With aid increase, cities look first to streets, roofs, other one-time improvements

Motorists driving through Richfield might someday find Portland and Nicollet avenues in better shape. Hutchinson might put a new roof on its civic  arena. The police station in Maplewood might be remodeled. South St. Paul could shore up the levy along the Mississippi River. Austin might update some of its police equipment.

These are some of the projects city officials around Minnesota are eyeing after the Legislature this week approved an $80 million increase in Local Government Aid.

The increase is the most promising news city officials have received on this front in a number of years. A program that has shrunk and become unreliable will now expand from about $427 million this year to over $500 million next year.

"I'm elated," said Steve Devich, city manager in Richfield. The first-ring Minneapolis suburb's LGA will rise $700,000 to $1.9 million next year, and among the possible uses for the money are street improvements and other aging infrastructure, Devich said. Improvements to Portland Avenue, Nicollet Avenue and 66th Street -- thoroughfares through the city of  35,000 -- are near the top of the list, he said.

He and other city officials said the first impulse is to turn to the long lists they maintain of one-time capital improvements, as opposed to simply putting the money into operating budgets. That's largely out of wariness because the state in recent years has promised money but then not delivered when it ran into its own budget difficulties.  Many cities have been under steady pressure for years to trim services and keep taxes from rising too fast.

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"We have to be careful," said Austin city administrator Jim Hurm. "They might take it away again." Austin, which has cut the number of city employees from 185 to 135 over the past 20 years, expects its LGA check to rise from $7.1 million this year to almost $7.9 million next year. That amounts to half the city's operating budget.

Hurm said the city would not use the new money simply to restore police or other staff positions and instead would look to one-time expenses like updating the city's comprehensive plan or modernizing police equipment.

In Hutchinson in central Minnesota, the LGA money will rise from $1.8 million to $2.2 million next year, representing more than a fifth of the total operating budget. City administrator Jeremy Carter said he will propose that the city council use some of the increase to help fill an expected operating deficit when they tackle the budget this fall. But he thinks Hutchinson, too, will put much of the money into one-time projects like fixing up recreation facilities and street projects.

The formula for distributing the aid has been changed, partly to benefit inner ring suburbs where streets and other infrastructure built in the 1950s and 1960s is now aging. Maplewood, for example, has never received Local Government Aid but can expect more than a half million dollars next year. City manager Jim Antonen said building a new fire station, remodeling two old ones and fixing up a police station built in 1986 are at the top of his list.

Likewise, St. Louis Park hasn't received any of the money since 2003 but will receive almost a half million dollars next year. City manager Tom Harmening said potential projects include a new ladder truck for the fire department and a new freezing system in one of the city's ice rinks.

But the Legislature also intended for the new money to provide property tax relief, not just lead to a spending spree. Precisely how that plays out depends on independent decisions this fall by hundreds of city councils around the state.

"You've got a policy decision to make," said Devich. "How much do you use for capital projects and how much do you put into the general fund to keep property taxes down?"

As a guideline, Eric Willette, property tax research director for the Department of Revenue, estimates about half of LGA money historically has gone to property tax relief.

If that holds true in 2014, the $80 million increase in LGA and a corresponding $40 million increase in aid to counties will ultimately yield $60 million in property tax relief throughout Minnesota.

The Legislature made a bigger effort to ease property tax pressure by adding about $120 million a year to what is known as the "circuit breaker," a mechanism to provide refunds to homeowners whose property tax bills exceed a set percentage of their incomes. Lawmakers changed that percentage to add about 112,000 households to the 410,000 households that receive refunds now.  They also directed the Department of Revenue to take steps to encourage eligible homeowners to apply, a move expected to add another 25,000 households to those actually receiving refunds.

And renters will get an additional $15.5 million in property tax refunds. That is expected to add 30,000 refunds to the 334,000 now distributed every year.

To keep these property tax initiatives in perspective,  Gov. Mark Dayton's original proposal this year to give every homeowner a $500 property tax rebate would have cost the state $718 million.