Minnesota Counties: The State’s Underfunded Partner


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The State of Minnesota and the 87 Minnesota counties partner to perform many public functions. Counties operate as the administrative arm of the state in providing many state-mandated services, while the state provides aid to counties to help pay for these services; however, state dollars to counties to pay for these mandates have not keep pace with inflation and population growth over the last fifteen years. As a result, total real (i.e., inflation-adjusted)* per capita county revenue has fallen, even as county property taxes have increased.

From 2002 to 2016, state funding for County Program Aid (CPA) and other similar aids folded into CPA declined by over sixty percent in real per capita dollars, as noted in a 2016 North Star article. General purpose aid programs such as CPA, however, comprise a small portion of the state aid received by counties. The bulk of aid that counties receive from the state comes in the form of funding designed to offset the cost of health and human services, corrections, and other state mandated programs. Using data from Minnesota Management & Budget’s (MMB) most recent Price of Government report† it is possible to track the total level of state aid to counties since 2002.

From 2002 to 2016, total real per capita state aid to Minnesota counties—including general purpose aid such as CPA, as well as funding for state-mandated programs—has declined from $443 to $289, a $154 or 34.7 percent drop. During the period from 2002 to 2013, real per capita aid declined every year with one exception. (There was a small increased from 2008 to 2009.) From its nadir in 2013, state aid recovered modestly over the next two years, but by nowhere near enough to replace the losses incurred over the preceding decade.

The amounts presented in the above chart are adjusted to reflect the partial state takeover of judicial costs during the early years of the century. The aid reductions associated with this partial judicial takeover are excluded from this analysis, since these reductions corresponded with a reduction in mandated costs borne by counties. In the absence of this adjustment, total real per capita state aid to counties would have declined by 37.8 percent from 2002 to 2016.

The chart is not adjusted for many of the new mandated costs that have been shifted onto counties since 2002. Over this period, counties have been required to bear an increased share of the costs for individuals admitted to State Operated Services facilities for treatment of mental illness, disabled individuals under age 65 placed in nursing homes, sex offender commitments, detoxification services, and chemical dependency services. Changes in state law that allow youths to remain in child foster care to age 21 have also resulted in increased county costs. While new mandates and cost-shifting onto counties do not result in a loss of state aid, they do result in additional costs that must be borne by counties. Thus, the chart above by no means represents the full extent of the fiscal stains experienced by Minnesota counties.

In addition, while the chart is adjusted for population growth, it is not adjusted for growth in the share of the population that contributes most heavily to the health care and nursing home costs borne by counties: the elderly. From 2000 to 2015, Minnesota’s total population is estimated to have grown by 11.6 percent, while the share of the population age 65 and over is estimated to have increased by over 35 percent. Real state aid has fallen well short of what is needed to keep pace with general population growth—and dramatically short of growth in the senior population.

The decline in real per capita state aid to counties has contributed to a significant increase in county property taxes. From 2002 to 2016, county property taxes increased by $61 per capita in constant 2016 dollars; however, the growth in property taxes was not sufficient to offset the decline in state aid. As a result, total county revenue declined by $60 per capita, or 3.8 percent, over this period.‡ These findings are consistent with data from the Office of the State Auditor (summarized in a November 2016 North Star article), which show a significant decline in real per capita county expenditures from 2002 to 2014.

Price of Government data shows that real per capita county aid and revenue have declined during a period when new state mandates and demographic trends have been pushing county costs upward. These trends not only put a pinch on county budgets and the quality of services that counties can provide, but also contribute to higher property taxes. These trends have left many county officials more than a little frustrated with their state partners.

 

*Inflation adjustments in this article are based on the Implicit Price Deflator for State and Local Government Purchases, which is the appropriate index to use when adjusting state and local government revenue and spending for the effects of inflation.

The published version of MMB’s Price of Government report does not separate out state aid to counties from other state aids to local governments. However, information from the Minnesota Department of Revenue, which is used in the preparation of the Price of Government report, does separate out the state aid received by counties and other levels of Minnesota local government.

 This estimate of a 3.8 percent decline in real per capita county revenues reflects an adjustment for the partial state takeover of judicial costs described above. In the absence of this adjustment, the decline in real per capita county revenue from 2002 to 2016 would be 5.1 percent.