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Local Government Aid woes explored at City meeting

Grand Marais City Hall
Grand Marais City Hall

LGA_070510Mixdown.mp310.06 MB
Local Government Aid has been dramatically reduced to Minnesota city governments, including Grand Marais. LGA payments are at their lowest ebb and the future is problematic. WTIPs Jay Andersen has this story.
The city of Grand Marais belongs to the Coalition of Greater Minnesota Cities, an organization that represents 75 rural cities ranging in size from Winona and Moorhead, to Warroad and Grand Marais. J.D. Burton, of the law firm Flaherty-Hood representing CGMC, gave city councilors an overview of what happened during this year’s legislative session, especially what happened to local government aid payments.
Burton: The day after the governor proposed these additional cuts, the Supreme Court ruled his unallotment illegal, and instead of a 994 million dollar deficit with three weeks to go in the session—so, now the number is 2.7 billion that the state has to solve within a matter of weeks. In a special session that the legislature convened for one day after the regular session adjourned, they solved the deficit with no more cuts to local government aid or to cities in general. They didn’t make the cuts permanent, and they ended up using a series of about 2.3 billion dollars in shifts, mostly through education. We came out relatively good in the very end, considering what we were facing, but it certainly took a significant effort on behalf of Greater Minnesota Cities banking to get it. We, again, felt that we could take those cuts, but even though they were better than they could have been, they still pretty unfair considering that local government aid is only 3.4% of the general fund. It only represents a very small fraction of the general fund itself, but it consumed 8.3% of the cuts this year in the session. So, something that’s 3.4% assuming 8.3% of the problem is not fair.
The city started out the legislative session with $170,000 in local government aid, or LGA, then the governor unalloted $73,600, leaving the city’s LGA at $96,400. Then, the city lost all of its market value credit, $33,300, so it ended up after cuts with $63,000 in aids. Burton said in order to maintain its current spending level, the city would have to increase its levy by as much as 12%. But, 2010 is an election year, and Burton told the council that as far as LGA payments are concerned, much hangs in that balance.
Burton: Where that leads us to is, what happens next year? Certainly all the shifts that occurred at the session means that the deficit wasn’t solved, that we’re just pushing the problem back in even greater magnitude to next session. On January 4, 2011, when legislature convenes, we will have a projected $5 to $8 billion deficit that the state has to solve for the biennium. The state doesn’t take inflation into account when they do their budgets, so the $8 billion number is an estimation of what the deficit will be if you included inflation. Around $5 billion or so may be the estimation if you didn’t include inflation. It will be probably somewhere in between that number. What we believe, and what we are going to be suggesting to our cities and others and to the media as well, is that the future of LGA is really going to depend on who gets elected governor. We have had all of the five viable candidates in front of the CGMC over the course of the year. They have answered the same questions on what they think is going to happen with local government aid, what their plans are. Representative Emmer, the Republican candidate, Representative Emmer has issued a plan that would repeal local government aid completely and replace it with a plan where that money would go to the county. So, the counties would get the money, the counties then, over a series of a few years, would distribute a percentage to cities, so his plan is based on the assumption that county government is closer to cities than the state legislature is. We don’t feel that giving money to the counties is really going to be the most efficient way to do it. We also don’t believe that county governments are closer to the cities than cities are. Tom Horner is the independent candidate. Tom Horner has mentioned that he is supportive of local government aid. He doesn’t believe, though, that it can be sustained politically. He has suggested that he would be willing to increase some sort of taxes to help pay for the program, but he hasn’t been very specific about that. Three Democratic candidates, Margaret Anderson Kelliher, former Senator Mark Dayton, and former Minority Leader Matt Entenza, have all given their support for local government aid in one way or the other, but we haven’t seen real specifics on how they would pay for that, other than Senator Dayton’s suggestion that he would be taxing the rich to raise up to $4 billion. We are assuming that that would help pay for the local government aid programs.
Burton said the Coalition could see no viable solutions to save LGA except revenue increases. He said CGMC was encouraging cities to leave LGA payments in their budgets, even if prospects for receiving it right now seem dim.
Burton: If you are telling the public and telling the press and telling your legislators that, “Well, we are not going to plan for LGA, we are not going to include it in our budget. It’s gone.” Then, it will be gone. The legislature will read that as a signal from greater Minnesota that they do not need LGA anymore, and they will use that money and put it somewhere else. Since LGA is your tax dollars going into the state and coming back to your communities for property tax relief and to pay for services. That money is not just going to go to greater Minnesota necessarily somewhere. It is probably going to go to the metro. So, we are strongly discouraging cities to be giving out a message that we don’t need LGA, we’re going to not plan for it in the future, and it can go away, because then it will actually occur.
Burton reminded councilors 2010 is a reset year. A new governor and a change in the legislature could mean a new approach to the state budget, and that will impact local government aid to cities like Grand Marais.