Exploring Local Government Aid
Local Government Aid is complicated and unpredictable. Yet, some cities rely on it to defray the cost of basic services. In this special report, CCX News explores what Local Government Aid is and why it’s important.
What it is
City administrators know all too well what Local Government Aid is and how it may fold into a city’s budget. Yet, it’s something citizens rarely ask about and a topic even city administrators and people well-versed in the topic find tough to explain to people in an uncomplicated way.
Every fall, cities find out if they will receive Local Government Aid (LGA) and how much they receive.
“Local Government Aid is a formula that was originally coined back in the 1970s,” explains Gary Carlson from the League of Minnesota Cities. He’s a lobbyist who helps educate legislators on aspects of LGA.
Carlson says the origins of LGA go back to a time when property taxes were rising very quickly in Minnesota. The state wanted to come up with a way for cities to provide basic services without overtaxing residents.
“Another part of LGA is to say we expect you to raise a certain amount of money locally,” said Carlson. “And we are going to help you if you don’t have enough tax base to pay for police, fire, park and rec, and local roads.”
How it’s calculated
Local Government Aid is a complicated formula that involves much money a city needs to supply basic services and then, how much they have the capacity to raise through taxes. If the city’s need is greater than the amount they can raise, then they are given money from the state to help supply those services.
To calculate need, the state looks how many people live in the city and then how old the houses are. Older housing can mean lower property values, but it can also mean older infrastructure, which costs more to fix and maintain.
“The statistical technique avoids having a city determine or influence the amount of money they receive because you can’t influence the age of your housing stock,” explains Carlson. “You can’t build more old housing, as it were, to basically get yourself more aid.”
Older housing in older communities can also point to another financial hurdle. Older communities tend to have more tax exempt properties, like government property, school buildings, or houses of worship.
“We’re only about a square mile,” explains Riley Grams, city administrator for Osseo. “So, there’s not a lot of properties to go around, period. When you take away 25 percent of them, that’s a big problem for us.”
In Osseo, a quarter of all property is nontaxable. The homes are older and the population isn’t very large, so local government aid accounts for about 24 percent of Osseo’s budget.
“That really pays for a lot of our city services, everything from police, fire, public works and some of the events we put on it in the city,” says Grams. “It’s very critical.”
How Cities Stack Up
Six cities in the CCX Media viewing area receive LGA.
What percentage of the 2019 operating budget is comprised of LGA?
- Osseo 24
- Robbinsdale 18
- Crystal 12
- New Hope 5
- Brooklyn Center 4
- Brooklyn Park 2.6
LGA can be unpredictable
One of the headaches of local government aid is that it can be somewhat unpredictable. It is often one of the first places that might be cut to balance a budget.
“Not only does it change up and down, but we don’t even know if they can tell us if they are going to give it to us,” says Curt Boganey, city administrator for Brooklyn Center. “They have proven that they don’t always deliver.”
The “they” whom Boganey is referring to is the state. Less than ten years ago, Brooklyn Center was hit hard when LGA had major cuts.
“In Brooklyn Center, we reduced operations. We actually laid off staff because the city had become dependent on receiving aid from the state,” says Boganey.
So Brooklyn Center, like other cities, changed the way they rely on LGA money as a way to insulate themselves from the impact of cuts.
“The city council made the conscious decision several years ago because it was unpredictable that we would take some of it and put it aside and save it for improvements,” says Boganey. “We would only rely on half of it for operations.”
Changes on the table for LGA
Could change be underway for LGA? Governor Tim Walz wants to boost LGA levels back to 2002 levels. The move resonated with cities in out state Minnesota, but also with some cities in the suburbs.
“It’s not always possible to cut another corner,” says Senator Ann Rest (DFL-New Hope). Five of the cites in Rest’s senate district receive LGA. “We have looked really closely at what is the best way to bring property tax relief to Minnesota taxpayers. One way is to have those taxes decreased from the start.”
Rest is a believer in LGA as a tool to keep property taxes low. She supports bringing levels back up to what they were in 2002.
“It’s an equalizing policy that I believe, all in all, people think is basically fair,” says Rest.
But for the city of Crystal, bringing levels back up to 2002 levels isn’t a good thing. Crystal is one of 79 cities that would see LGA actually go down under this new proposal.
“It’s not good news. Crystal would see a slight decrease in local government aid,” says Anne Norris, city administrator for Crystal.
Norris is working with the local legislative delegation on a hold harmless provision for the 79 cities.
“Don’t panic,” says Norris. “We are going to figure out how to provide basic services no matter what. I am confident our legislators will figure out a simple solution to this issue.”