Suburbs, regional centers would gain under new LGA compromise

A new formula to determine how much financial aid the state should provide to Minnesota cities is working its way through the Legislature, and some of the biggest beneficiaries look to be metro area suburbs and exurbs. Think about places like Bloomington, Brooklyn Center, Stillwater, Chaska, Little Canada, New Hope, Roseville and Mounds View, for example. Each could add hundreds of thousands of dollars to their annual budgets in coming years.

But the formula, a compromise reached after Gov. Mark Dayton made his proposal for local government aid (LGA) early in the year, also calls for outstate regional centers like Albert Lea, Austin, Faribault, Hutchinson, St. Cloud and Mankato to fare better than they would have under the governor’s plan.

Since the concept of local government aid from the state originated decades ago, policymakers have struggled both with the amount of aid and the formula to determine who gets what. Most of the attention in the past few years has been on the amount because the Legislature has whittled away at it to ease its budget shortfalls. At its peak, in 2002, the program distributed $565 million. This year, the figure is $427 million. If you take inflation into account, that’s a drop of 40 percent.

The decline has made life tougher for many cities, and mayors and council members have been making a lot of choices regarding property tax levies and spending on everything from libraries and street repairs to police and long-range capital improvements.

But because the decline distorted the existing aid formula, the who-gets-what decisions also seem destined for overhaul this session.

Dayton proposed adding $80 million a year to the LGA program and then keeping the total at $506 million a year for the foreseeable future. He also proposed changing the formula to restore the lion’s share of aid to the Twin Cities. Years ago, the metro area received more than half of the aid but, given the way the cuts were portioned out, that share slipped to about a third, said Gary Carlson, director of intergovernmental relations for the League of Minnesota Cities.

But Dayton’s plan was a little too abrupt for many outstate city officials. What city officials and legislators have some agreement on since then is a new formula that, in Carlson’s eyes, shifts money back to the metro area more slowly. House sponsor Rep. Ben Lien, DFL-Moorhead, called the agreement among various city groups a “once in a lifetime” happenstance.

The formula for assessing city needs is simpler and more stable than it has been but is still based on a variety of factors. Population is a big one, and the new system would divide cities into three tiers — under 2,500, between 2,500 and 10,000 and above 10,000 — and would determine need differently for each.

Beyond that, two big factors are jobs per capita and the portion of a city’s housing stock built between 1940 and 1970. The jobs factor compensates cities like St. Cloud, Hutchinson, Mankato and Albert Lea that draw service-using but non-property-tax-paying workers into their city limits. The housing factor gives a boost to many post World War 2 suburban cities whose infrastructures are now aging. A number of these suburbs were bumped off the LGA program altogether some years ago and would begin getting money again.

(Gone from the new formula is a Dayton-proposed effort to compensate cities for the level of property-tax-exempt land they contain.)

Under a projection prepared by Minnesota2020, metro area aid would grow under the new formula by 50 percent by 2019 while outstate city aid would grow by 22 percent. (House research analyst Pat Dalton vetted the Minnesota2020 analysis of the current bill and proclaimed it valid, by the way.)

Minneapolis and St. Paul, the biggest recipients of LGA, would get increases of about 14 or 15 percent in 2014 (to $73 million and $58 million respectively) and then an additional $2 million a year after that, according to the projection.

The goal is to assess cities’ needs more accurately than in the past. In a few cases, cities lose under the new formula. Hibbing, for example, would lose about 10 percent of its LGA by 2019, evidence that the city was receiving money “above and beyond” its need, Lien said.

That brings us back to the question of the total amount. As it stands today, the version under consideration in the House adds $60 million to the program next year, less than Dayton would have added, and a concession to the state’s budget realities, Lien said. But it includes inflation clauses that would raise the total by 2.5 to 5 percent a year.

The Minnesota2020 projection, which assumes an increase of about 3 percent a year, puts the 2019 total $135 million above current levels. That means many outstate regional centers would get less next year than Dayton would have provided but more in the long run.

This agreement is moving in the House, passing a division of the Taxes Committee Wednesday afternoon. It is expected to get attention next week in the Senate. Sen. Rod Skoe, DFL-Clearbrook, who sits on the Taxes Committee, said he wasn’t ready Wednesday to talk about proposals but noted that his goal was to work from whatever consensus cities came up with.

UPDATE: 4 P.M. THURSDAY APRIL 4. Hibbing city administration Tom Dicklich returned a call to talk about the haircut Hibbing would get under the new plan. The city’s $8 million in LGA pays for about half the budget, and he said city officials are trying to see if there’s a way to keep more than the new formula allows.

Dicklich noted that Hibbing, population 16,000, has some high costs resulting from the big land area it includes as a result of past annexations. The city contains 180 square miles, 227 miles of paved roads and 81 miles of sanitary sewers.