GOP legislators are experimenting with legislation designed to take the state in a different direction without leaving local governments high and dry. Sen. Al DeKruif, R-Madison Lake, has introduced legislation that would exempt cities, counties and townships from paying state sales taxes. DeKruif said the proposal is a way to for local governments to keep their money rather than sending it to the state and expecting it to return in the form of LGA. DeKruif said he expects cuts to LGA will be part of the ultimate budget solution. But he’s is quick to say he will defend his greater Minnesota district from deep cuts.

“We do have to balance this budget,” DeKruif said. “We’re mandated to do that. I think local government aid will be in play. …What I’m asking my cities to do is plan for the worst and hope for the best. I will fight to try to keep some money coming through LGA. But all of it? I’m not trying to promise anyone all of it.”

Local government funding stands to divide Republicans in the Legislature for the simple reason that some Republicans represent communities that rely to a great extent on LGA while others, particularly suburban legislators, represent areas that don’t receive a penny of LGA. That’s because LGA is based on a formula that distributes money based on the relative value of the local tax bases.

House Property and Local Tax Division Chairwoman Linda Runbeck, R-Circle Pines, is planning changes to the way the state helps local governments financially. For starters, she has introduced legislation that would prohibit city and county levy increases in 2012 and 2013. Like Ortman, Runbeck questions how local governments are using LGA.

“Everyone who receives it, of course, thinks it’s set in stone and never can change,” Runbeck noted. “There have been studies showing that cities that receive it are spending it on discretionary purposes as opposed to basic purposes.” Runbeck said she expects legislation this session that would carve out money to reward local governments that share and consolidate essential services.

Despite the effort to introduce alternatives, Bakk said LGA will continue to be a thorny issue for Republicans this session.

“I think all communities, regardless of their local tax capacity, need to participate in an equal way in solving the state’s budget problem. Going after aid disproportionately impacts needy communities with old infrastructure like old sidewalks and old water sewer lines, and it holds harmless newer communities that don’t have all of those needs,” Bakk said.