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Taking the politics out of LGA

By Lenora Chu

lchu@postbulletin.com

The new local government aid formula unveiled by the Pawlenty administration Wednesday sprung from a 19-member task force charged with taking the politics out of divvying up state funding to Minnesota cities.

The 1971 Legislature enacted Local Government Aid as part of a plan to rework the state's fiscal relationship with local governments. With strategic state distributions, lawmakers aimed to help cities with lower property tax bases provide basic services such as police, fire and snowplowing without enacting unreasonably high property-tax rates.

The funding methods behind LGA have been a point of contention among legislators ever since because minor tweaks in the formula might favor cities in one region of the state over another.

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Because the new formula is based entirely on a city's need and ability to pay, the politics should be taken out of the discussion, said Revenue Commissioner Dan Salomone, who unveiled the proposal Wednesday at the Capitol.

"We needed to have a very objective, scientific formula," Finance Commissioner Dan McElroy said.

Changing the formula

The innovation in the proposal lies in its rejection of 1993 legislative action, which enacted a formula that was also supposed to be based on need, but only applied to new money. Thus, all cities were guaranteed at least as much money in future years as they had gotten prior to 1993.

This grandfathered aid bore little relationship to a city's need, Salomone said, and it's gone under the new proposal. Under current law, the grandfathered aid would amount to $366 million in 2004. For Rochester, that minimum level was $8.2 million; the new formula allows future city aid to dip below that amount.

With the grandfathered amounts out of the picture, the task force winnowed a list of more than 50 characteristics down to just six they ultimately used to calculate a city's funding need: Percentage of housing built before 1940, population decline since 1990, average household size, number of accidents on city streets, whether the city falls in rural or metro Minnesota and the property wealth of the city.

For example, a rural city that's losing population would tally up a higher per-capita funding need than a Twin Cities suburb in the midst of a population explosion.

The task force then determined a city's ability to pay, whether through property taxes or taconite aid. The amount of LGA allocated would simply be equal to the gap between a city's need and capacity to generate revenue.

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What resulted is a purely statistical approach to calculating LGA, Salomone said.

Getting more or less

Factoring out Pawlenty's LGA cuts, his new formula would cost Minneapolis only $2 million of the $123 million a year it now gets.

Smaller rural cities such as Wabasha get more -- $895,165 vs. $714,639 under current law -- but many of the larger population centers such as Austin, Rochester, Mankato and Moorhead would lose aid.

On the whole, suburbs lose money under the new formula. Coon Rapids, for example, would go from $2.8 million to nothing, Hopkins would move from $1.3 million to zero and Eden Prairie would lose all of its $172,000.

High stakes

Gary Carlson, director of intergovernmental relations for the League of Minnesota Cities, said that, at first glance, he couldn't determine a political bent behind the formula.

"It doesn't appear to be purposely slanted," said Carlson, who called the formula a good starting point but questioned whether any rewrite of a formula can be agreed upon before the session ends May 19.

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But Democrats said Wednesday that people should focus more on Pawlenty's proposed cuts than on how the remaining money will be distributed.

And the stakes are high. City officials have been vocal and powerful opponents to Pawlenty's proposed budget at the Capitol, arguing that his cuts would force them to cut essential services.

"We need a solution to the cuts, not just to the formula," said Sen. Ann Rest, a Democrat from New Hope. "We really do need to not be distracted by a formula that is a drastic change."

Sen. Larry Pogemiller, a Minneapolis DFLer and chairman of the tax committee, said he'd consider the new formula but maintained that Pawlenty's deep LGA cuts might let him keep his no-tax-increase pledge but would force increases in local property taxes.

House Republicans are expected to incorporate Pawlenty's LGA plan into its omnibus tax bill.

The Associated Press contributed to this report.

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