01-10-2007 Council Agenda - Laserfiche WebLink

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Local Government Aid - House Research Page 2 of 5 • a grandfathered city aid base equal to its 1993 LGA, equalization aid, and disparity reduction aid payment; and • a city formula aid amount equal to a portion of the city's "need" minus its "ability to pay." the appropriation for city LGA increases between 2.5% and 5.0% annually based on the annual increase in the implicit price deflator for state and local government purchases. All increases in the LGA appropriation, except for specific aid base adjustments, are distributed via the formula. The original 1993 legislation provided that for every dollar increase in the appropriation amount, the amount of grandfathered aid would decrease by a dollar. Over time the grandfathered portion of LGA would disappear. This provision, which was to become effective with 1995 aids, was eliminated in 1994. Retu to too .......rn . _........ _. Current formula aid There are two measures for city need, one for cities with a population less than 2:500 and another for cities with a population of 2,500 or more. These need measures were developed by the League of Minnesota Cities, however, it did not propose the LGA formula that was adopted. Small City Need = 1.795919 x the percent of housing built before 1940 + 1.562138 x the percent of market value classified as commercial /industrial + 4.177568 x the percent decline in population for the previous 10 years + 1.04013 x transformed population - 107.475 ( "Transformed population' is equal to the city's population raised to the .3308 power, multiplied by 30.5835. It reflects that for small cities, the relation between city revenue and population is not linear,) Large City Need = 3.462312 x the percent of housing built before 1940 + 2.093826 x the percent of market value classified as commercial /industrial + 6.862552 x the percent decline in population for the previous 10 years + 0.00026 x population + 152.0141 The formula aid amount for each city is calculated as follows: Formula Aid = X% of [(Need x populatior) — (net tax capacity x average city tax rate)] Where "X" is a constant such that the sum of the grandfathered aid plus formula aid to all cities does not exceed the total LGA appropriation. The "average city tax rate" used in the LGA formula is based on levies and tax capacities for the previous year. For aids payable in 2002 only, this was increased to reflect that cities would need to increase their levies from 2001 to 2002 to reflect the elimination of city HACA. There are caps on the total increase in LGA that a city can receive in any year. Percent increases for cities of the first class (Minneapolis, St. Paul, and Duluth) are limited to the percent increase in the total LGA appropriation. The increase for any other city is limited to 10 percent of its levy in the previous year. Return 0 toy Adjustments to grandfathered aid base, 1993 -2003 As noted earlier, the original legislation had a mechanism for gradually reducing the portion of LGA distributed via "grandfathering." This provision was eliminated in 1994. The only other changes to the law during this period have been to '-Icrease the grandfathered portion of city LGA for specific cities. littp://www.house.leg.state.mn.uslhrdlissinfothistlua.htn 1/5/2007