Election stokes optimism among city officials about state aid boost

Two people walk into the town hall.
After the Nov. 8 election Democrats have control of the Minnesota government and they're hoping to secure more state money for towns.
Ken Klotzbach for MPR News

Local government leaders are confident the results of Minnesota’s election will jumpstart efforts to secure more state money.

Their belief is rooted in an all-DFL governing structure, the state’s giant surplus and campaign messaging that elevated public safety. Some see a chance to add automatic funding bumps to avoid stagnant allowances they’ve coped with for decades.

Local government aid, or LGA as it’s often called, will be among the programs competing for a share of surplus money when the Legislature reconvenes in 2023. That presumes an upcoming economic forecast doesn’t drastically alter Minnesota’s financial picture before lawmakers return to St. Paul.

“We're either investing in our cities to make sure Minnesotans no matter where they live, work or play can have those basic services or we’re not,” said state Rep. Cheryl Youakim, DFL-Hopkins, who is steeped in the formulas and amounts many cities around Minnesota get from the state each year.

Youakim is one of the possible selections for House Taxes Committee chair, which would put her in the thick of discussions around LGA. She’s a proponent of the program.

“That's really there to make sure that no matter where you live in the state or where you travel or where you work in the state that you're able to flush a toilet, call a first responder and drive on a road,” she said. “It's pretty basic. You’re setting a floor about basic services Minnesotans can come to expect.” 

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Local leaders and the groups that represent them at the Capitol are bullish about making big gains in the 2023 session.

For one, lawmakers left more than $7 billion unspent at the end of the last session and revenue has been coming in ahead of projections since. The longer-term picture could be less rosy, however, as recession fears, corporate layoffs, rising interest rates and continuing inflation struggles take a toll. 

A crowd gathers to near a stage.
House Speaker Melissa Hortman thanks her team for their hard work during the midterm campaign at the Minnesota DFL election night party on Nov. 9.
Ben Hovland | MPR News

Democrats, who will control both legislative chambers and the governor’s office, have long argued LGA affects both city services and local property taxes. 

That leaves League of Minnesota Cities intergovernmental relations director Gary Carlson optimistic.

“Because of that focus that the DFL generally has on the property tax, I would expect that there will be a lot of discussion and probably support for increasing the funding for that program as one method to help keep property taxes down,” Carlson said.

Then there is a third factor: A relentless campaign focus on crime and public safety. While LGA dollars don’t universally go for police and other first responder needs, many city officials say those items consume a big part of their budgets.

“By strengthening local government aid, you're allowing cities to make sure that they have the resources to fund their local police and fire departments,” said Fergus Falls Mayor Ben Schierer. “I mean, that's critical. It’s the number one thing that local government aid is used for in cities across the state.”

In Fergus Falls, LGA used to make up about half of the city’s operating budget. Now it’s down to a third.

“We get about $3.8 million dollars in local government aid, which is similar to when I was first elected to office back in 2004,” Schierer said.

He’s not exaggerating. In 2002, local government aid paid out across the state totaled just shy of $565 million. It became a target for cuts when Minnesota was in budget trouble. The climb back has been slow. It didn’t return to the 2002 level until last year.

Jeff Brand, a DFLer who reclaimed a House seat this month that he lost in the prior election, said cities have been shortchanged.

“When local government aid is at the same level as 2002, you can't buy a police car with 2002 dollars, you have to buy it in 2023 dollars,” Brand said. “And so that's going to mean a tax increase here or there or a cut in service there.”

Brand hopes that a local government aid measure comes up in a standalone bill.

“And it's very simple and it's to the point and it's vote yes if you support cities and police. Vote no, if you don't.”

Hundreds of cities receive at least some level of local aid from the state, ranging from hundreds of dollars in tinier cities to $78 million in the case of Minneapolis.

And there is already talk of restoring a trigger to raise LGA based on inflation. There used to be an automatic bump, but that was repealed in 2003.

Cars parked in a downtown.
Cars are parked along the street in downtown Little Falls, Minn., in this 2020 photo. Little Falls Mayor Greg Zylka says he'd like to see annual inflation increases built into the local local government aid formula but acknowledges it's a "tough sale" at the Legislature.
Paul Middlestaedt for MPR News | 2020

“I know both sides of the aisle want to have stated that they want to concentrate on public safety, they want to help reduce property taxes and in my mind, that would be the best way to do it — by having an inflationary formula to increase LGA annually,” said Little Falls Mayor Greg Zylka.

But Zylka acknowledged, “It’s a pretty tough sale.”

Republican Rep. Steve Drazkowski of Mazeppa said bringing back the escalator would be a bad idea. He won a Senate seat in the recent election.

“Money is always a limiting factor for growth of any unit of government, right? So if you give them inflationary increases every year, they're going to continue to grow each year,” he said.

Drazkowski said those who want to make LGA about public safety should agree to put tighter parameters around the money’s use. But he’s realistic about the likely bump in aid.

“This is what every group out there is going to want to do now is come in and want more and more money from the hard working Minnesotans that have had their tax money over collected,” Drazkowski said.

The debate over LGA and the rest of the state budget kicks off in mid-January, when Gov. Tim Walz puts a two-year proposal on the table. 

Even with full DFL control, final passage of a new budget isn’t expected before next May.