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Tim Flaherty, lobbyist for the Coalition of Greater Minnesota Cities, tells how the Coalition plans to "educate" new Republican lawmakers on the importance of Local Government Aid to hold down property taxes in property-poor cities, like Bemidji. Behind him is Bemidji Mayor Dave Larson. Pioneer Photo/Monte Draper

Rural cities group presses hard for LGA

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For the past eight years, state lawmakers looking to fill budget gaps have turned to state aid to cities, a big pot of money doled out twice a year.

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But not again, say supporters of Local Government Aid, who hope to educate new Republican lawmakers about the importance of the aid to keep local property taxes down.

But that's a tough sell, as the Republican-led House already passed a $1 billion budget cut bill that includes cutting LGA $487 million over two years. It's a bill supported by Rep. Dave Hancock, R-Bemidji.

"It's really unreasonable to do this one piece at a time," Tim Flaherty, lobbyist for the Coalition of Greater Minnesota Cities, to which Bemidji is a member, said in an interview. "How much further they're going to go we don't know."

The state faces a $6.2 billion deficit in the next biennium, and Flaherty said taking a $1 billion whack in the first three weeks of the session is unreasonable in light of the remaining deficit. He doubts the Legislature is done looking at LGA, with some Republicans wanting to eliminate it completely.

"If the new Republicans do what leadership wants, then we're cooked," Flaherty said, underscoring the need for especially the new Republicans representing rural Minnesota to part ways with GOP leadership on LGA cuts.

"The GOP leadership is mostly metro-suburban, so they don't really appreciate or understand the importance of the program to rural economies in greater Minnesota -- to the business taxpayers and the communities -- in the provision of services," Flaherty said.

Rural cities know they must p[ay a role in solving the state's $6.2 billion budget deficit, but they want a fair share of the cuts, not disproportionately as has happened in past years.

"The tone and the environment at the Legislature isn't to sit down and work out what's best for schools, cities and counties for the state," Flaherty said. "Our experience in the last three years is that people just don't care, they're going to take as much as they can until you find enough legislators to stop it. And that's the point we're at right now.

"When are the Republicans from rural Minnesota going to say enough is enough, you're not taking any more," he added.

The city of Bemidji has lost narly $1 million in LGA and market value credit monies from the state over three budget years, Flaherty said.

Cities have done their fair share, said Bemidji City Manager John Chattin. "The city in the last five years has cut 15 percent of its workforce. Nobody's cut has much as we have."

The city budgeted for lower LGA, having to trim services to do so, but city councilors thought better of that than to handle a deficit when LGA cuts came, Chattin said. But the new bill passed out the House involves even deeper LGA cuts.

"From a city budget perspective, we budgeted for what we got in 2010 (for 2011)," he said. "It's a no-win situation, as we should have budgeted for what we were certified to get, but we knew we weren't going to get it."

Chattin said that if LGA is eliminated, hard choices face city councilors, such as huge hikes in property taxes or moving the Bemidji Fire Department to nearly an all-volunteer force, going from eight full-time city firefighters to one.

"If they cut local aid, almost the great majority of the burden is going to fall in greater Minnesota," Flaherty said. "We don't think that's a fair way to do a tax increase. It would be better to do something that covers everybody in the state."

In an information packet prepared for new legislators, the Coalition argues that the purpose of LGA is to reduce property tax and service disparities between rural, metro and suburban cities. Sixty-five percent of LGA goes to rural cities because only 24 percent of the taxable market value can be found in greater Minnesota.

The LGA formula was reformed in 2003, Flaherty said, and no new reform is needed, only minor tweaking.

"Additional LGA cuts will hit greater Minnesota businesses and residents harder, making our communities even less competitive with the metro area," the Coalition packet states.

LGA has been cut more than $1 billion and city property taxes are up 59 percent since 2003. It states. LGA must remain at $527 million a year, which is 5 percent over the amount certified in 2002.

Property-poor cities do not have the revenue-generating capacity as cities with wealth, Flaherty said. For example, each percentage point increase in property taxes in Bemidji raises only $7.25 per resident, while it raises $44.28 per resident in Nisswa, the heart of the lakes district.

The latest GOP proposal, which passed the House and a slightly different version awaits action this week in the Senate, would mean the loss of $680,000 in LGA and market value credit to Bemidji, Chattin said.

"It's not about cities spending too much, it's about not having the tax base to generate revenue for an adequate service level," Flaherty said.

The city of Bemidji's tax rate of 42 percent is only three points higher than the state average 39 percent, he said. But it would climb to 76 percent if LGA were lost and the city recovered that amount through property taxes.

"In rural Minnesota in many cases it's not economically leaping forward but not going backwards," Flaherty said. "That is the case, with a metro-centric philosophy that is so dominant."

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