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21 Y:64 league of minnesota cities LOCAL GOVERNMENT AID POLICY (Proposed) SYNOPSIS A Local Government Aid formula should be a simple expression of the Legislature's intent. Local government aid (LGA) should be distributed according to 1) the city's revenue raising capacity, as measured by its taxable assessed value; and 2) the city's need, as measured by its population and/or households and its expenditures for basic municipal services. STATEMENT AND RATIONALE Local Government Aid is a major municipal revenue source which complements cities' other major revenue source, the property tax. As such, LGA must be distributed among cities in a way which alleviates the problems inherent in reliance on the property tax as the major revenue source cities control. Cities vary markedly in their ability to raise money from property taxes. There are also wide variations among cities in their citizens' need for services and the costs of providing those services. A complementary revenue source for cities is necessary precisely because a city's ability to raise revenue from the property tax does not necessarily coincide with the cost of the services which that city must provide to its citizens. An LGA formula must reflect both the individual city's need and its local revenue raising capacity. A city's capacity to raise revenues from the property tax is easily measured by the city's equalized assessed value. (For metro -area cities, the assessed value after fiscal disparities distributions is the appropriate figure.) An acceptable aid formula should provide proportionally more aid to cities with less taxable assessed value, other things being equal. Need is more difficult to define and to measure. There is no single data item which measures need equitably; rather, we must rely on a combination of factors to approximate need. Need is clearly related to some extent to the city's number of inhabitants. Cities provide services to people. Because some services relate more closely to households than to individuals, the formula should reflect both the population and the number of households. Every city should receive a basic LGA distribution based on its population and/or number of households. However, neither population nor the number of households completely reflects need. Cities with similar populations and numbers of households may be faced with quite different service needs. (Factors such as age, - OVER - ^sit, aver—e east, st. oaui, minnesota 55101 (61 2) 227-5600