What One Hand Giveth, the Other Taketh Away


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Minnesota counties received some good news and some bad news during the first 2017 special legislative session. The tax bill that was ultimately signed into law included a significant increase in County Program Aid (CPA), as well changes to the CPA formula sought by Minnesota counties. On the other hand, the Health & Human Services bill will shift Medical Assistance costs currently borne by the state onto counties, thereby increasing county expenses.

CPA is designed to help pay for the various public services that counties provide, included many state-mandated programs pertaining to health and human services, corrections, and other policy areas. There are actually two separate CPA formulas. Somewhat less than half of the CPA appropriation goes to fund “county need aid,” which is distributed based on each county’s share of “age adjusted” population, food stamp recipients, and part I crimes.* Over half of the CPA appropriation funds “tax base equalization aid,” which provides aid to counties based on the size of their tax base, with counties with low tax base per capita generally receiving more aid per capita than counties with high tax base per capita, all other things being equal.†

For several years, the amount of aid received through the tax base equalization aid component of CPA has fluctuated dramatically for some counties, with rather modest changes in a county’s tax base leading to large changes in aid. In order to reduce the volatility of the equalization formula, the Association of Minnesota Counties (AMC) proposed reforms to the formula, including a cap on the amount of tax base equalization aid that a county can lose in a single year relative to the preceding year. In order to keep the total CPA of any county from declining under the new formula, the AMC sought a minimum CPA increase of $25.5 million, to be distributed entirely through the tax base equalization formula.

House File (HF) 1 of the first 2017 special session, which was signed into law by Governor Dayton, included the proposed formula changes and the minimum appropriation increase sought by the AMC. The $25.5 million increase results in a 12.3 percent increase in the CPA appropriation, although total general purpose state aid to counties is still significantly less than it was in 2002—even prior to adjusting for inflation. (A 2016 North Star article examined the trend in inflation-adjusted general purpose county aid per capita from 2002 to 2016.) The 2018 CPA that each county is estimated to receive under the new law, as well as the CPA that each county is certified to receive in 2017, are listed in a recent House Research Department printout.

The outcome of the 2017 special session would have been much better for counties if it ended with the tax bill. A May 2017 North Star article that tracked changes in total state aid to Minnesota counties—including general purpose aid such as CPA, as well as categorical aids designed to fund specific state mandates—noted that changes in aid do not provide a complete picture of the fiscal relationship between state and county governments. In addition to state aid, the state can impact county finances by shifting additional costs away from or onto counties. For example, the imposition of new state-mandated costs on counties can put a strain on county finances similar to that created by an aid cut.

Precisely this kind of cost shift occurred during the recent special session. Senate File (SF) 2, the Health & Human Services bill that was also signed into law, shifted an increased share of the costs of conducting federally mandated assessments of many Medical Assistance (MA) recipients—including all disabled MA recipients—from the state onto counties. The individual assessments are administratively complicated, requiring counties to dedicated considerable staff resources to their execution.

Hennepin County—with 22 percent of the state’s population and a somewhat larger share of the statewide MA caseload—anticipates that this cost-shift will increase county expenses by $4.5 million in 2018. Meanwhile, the additional CPA that Hennepin will receive in 2018 due to the HF 1 CPA increase and formula changes is just under $2 million relative to what the county would have received in 2018 without these changes.‡ In other words, the estimated new costs that Hennepin will have to absorb as a result of the MA cost-shift in SF 2 will be about two and a half times greater than their anticipated CPA increase.

To make matters worse, the shift of MA assessment costs from the state to counties will increase in subsequent years, resulting in increased county expenses. Meanwhile, the CPA appropriation in 2019 and subsequent years is frozen, meaning that Hennepin County can anticipate no increase the County Program Aid. In fact, if future CPA trends resemble the past, Hennepin’s share of the statewide CPA distribution will remain flat or decline. In other words, growing costs for Hennepin County resulting from the MA assessment shift will likely be met with stagnant or falling state aid in future years, based on current law.

The level of the MA cost-shift due to SF 2 relative to the CPA increase from HF 1 will vary from county to county; however, preliminary estimates indicate that the net result of both bills will place additional fiscal strain on the state’s largest county. The shift of costs from the state onto counties was confounding, given the official $1.6 billion state budget surplus. The benefit that Minnesota counties derive from the CPA appropriation increase and formula changes needs to be weighed against the additional burden counties must bear due to the MA assessment cost shift.

 

*Residents age 65 and older are weighted more heavily than other residents in the calculation of the “age adjusted population” aid. The food stamp and part I crime aid calculations are based on averages from the preceding three years.

 The tax base equalization aid formula is structured in such a way that counties with small populations receive more aid per capita than counties with large populations, all other things being equal.

 The Hennepin County CPA increase in 2018 under HF 1 is estimated to be $1.97 million relative to what the County would have received in 2018 if no change had been enacted. Hennepin’s 2018 CPA under HF 1 is estimated to be $1.37 million greater than what the County is certified to receive in 2017.