Who’s in the toughest shape when local aid vanishes?

Who in Minnesota should worry most as state and federal officials put the squeeze on money that goes to local governments?

To name names:

Landfall (east of St. Paul, population 700).

Middle River (near Canada, population 322) .

Browns Valley (next to South Dakota, population 625).

That’s the conclusion of Chuck Marohn, who in March joined our MPR News Ground Level public forum panel on Baldwin Township and whose planning and consulting group has now ranked Minnesota’s cities on how vulnerable they will be if and when local government aid continues to shrink.

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That’s a prospect that is becoming an assumption among leaders around the state and nation, by the way.

Marohn’s group simply calculated how much of a local property tax increase Minnesota cities would have to levy to replace the money coming from state and federal governments.

As the top of the list indicates, some small towns are clearly in the toughest shape, by his analysis. In the Top 50, only eight have populations over 1,000. The biggest of those is Chisholm, on the Iron Range, where Marohn figures the elimination of state and federal help would force a property tax increase of more than $2,400 on a house worth $100,000, unless spending dropped or revenue was found elsewhere.

Marohn’s conclusion in the report Vulnerable Cities:

State funding of local government activities has waned, placing intense pressure on cities to reduce services and raise revenue using their primary source of local funding: Property taxes.

He goes on to analyze the tax-and-spend divide this way:

  • It’s a revenue problem because property taxes are clumsy, regressive mechanisms that create a direct disincentive to more efficient land use. It’s a spending problem because we as citizens are accustomed to consuming local police protection, clean water and well-maintained streets which we do not fully fund through local property taxation.
  • It’s also a productivity problem. The most vulnerable Minnesota places produce local tax revenues that are less than what voters there demand. Using state and federal subsidy to meet core public needs is a way of addressing inequities, perceived or real. It also effectively tables discussion of how communities need to redesign their physical layout, infrastructure, or human capital to fund a higher percentage of total public services consumed.

After our conversations with him in Baldwin Township, I came to think of Marohn as the author of the “gravel roads” theory of local government spending: Faced with maintaining roads that new development is no longer able to pay for (he says it’s a Ponzi scheme to rely on future development to pay for services), maybe it’s a good thing to go back to gravel roads. As he told the Brainerd Dispatch the other day, “Congestion in an urban setting is not a bad thing.” That’s what city life is.

In a phone conversation this morning, he went so far as to suggest that one way to interpret the problem facing rural towns is that an inability to cope without state and federal help is an indication that metro areas are now subsidizing the small town life so many people (including him) cherish.

On the other hand, he offers more creative ideas than simply whacking away at the budget and saying sorry to residents. Local sales taxes and better comprehensive planning are two. But in the end, he says, the reality is some cities just won’t be viable in the 21st Century.

Maybe, he said, it’s a choice between hospice care and a new model based on smaller scale economies, not big infrastructure.

If that’s true, what principles will determine who lives and dies? Proximity to regional centers? Strong leadership? Tax base upheld by some large corporation? An entrepreneurial spirit? More cooperatives?

Marohn writes the Strong Towns blog about small town issues. You can find the city ranking here and if you want to look up a specific city, use this list.

Is there another way to interpret this analysis? Is there a role in some small towns for the big infrastructure approach to entice a big company?