Local government aid has to be reformed

By Bill Blazar

Nearly every program in nearly every entity of government in Minnesota is facing the challenge of using tax revenue more efficiently.

State agencies have been doing so for the last year when the economic downturn forced them to absorb double-digit cuts in their budgets. Minnesota taxpayers -- many of them struggling with layoffs and family belt-tightening -- have every right to expect that cities facing reductions in local government aid (LGA) will manage to make some tough but necessary decisions to do the same.

Furthermore, residents have every right to expect that their local governments can make budget adjustments and maintain service quality without literally passing the buck to the property owner.

A recent analysis from the Minnesota Senate shows that most local governments are well prepared to manage a rollback in their state aid. Statewide, cities have asked for an 8.1 percent increase from property taxpayers in 2003. This increase comes on top of 16.6 percent increase in 2002. Local governments have the capacity to manage the reductions proposed in the governor's budget. Property owners should be skeptical of the threat by some city officials to manage LGA reductions through cuts in essential services or property tax increases.


Local governments have as many or more options as state government to manage revenue reductions. They can provide city services less expensively by contracting out for services that can be done less expensively by the private sector. They can reduce overhead by looking at public employee salaries and benefits and overhead like rent.

They can eliminate unnecessary programs and reduce others. They can use their reserves, at a minimum, as a bridge while learning to operate more efficiently.

The fact is that, regardless of the budget deficit, legislators must reconsider LGA because, like many other spending programs, it badly needs to be reformed. Policy experts pointed out at least 10 years ago, the last time the formula for distributing funds was addressed, that Minnesota needed to rethink LGA from the ground up rather than simply change the formula.

Taxpayers would be surprised, if not appalled, if they knew that two-thirds of the $565 million given to Minnesota cities in 2002 was based on the spending patterns of cities decades ago, not on need. Only the remaining one-third of the money actually reflects a city's need or ability to pay its own expenses. Under any budget scenario, this is not a funding formula based on logic, need or capacity. Especially with the specter of a $4.2 billion budget deficit, the local government aid formula is a throwback to the budget dark ages.

Enlightenment with respect to LGA should bring a new formula that applies to the entire amount and to all cities. If the governor's proposal for LGA reform is not to their liking, cities should propose an alternative. But regardless of the process, LGA reform should be based on measures of a city's capacity to pay for basic services and its unique needs. With LGA reform, there will be winners and losers. The losers, however, will be those city governments that have used LGA to ratchet up spending and have the most capacity to manage the cuts. Unfortunately, in the debate about LGA, (and with a few notable exceptions) the response of many cities is to fight the reductions.

No legislator contemplating LGA rollbacks and reform wants to hurt a needy city, but most cities in Minnesota do not fall into that category. Cities must face up to the fact that LGA will be modified. They are able to meet the challenge.

Bill Blazar senior vice president of the Minnesota Chamber of Commerce.

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