Among the myriad spending hikes passed in the 2013 legislative session was a huge boost to Local Government Aid (LGA). LGA is the redistributive aid program that transfers state tax dollars to cities, an arrangement that proponents dubiously claim “buys down” local property taxes. In reality, LGA does no such thing, as MinnPost recently noted: “Historically, over the last four decades, property tax relief provided in the form of increased aid to local governments has been eroded quickly by increases in local spending.”
Total LGA appropriations in FY 2014-15 exceed $1 billion ($507.6 million in 2014 and $509.1 million in 2015) compared to $852.7 million paid in the last biennium, a 19.2 percent increase. Moreover, the 2013 Omnibus Tax Bill permanently boosts LGA base spending to $511.6 million per year starting in 2016. The spending boost was accompanied by significant changes to the LGA formulae, undoing major reforms from 2003 that helped rein in the program’s unsustainable growth. In fact, so opposed is the current legislature to spending restraint, they adopted rules that limit how much any city’s aid can decrease in future years, regardless of what the “need-based formula” shows. *
In light of the LGA increases, as well as other local government giveaways from the 2013 session, local officials in Minneapolis and St. Paul appear likely to maintain or modestly reduce their existing levy. It should be noted that while the two cities account for about one-eighth (12.6 percent) of the state’s population, they receive 26.9 percent ($136.5 million) of all LGA next year, and 27.5 percent of the new LGA funds. That’s not a bad return on investment for the cities’ extensive taxpayer-funded lobbying at the State Capitol.
In light of the LGA boon, as well as a new sales tax exemption for local governments, taxpayer bailouts totaling $33 million for the downtown Minneapolis library and $28.75 million for the St. Paul RiverCentre, the extension of St. Paul’s half-cent sales tax, a recovering economy, and upcoming municipal elections, a one-year reprieve from levy hikes is not surprising, nor is it evidence of fiscal restraint. Altogether, the governor and legislature gave tens of millions of dollars in tax breaks and transfers from state taxpayers to each of the Twin Cities. The least the cities could do in the wake of this good fortune is maintain a temporary façade of responsible budgeting.
However, while local government advocates tout the short-term fixes offered by our spendthrift state government, these policies hurt state and local taxpayers in the long term. The governor and state legislature have weakened the bond between local spending decisions and local tax decisions, and weakened the bond between government and the citizens it serves and taxes. The result is a less accountable government with little incentive to pursue policy innovation or operating efficiency. That is the legacy of the 2013 session.
* (MinnPost has an interactive map of Minnesota cities and corresponding LGA amounts, and the House Research Department provides a summary of the new LGA formulas.)