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LGA gets funding boost, simpler under Gov. Dayton’s proposal

Bemidji would receive about $3.3 million in Local Government Aid in 2014 under Gov. Mark Dayton’s budget proposal. But the city would only get $2.7 million in 2018. Source: Office of Gov. Mark Dayton

BEMIDJI – Major changes in how Minnesota cities receive aid from the state could be on the way.

As part of his wide-ranging budget proposal released Tuesday, which included higher taxes on the wealthiest Minnesotans and an expansion of the sales tax, Gov. Mark Dayton added $80 million per year in Local Government Aid for cities. He also proposed simplifying the formula used to determine LGA distributions.

“Everybody talks about the value of simplification,” Dayton said in a conference call with reporters Wednesday. “All of these formulas become increasingly complex as new pieces are added on.”

LGA was created out of a string of reforms commonly known as the “Minnesota Miracle” in the 1970s. It uses various factors to determine a city’s need and ability to pay for services.

In recent years allotments have slowly declined, which cities commonly blame in part for rising property taxes and cuts to services.

Under Dayton’s plan, every city that receives LGA would see an additional $30 per capita next year, explained Gary Carlson, a lobbyist for the League of Minnesota Cities. In Bemidji’s case, it would mean an extra $400,000 in LGA in 2014, bringing the city’s haul to $3.3 million. That would be the most the city has received since 2007.

But the proposal also estimates that Bemidji’s allocation would drop to $2.7 million in 2018 under Dayton’s plan, as the new LGA formula is phased in over the next few years. Even so, it’s more than the $2.4 million Bemidji is projected to receive under current law in 2018.

Last month, the state Department of Revenue estimated Bemidji would receive $2.7 million, or $135,000 less than its current amount in 2014 if lawmakers did nothing to the program this year.

As LGA allocations have decreased over the past decade, cities like Bemidji have grown more reliant on property taxes to pay for essential services like police and fire. In 2003, 51 percent of the city’s budget was made up of LGA, which is down to 29 percent this year.

The additional LGA dollars would mean lower city property taxes, according to Dayton’s proposal. He also proposed a yearly property tax rebate for up to $500 for homeowners.

The LGA distribution formula would be simplified to be based on three factors: population, percentage of housing that was built before 1970 and percentage of tax-exempt parcels. The current formula doesn’t directly address tax-exempt property.

City finance director Ron Eischens has said the one of the city’s biggest challenges is the large amount of tax exempt property in Bemidji. By the latest figures, 52 percent of the market value in Bemidji is tax-exempt.

Bemidji Mayor Rita Albrecht said Tuesday that without knowing the full details of Dayton’s plan, she didn’t want to comment on its effect on the city. She did say, however, that it’s a “positive sign” that the governor addressed LGA reform.

Two different groups have been looking at the LGA program, with the LGA study group recommending increasing the simplicity of the formula. A task force of Minnesota mayors also has been looking at potential reforms.

“They were very, very strong in their criticism of the current formula,” Revenue Commissioner Myron Frans said during the Wednesday conference call. “And these mayors really have trouble explaining it to their citizens. And as you know, the more we get away from being able to explain what we’re doing to citizens the more difficult do we have in keeping their trust.”

Whether Dayton’s requests make it through the Legislature is yet to be seen, but he acknowledged the tough fight ahead Wednesday.

“I’m under no illusions of how challenging this will be to get through the legislative process,” Dayton said.

John Hageman

John Hageman covers North Dakota politics from the Forum News Service bureau in Bismarck. He attended the University of Minnesota in the Twin Cities, where he studied journalism and political science, and he previously worked at the Grand Forks Herald and Bemidji Pioneer.  

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