Last week, North Star discussed potential outcomes in regard to city Local Government Aid (LGA) if there is and if there is not a 2016 special session. If there is no special session, city LGA in 2017 will be distributed under current law. For most cities, this will translate into a tiny aid increase in 2017—one that is insufficient to keep pace with projected rate of inflation. As a result, the real purchasing power of LGA will decline from 2016 to 2017 for all but a handful of cities.
If there is a special session, the single most likely outcome is that LGA will be distributed based on the tax conference committee compromise reached in the last days of the 2016 regular session. The compromise would provide a $20 million increase in the city LGA appropriation in 2017 and a significant increase in the 2017 aid received by most Minnesota cities.
As noted in last week’s article, the tax conference committee compromise for 2017 is closer to the Senate’s position than the House’s, insofar as both the compromise and the Senate position include a significant LGA appropriation increase, with the Senate approving a $21.5 million increase—$1.5 million more than the compromise increase. In 2018, the Senate and the compromise positions diverge, with the Senate approving another $24 million increase, bringing the total LGA appropriation back to the 2002 level (although—after adjusting for inflation and population growth—the real per capita purchasing power of 2018 LGA will be far less than it was in 2002). The conference committee compromise freezes the 2018 LGA appropriation at the 2017 level. Meanwhile, the House proposal reduces the 2017 and 2018 LGA appropriation by about $85 million through aid cuts directed at Duluth, Minneapolis, and Saint Paul.
Charts from last week’s article show the estimated percentage change in LGA in 2017 and 2018 relative to current law for all Minnesota cities, Greater Minnesota cities, and cities in the seven county metropolitan area under the House position, the Senate position, and the tax conference committee compromise. Those charts revealed a larger percentage increase for metropolitan cities than for Greater Minnesota cities in 2017 and 2018 under both the Senate position and the compromise. However, on a per capita basis, Greater Minnesota cities receive a larger increase, as illustrated in the charts below. Because aggregate per capita LGA among cities in the metro area is less than what it is in Greater Minnesota, a relatively small per capita increase among metro cities translates into a larger percentage increase.
The House position yields a large per capita LGA decline statewide and within each region, driven entirely by the aid cuts directed toward Duluth, Minneapolis, and Saint Paul. Conversely, the conference committee compromise and the Senate position provide significant per capita aid increases. While these per capita aid increase amounts may not seem large, they can translate into significant funding for city services and infrastructure when multiplied by the entire population of a city. The Senate per capita aid increases are somewhat larger than the compromise increases due to the larger 2017 appropriation increase approved by the Senate.
In 2018, the House position would once again impose significant aid reductions relative to 2018 current law. While both the Senate position and the tax conference committee compromise provide increases, the per capita increase under the Senate position is more than double that of the compromise increase statewide and among cities within each region. The much larger increase under the Senate position is the result of the restoration of LGA funding to the 2002 level.
Of course, the statewide and regional groupings presented in the above charts conceal much of the detail that is occurring at the sub-regional and city levels. Click here for a table that shows aggregate 2017 and 2018 LGA per city resident under current law within each Minnesota House district; the same table shows the aggregate change in LGA per city resident within each district in 2017 and 2018 relative to current law under the House and Senate positions and the tax conference committee compromise. (In this table, cities that are in multiple House districts are prorated between districts based on each district’s share of the total city population from the last decennial census.) Click here for a table showing similar information for each individual city in the state, with cities grouped by House district.
Under state law, cities must set their preliminary 2017 property tax levies by the end of September. The level of city levies and the specifics of city budgets in 2017 are in large part dependent on how much aid the city is expected to receive.