In 2003, the last time Minnesota faced a budget deficit, state aid to cities — a.k.a. Local Government Aid, or LGA — took a major hit. More than 90 percent of Minnesota cities and small towns receive LGA, and when $122 million suddenly disappeared from the $587 million they were expecting, the pain was very real.
Southeastern Minnesota wasn’t immune. Chatfield lost nearly $200,000. Stewartville officials saw $400,000 evaporate before their eyes. Pine Island lost $74,000.
Rochester, which had been expecting more than $11 million in 2003, instead received $7.8 million — and the hits kept on coming. Instead of increasing to keep up with inflation, Rochester’s share of the LGA pie continued to shrink in each of the next three years, bottoming out at $5.7 million in 2006. Increases in 2007 and 2008 still haven’t gotten the city back to where it was in 2003.
Statewide, when adjusted for inflation, cities are asked to get by with nearly $200 million less LGA than they were supposed to receive in 2003. These lost dollars formerly made up a big part of the budget for many cities, which have been forced to seek other sources of revenue simply to provide basic services such as police, firefighters and water.
As a result, residential property taxes statewide have increased 70 percent since 2002.
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That’s not sustainable, especially with cash-strapped school districts frequently asking homeowners to voluntarily raise their taxes, simply to keep the lights and heat on in aging buildings they can’t afford to replace.
That’s why, in principle at least, we support the "City Unity Proposal," which calls upon the Legislature and Gov. Tim Pawlenty to increase LGA by $90 million for 2008. The proposal has the backing of the League of Minnesota Cities, including Rochester, the cities of Minneapolis and St. Paul and the Minnesota Association of Small Cities. The proposal also calls for a significant reworking of the LGA formula.
We won’t try to explain the various nuances of the proposal, but the numbers are encouraging. Rochester would gain $2.8 million. Plainview would gain $60,000, Rushford $92,000, St. Charles $155,000 and Winona nearly $500,000.
One reason Rochester would fare so well is because the new formula would recognize the changes our city has experienced in recent years, including an immigrant population that has reached 17 percent, and an employment base that attracts 35,000 commuters to Rochester each day. They don’t pay property taxes here, but they drive here, park here and use city parks and services.
The sticking point, however, is obvious: Where will the state find an extra $90 million in a budget that faces a deficit of nearly $1 billion? The plan’s backers suggest that, as a starting point, Gov. Pawlenty should abandon his plan for a small decrease in the sales tax, thus putting $77 million back in the state’s coffers. Combine that with closing foreign operating corporation tax loopholes, as well as some overall belt-tightening in what the state government spends to maintain itself, and voila! — $90 million.
If only it were that easy. Canceling a tax cut that hasn’t happened seems a bit like playing with Monopoly money, and every time we hear about closing corporate tax loopholes, we wonder why they’ve been left open in the first place.
The bottom line is that Rochester, like most other cities, needs to see some of its lost LGA restored. We think a modest increase will happen, but we’d advise the number crunchers in city halls across the state to hope for the best while planning for the worst.
