Minnesota Lawyer
The cities’ revised approach to local government aid is contained in a bill introduced by freshman Rep. Ben Lien, DFL-Moorhead, who serves on the Property Tax Division. “The biggest positive aspect of it is that it has three different need formulas, if you will, for different sized cities,” Lien said. (Staff photo: Peter Bartz-Gallagher)
For the past decade, Capitol debates over local government aid (LGA) to cities have amounted to a long and bloody war of attrition. But this year Minnesota’s city lobbying associations have reached an accord on LGA that’s being hailed as a rare rapprochement on an issue typically dominated by thorny regional divides.
In the past, noted Tim Flaherty, the veteran lobbyist for the Coalition of Greater Minnesota Cities, the associations that represent cities have come to agreement on modest funding issues. But the LGA deal that they agreed to last week, which is now being introduced at the Capitol, is something that comes along far more seldom.
“I think it’s about a once in 30 years kind of thing where you have this geographic and bipartisan support,” Flaherty said. “I think that will make a difference.”
The support from Flaherty’s greater Minnesota group, which is among the best-funded and most tenacious of the municipal lobbying groups at the Capitol, is noteworthy because it would increase the portion of LGA funding that goes to Twin Cities suburbs.
The agreement stems from the establishment of a new set of factors to determine cities’ need for LGA. The end result, said House Property and Local Tax Chair Jim Davnie, DFL-Minneapolis — who initially called upon the associations to work out a deal — is a formula based on hard numbers that delivers what its architects believe to be sound projections about cities’ aid needs and local tax capacities.
“The objective was to find which measures of needs and burden work today, because the old measures explained less and less of how much property taxes people are paying,” Davnie said. “By identifying solid, defensible measures of need, we now are bringing in some of the suburbs that have aging infrastructure, that are fully developed and can’t expand their tax base easily.”
Reworking of Dayton proposal
The cities’ bill is something of a do-over from the proposal that Gov. Mark Dayton included in his January budget proposal, which increased LGA by $80 million a year and offered its own overhaul of the formula. That proposal dramatically shifted the amount of funding that goes to the metro area versus greater Minnesota. The cities’ proposal doesn’t shift as much money to the suburbs and is more politically palatable, said Gary Carlson, director of intergovernmental relations at the League of Minnesota Cities (LMC).
“To be brutally honest,” Carlson said, “[the governor’s proposal] played well for many of the metro communities. But, politically, statewide, it wasn’t gaining much traction as a solution.” LMC’s board of directors was scheduled to meet on Wednesday to decide whether to endorse the proposal.
While Dayton’s proposal has failed to gather steam in the Legislature, his proposed funding increase has served as an incentive to keep the negotiations moving forward. During the past several budget cycles, LGA has been either cut or frozen to help solve budget deficits. Its funding stands at a lower level today than when the state first encountered budget shortfalls in 2002.
“The governor really set the table for us,” said Patricia Nauman, executive director of the association Metro Cities. “Linking the new money with reform was key. We have needed LGA reform. It’s very hard to do. It’s complex. It’s loaded with various challenges.”
The cities’ deal owes much of its provenance to high-level legislators and nonpartisan staff in the House of Representatives. After Davnie requested that the groups craft an agreement, they were assisted by information supplied by House Research, with particular help from long-time LGA analyst Pat Dalton.
“A lot of credit is due to House Research for digging deep and exploring a variety of measurements and options,” Flaherty said. “It would have been very hard for the cities to come together without some policy analysis that was provided by nonpartisan House Research staff.”
The cities’ revised approach is contained in a bill introduced by freshman Rep. Ben Lien, DFL-Moorhead, who serves on the Property Tax Division. The backers are still shopping the proposal in the Senate. The bill is scheduled for a hearing in Davnie’s committee on Wednesday after press time.
Differential standards based on city size
The cities’ proposed structure for LGA divides cities into categories of small, medium and large. Under the bill, different factors would be used in determining the need for LGA among the three different groups of cities.
“The biggest positive aspect of it is that it has three different need formulas, if you will, for different sized cities,” Lien said.
The proposal makes numerous changes to current law, which judges a cities’ need in part based on the amount of housing that was built prior to the 1940s. That part of the law has been one of the reasons inner-ring suburbs like New Brighton don’t receive LGA despite limited potential for growing the local tax base. For cities with 10,000 residents or more, the proposal takes into account housing from between 1940 and 1970 in addition to pre-1940s housing. The proposal also factors in a large city’s jobs per capita. The jobs per capita figure is intended to quantify the financial burden that cities face due to people who work there but live and pay property taxes elsewhere.
“Some of the inner-ring suburbs like St. Louis Park, Golden Valley, Roseville — the jobs factor helps them,” Carlson said. “They tend to have more people coming in and working in those communities.… We determined that it was sufficiently correlated statistically with city spending patterns.”
There has been pressure to improve LGA funding for certain parts of the metro area for several years. Nauman said the current regional ratio in LGA payments between greater Minnesota and the metro area stands at around 70 percent to 30 percent. The proposal, she said, brings the ratio closer to a 60-40 split.
“We worked on this for a month and got something that we can agree to,” Nauman said. “I think it’s fair to say we all gave a little bit.… But we tried to keep this statistically sound.”
For middle-sized cities — those with between 2,500 and 10,000 residents — there are some proposed aid factors that would be beneficial to greater Minnesota. In those municipalities, the bill preserves the pre-1940s housing stock standard. It also takes into account declines in population in determining need. Flaherty said some greater Minnesota cities have seen 40 percent population declines since 1970 while still having to pay for the same assortment of essential city services, such as snow plowing.
Going forward, the proposal also calls for an inflationary increase in LGA of between 2.5 percent and 5 percent starting in 2015.
“We are asking that instead of letting the system languish as it has in the past, to try to annually inflate it. That could be controversial,” Carlson said. “[But] LGA, even with the $80 million, is still about $60 million less than where it was in 2002.”
So far Lien’s bill has attracted three Republican co-sponsors. Among them is former GOP House Taxes Chair Greg Davids, R-Preston, who was a champion of LGA when Republicans were in the majority and the program was frequently criticized by his suburban counterparts.
“It’s something we’ve tried [to deal with] for many, many years,” Davids said. “These formulas are so old, I don’t think really fit like they should. Of course you’re going to have winners and losers, but maybe it should be more accurate as far as what the need is.”
The cities pushing the bill are working under the assumption that legislative leaders on tax issues won’t be willing to allow an $80 million increase in LGA unless a deal on the formula can be reached. Flaherty noted that the increased funding now depend on the legislative reception of the proposal.
“The question now will be whether the Legislature believes this is a simpler and fairer formula, and if $80 million is needed to do property tax relief,” Flaherty said. “One doesn’t go without the other.”
