City officials gloomily expect cuts to local government aid

A growing consensus among city officials across the state says that local government aid will be slashed again next session, as a new governor and the legislature cope with a projected $5.8 billion budget shortfall.

Minnesota created local government aid, or LGA, 38 years ago to address the revenue disparity between cities rich with property taxes from a diversified base of business and residential properties and other communities, many of them rural. Some cities were so property tax poor and short of cash they had trouble providing even basic services such as fire and police.

Local government aid became a kind of redistribution of wealth to help out the less well off cities. Today, more than four out of five Minnesota cities receive LGA and in many cases, it's become a significant share of their operating budget.

Given Minnesota's budget crisis, city officials around the state are making contingency plans to cope with potential local government aid reductions.

Even in the recession, the economy of Thief River Falls in northern Minnesota is hanging on, due to a relatively diverse manufacturing base that includes snowmobile and computer components businesses.

Still, local government aid accounts for about a quarter of the city's budget, and Mayor Steve Nordhagen losing all of it would be harsh. The city has lost hundreds of thousands of LGA dollars over the past few years, he said.

"We would basically collapse without local government aid," Nordhagen said. "If our local government aid were to go away completely, we'd have to raise our taxes 38 percent to cover the loss."

Owatonna, where LGA accounts for a fifth of the city budget, would face a similar dilemma, Mayor Tom Kunst said.

"If we had to lose all our LGA, we'd probably see taxes go up 15 to 20 percent, which is just unattainable," said Kunst, president of the Minnesota Mayor's Association.

In Bemidji, LGA accounts for just over 15 percent of the city budget. Bemidji has lost more than $400,000 in local government aid the past few years, as a result, the city has cut more than 20 workers, City Council member Greg Negard said.

"There were two police officers, there was a community development director position that was cut, street, park maintenance workers, water treatment plant, everything," Negard said.

Even larger cities would be hurt by the cuts. Minneapolis mayor R. T. Rybak this week proposed $18 million in city budget trims if LGA is cut.

Local officials are already smarting from trims the past three years to local government aid. This year, the state will send about $426 million dollars in LGA to cities.

That's $100 million less than planned, as Gov. Tim Pawlenty cut the aid to help balance the budget.

LGA IN GUBERNATORIAL CONTEST

The hotly-contested gubernatorial election has made aid to local governments a political issue.

As governor, Emmer said, he'd propose cutting state aid to both cities and counties by nearly a fourth. As part of a five year phase-out of the program, Emmer would put counties in charge of deciding which cities need local government aid.

"Let them distribute it across their county where the greatest needs when it comes to police and fire, are needed but then move it toward that phase out, less and less," Emmer said.

Dayton wants to keep LGA spending at current levels. He said cuts too often cause cities to raise property taxes to make up for the lost revenue.

"More regressive taxes like property taxes put an ever higher burden on middle-income families, on working Minnesotans, I think that's wrong, and I'm going to reverse that," Dayton said.

Horner also wants to keep the program, but with a twist.

During a campaign stop in the western Twin Cities suburb of Excelsior, which does not receive local government aid, Horner said communities that don't qualify often have less wealthy neighborhoods where LGA would be a big help.

"We've got to figure out a different kind of formula that addresses all of these needs in a way that is fair, in a way that allows communities to deliver core essential services," Horner said.

Regardless of who is elected governor, it's likely that local government aid will once again be trimmed, League of Minnesota Cities legislative lobbyist Gary Carlson said.

"They've actually tapped all of the easy answers and I really don't see how any one of the gubernatorial candidates will not have to propose fairly deep cuts in all state spending programs, including programs that distribute money to cities like local government aid," Carlson said.

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