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• ARY 10, 2003 What's the state's role in LGA vital to our quality of life BY dliN MILLER Guest Columnist 1- ifost Minnesotans don't think much beut local government aid or other aspects of the fiscal relationship between our state and local governments. Resi- dents know they pay taxes, mostly to the state, and receive public services, mostly from their dty, county and school district. But LGA is an important program that benefits all Minnesotans. It ensures - whetheryou live in an urban, rural or sub- urban community -that police are Patrolling your neighborhood, emergency medical services are available and streets are plowed. Minnesota cities historically have been limited by the state to the property tax as their main source of local revenue. While there are many. good reasons for this, it also means wide variation in each city's ability to raise the dollars needed for basic dty services. Cities with high property values can more easily raise money than cities with lower or declining property values. To address this disparity and ensure all Min- nesotans receive basic services, legisla- tors in 1971 created the LGA program. This Program provides revenue to does that have lower property values and higher need -police cars and fu's trod{s cost the same regardless of a dty's proper- ty tax wealth. Because Property wealth varies dramatically from city to, dty, the distribution of LGA also varies through- outthe state. To the casual observer, it may seem unfair that state-collected tax dollars are distributed unevenly across Minnesota through LGA. Residents of cities that receive little LGA may question the value of the program. But as with many public programs, LGA has indirect benefits for everyone, and there are consequences - perhaps profound -for all ff LGA is dis- mantled or significantly reduced. LGA is hardly the only program in which taxpayers' dollars are used to pro- vide services that have a direct benefit to some, as well as a broader, statewide ban- efit. FIOr example, state aid for schools ben- efits the children in each school distHct, and indirectly benefits all Minnesotans because our well-educated future work- force makes this state attractive to busi- nesses. Similarly, statewide tax revenues to Pond transit systems and highways pro- vide a direct benefit to the users of these systems. Transit relieves highway congea- tion, making commutes easier for other drivers. In addition, relieving congestion through ahigh-quality highway system and transit for workers improves . Min- nesota's business climate for the better- WWW.TWINCITIES.COM ^ ST. PAUL PIONEER PRES: OPI NION LEGISLATIVE SPOTLIGHT: Local Government Aid ment of all residents. LGA also has direct and indirect bene- fits. Taxpayers in dues that receive LGA can afford basic dty services without onerous property tax rates. LGA benefits residents of other does by ensuring that fire, police, emergency responders and adequate roads are available when they visit their parents in a dty 180 miles away, travel "across town" to the Mall of Ameri- ca, or visit the bluff country and lakes areas. LGA is a prudent investment in the state's continued eoonomic success. Min- nesota's overall. economic well-being is inextricably tied to the economic success of Greater Minnesota and the urban core. Without LGA, many of our cities could not provide basic services at reasonable tax rates. if the business climate and qual- ity of life in these does erode, Minnesota's economy suffers. Some people and busi- nesses will move to the urban fringe, abandoning existing infrastructure and creating tmther demand for new roads, sewers and schools. Others wlll stay Put, but be unable to achieve their Rill econom- ic potential. Others may altogether leave Minnesota. When these things happen, we all lose. Our state-local .Partnership. including LGA, must be preserved for our continued quality of life and the future well-being of all Minnesotans. ~ Miller (e-mail: jmiller@lmnc.org) is executive director ojthe League of Minnesota Cities. t: , funding local services? System needs reform, not rhetoric BY DON 3CHUMACHER Guest Columnist T Tnfortunately, in the debate aboi J local government aid, the does the lobby for taxpayer funds are ahead labeling the effort as a war between tb "haves" and "have note." The Pact is that, regardless of th budget defidt, legislators must recensit er LGA because, like maw other spent htg Programs, it badly needs to b reformed. Policy experts pointed out a least 10 years ago, the last time the for mina for distributing funds wa addressed, that Minnesota needed ti rethink LGA from the ground up rathe than simply change the formula. Taxpayers would be surprised, iP no appalled, ff they knew that two-thirds o the $565 million given to Minnesota dtie in 2002 was based on the spending Pat terns of does decades ago, not on need Only the remainhtg one-third of th money actually reflects a dty's need o ability to pay its own expenses. Under any budget scenario, this is no a funding formula based on logic, need o capadty Especially with the specter of $4.6 billion budget defidt, the local gov- ernment aid formula is a throwbadt to the budget dark ages. Erilightenment with respect to LGA should bring a new formula that applies to the entire amount and to all does. It should be based on measures of a dty's capadty to pay its own expenses and its unique needs (there should be few). This v ~rT "~` ~;~ - ` .;; ~ .+. •~ :: As lawmakers debate proposed cuts in local goverment aid, they need to consider the state's proper role in funding municipal services such as snow plowing, police and fire protection, libraries and parks. AT ISSUE With state government facing a huge budget.shortfall, the gover- nor and many lawmakers see state aid to local governments as a likely target for cuts. Some also would like to overhaul the formula for distributing the aid, which is based largely on past spending. For some cities, LGA funds 50, 60 and even 70 percent of the cost for munici- pal services. Schumacher (e-mail: dschumacher@ cretexinc.com) is executive vice president ojthe Cretex Companies, Elk River, and a former hoard chairman of the Minnesota ChamherofCommerce. t is easier said than done. However, 38,000 f layoffs in manufacturing and a $4.6 billion s budget defidt are two reasons to expect - that it can - no, must - be done. With LGA reform, there will be win- e Hers and losers. The losers, however, will r be those dty governments that have used LGA to ratchet up spending and have the t most capadty to manage the cuts. r A Jan. 19 article in the Pioneer Press a offers an example in the dty of Austin. About two-thirds of the city's $12 million budget comes from state aid while its Property taxes were the second-lowest in the state fora $100,000 home. Also, Austin has a cash reserve of $39 million. Many other Minnesota cities, like Austin, appear to have the capadty to, and should, withstand a reform of LGA, which is why property owners should be skeptical of Ute threat by some dty offi- dals to manage LGA reductions through property tax increases. Local governments have at least four options besides property tax increases. They can: ^ Reduce dty services or provide them less expensively. ^ Reduce overhead by looking at pub- llcemployee expenses, rents, etc. ^ Eliminate unnecessary programs and reduce others. ^ Use their reserves, at a minimum, as a bridge whfie learning to operate more effidently. No legislator contemplating LGA reform wants to hurt a needy city, but most. does in Minnesota do not fall into that category. Chios must face up to the fact that LGA will be modified and they should partidpate In the process. Min- nesota literally cannot afford to waste this opportW;;ty for reform.