Some Questions for the LGA Fan Club

Several questions deserve consideration before pumping more money into the program

Ever since the Legislative Auditor’s report on local government spending trends following the adoption of the heralded “Minnesota Miracle” (which concluded “we believe a gradual reduction of aid to cities is both possible and desirable”) and the subsequent Legislative Commission on Planning and Fiscal Policy Study of Local Government Aid distribution (which prompted then-State Senator John Brandl to reflect that the state could do an equally effective job by dropping money out of a helicopter), our organization has viewed LGA like a grizzly bear. Recognize and respect its role in the system but be very wary and careful about how you approach it. It may look cuddly and friendly but the encounter can be damaging to your health.

This perspective framed our reading of a recent pro-LGA editorial commentary, this time based on reporting from the annual conference of the Coalition of Greater Minnesota Cities – a.k.a. the “Local Government Aid Fan Club,” according to the piece. It highlights the usual messages of cuts and squeezes, imperiled services, and feelings of frustration, disappointment, and unfair treatment culminating with the call for more money. As always it’s a powerful and politically compelling message.

For decades we have been the Debbie Downer of LGA – articulating the many reasons why you need to be extremely careful about distorting local tax prices for local services with state subsidies while highlighting LGA and property tax history showing things often don’t work out as advertised. A rehashing of all these points is probably warranted, but then we would be just as monotonous as the calls for more aid.

Instead, we offer several questions for club members and their political supporters that we think deserve serious discussion before putting more money into the system.

  • An alternative way to ensure adequate local services are offered at property tax prices everyone can afford would be to let cities levy as much as they need or want to and have the state step in with income-tested property tax refunds. That way, anyone who is truly impacted by a real ability to pay problem –regardless of where they live in the state – gets tax relief while cities can raise all the money they need. It’s simple, accountable, efficient and, best of all, already a prominent feature of our property tax system. What policy need, objective, or concern does this alternative approach not adequately address which prompts the need for LGA?
  • Business property taxes are a significant concern in many areas of Greater Minnesota, but 30 – 35% of this tax burden typically comes from the state general levy. Why is LGA a superior business property tax relief mechanism than simply reducing or phasing out the state levy?
  • Many smaller communities cite big-ticket capital and infrastructure needs, which can completely swamp local property tax capacity, as a primary justification for LGA. Why is general purpose LGA, which is distributed through a complex formula based on measuring and comparing cities’ relative “need,” superior to a state aid program targeting capital and infrastructure in which eligibility is based simply on a community’s revenue raising capabilities?
  • According to the Strib piece, a legislative leader encouraged everyone to stop judging LGA’s worth by its effectiveness in suppressing property taxes. If property tax reduction – or even suppression of property tax growth – is not a useful evaluation measure, then how should we measure and evaluate LGA’s effectiveness?
  •  One of the longstanding problems with LGA has been predictability and sustainability. Many cities create ongoing operating expenses based on LGA revenues. Then when a recession hits and legislators cut LGA these expenses still remain –creating headaches for local officials and taxpayers alike. The only way around this eternal problem is to put LGA higher in the list of state spending priorities. If budget cuts are deemed necessary next time a recession hits, or competing demands for general fund dollars becomes more intense, what state general fund spending programs need to be subordinated to LGA preservation?
  • How can citizens be sure that the public interest and welfare of communities, rather than the private wage and benefit interests of those working in government, is what is primarily being served by the provision of LGA?
  • According to the latest Department of Revenue information (for 2011), the median homestead property tax burden (after refund) in Greater Minnesota was $1,309. Put another way, that’s $109 per month for all local services – city, county, school and all other taxing jurisdictions. In four Greater Minnesota regions the median burden was less than $80 per month. Property taxes for homeowners in Greater Minnesota were 2.3% of their income – far lower than the 3.1% of income their metro-area counterparts pay. Yet strong resistance to higher levies and calls for rural property tax relief persist. Given all this, is there any concern at all that a major legacy of 40 years of LGA is that it has conditioned large numbers of Minnesotans to expect local services to be delivered on the cheap?
  • According to the state’s Tax Incidence Study the local property tax is less regressive than most other taxes, including the sales tax which is often hyped as a replacement source of income for local governments. That is true even before applying our very generous income tested refund programs that considerably reduce the tax’s regressivity. Why shouldn’t local government embrace greater reliance on property taxation and market it as the more progressive approach to local government finance?

We would sincerely be interested in hearing advocates’ responses to these questions. Perhaps arguments and evidence could be supplied to make us more comfortable “feeding the bear.” We wait to be convinced.