Local Government Aid was established as a way for the state to use its statewide taxing powers -- income taxes -- to help cities with poor property taxes to provide the type of services seen in wealthier communities, starting with police and fire protection.
The state aid is also a large sum out of the state budget, and a ripe target when it comes time to reduce the state budget.
That's exactly what Gov. Tim Pawlenty is doing now, in reducing LGA through a process called unallotment in which the governor can cut state spending when it appears the budget won't balance by the end of the biennium and the Legislature isn't in session.
The governor proposes to cut about $147 million in LGA over the two-year biennium, that from a program costing more than $1 billion. He defends his position by saying local governments must share in the state's budget woes, so a 10 percent cut is sustainable through budget cuts and use of reserves.
But LGA has been cut continually this decade, leaving cities with ever-decreasing aid. The governor, meanwhile, has maintained his "no new taxes" stance throughout his term.
As evidenced by the Bemidji City Council's work session Monday, that claim becomes a bogus claim at the local level as city property taxes would have to be raised 31 percent to cover current cost levels. The city taxes would have to rise 15 percent just to cover the loss of LGA. The governor also tried to limit what local governments can do by capping property tax limits at between 3 and 4 percent, but there are ways around that as the levy limit doesn't apply to police and fire staffing.
Still, city officials laid out some possibilities that residents should note -- higher taxes and budget cuts. Neither alone will be politically acceptable, nor the likelihood of a 15 percent tax hike or higher budget cuts.
Staff could be cut, but the city of Bemidji has continually cut its total staff numbers this decade. A wage freeze could be asked, but must be a negotiated item with city bargaining units. Delay in buying new squad cars or updating computer equipment is an option, but that would only continue a backed-up need for capital investment.
The loss of $210,493 this year and $485,688 in LGA in 2010 will greatly affect how the city of Bemidji will budget for services. And Bemidji is one of those property poor cities that LGA was originally established to help. The wealthier Twin Cities suburbs don't receive LGA because they have property tax bases that will support all the services residents want -- and so feel no effect from LGA cuts. On the other hand, cities receiving LGA can't match their wealthier suburban counterparts and now, through unallotment, must shed even more basic services or place an even greater tax burden on communities that can ill afford it.
In essence, the governor has broken the state's pledge to poorer cities, widening the gap between two Minnesotas.