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GOVERNMENT: A boost in LGA could go a long way for Bemidji

BEMIDJI—The Coalition of Greater Minnesota Cities is hoping that state Legislature takes a look at the past this session to help improve the status of local government aid funding.

Designed to help cities that have greater needs than what can reasonably be covered by way of property taxes, local government aid, or LGA, has been provided to municipalities since the late 1960s. Over the years, the formula to determine how much funding was appropriated to each community has shifted with both increases and decreases.

Since 2000, the most amount of LGA appropriated to communities across the state came in 2002. The city of Bemidji, for example, received $3,820,026, which resulted in a 30.7 percent decrease in the property tax levy.

Since that time, though, the amount of LGA has decreased, remaining well below the 2002 level. As a result, budgeting for Bemidji has been altered.

"Ten years ago, LGA made up about half of our general fund; today, it's about a third," said Bemidji Finance Director Ron Eischens. "Today, the LGA received is $3.2 million, so ever since 2002, the goal has been to get back to that funding level."

The $3.2 million in LGA in 2016 was a slight increase since 2008, though, when the LGA to Bemidji came to only $2,826,755.

"That took place when the market crashed and the amount was cut down," Eischens said. "Since then we've been climbing back up slowly."

As a result of having less state aid overall since 2002, Eischens said the city has needed to adjust by increasing both property taxes and franchise/cable fees.

New legislation

Last week, the Coalition of Greater Minnesota Cities acknowledged work taking place in St. Paul to add $45.5 million to the LGA program. Bills in both chambers, authored by Sen. Bill Weber, R-Luverne, and Rep. Paul Anderson, R-Starbuck, would add the amount over the next two years and bring the funding level to its 2002 benchmark, according to a release.

"I want to thank Sen. Weber and Rep. Anderson and all the co-authors for their commitment to ensuring that every community in our state can continue to be a great place to live and work," Sara Carlson, mayor of Alexandria and president of the CGMC, said in the release. "LGA is absolutely essential to keeping our cities and state strong and this legislation gives a much needed boost."

From the CGMC's perspective, securing an LGA increase has been its priority for the past two years. In 2014, the Legislature increased its funding, but the coalition states that the appropriation has not kept up with inflation and still falls short of the amount from 15 years ago.

LGA is particularly important to the city of Bemidji, as 50 percent of the city's property is tax-exempt.

"It's critical because of those properties," Eischens said. "I've stressed that it's one of the city's challenges. The college, the hospital and state agencies, these are all economic engines for the city. They have value, but they don't provide property tax revenue to the city.

"It's one of the reasons that we've done franchise and cable fee increases, to create more of a revenue stream from those entities."

Formula as important as the funding

According to data provided by Eischens, the need for LGA by cities with a population of more than 10,000 is defined by the average number of jobs per capita, the percent of housing built before 1940 and the percent of housing built between 1940 and 1970.

However, what's not included is the amount of taxable property in a city.

"Nowhere in the formula to determine the LGA allocation is any consideration for tax-exempt property," Eischens said. "The formula just seems outdated to me. Ideally, a best case scenario is the formula being updated to better reflect the tax-exempt property values."

If the Legislature were to produce an LGA increase, though, it would still be a step in the right direction for property tax relief in Bemidji, Eischens said.

"Last year in the Legislature's tax bill, an LGA increase for Bemidji had been included," Eischens said. "Had Bemidji received the LGA increase, it would have been used dollar for dollar to reduce the property tax increase. This year, we'd be ecstatic if we could get back to that 2002 funding level."

Different state aid at the county level

While the amount of LGA has fluctuated numerous times in the past 16 years, state funds provided to counties, called County Program Aid, has steadily increased.

"In 2016, we are getting far better aid compared to back in the early 2000s," said Beltrami County Administrator Kay Mack. "But, with the increase in aid, we are also providing more services and we have more clients."

At the county level, Mack said the formula has two key components. The first is tax base equalization aid, which recognizes the tax base the county has in relation to what's provided. The other piece of aid is to help the county provide its services.

In 2016, the amount was $6,037,000, with $1.8 million as part of the tax base equalization and $4.2 million for the county services.

"It's really significant to this county," Mack said. "We use all that money to offset the property tax levy. Every dollar that comes from the state goes to offset the taxes. If not for the CPA, there would have been a 30 percent increase in the tax levy."

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Local Government Aid to Bemidji

• 2002 — $3,820,026 in LGA. A 30.7 percent decrease in the levy.

• 2008 - $2,826,755 in LGA. A 9.9 percent increase in the levy.

• 2016 - $3,222,583 in LGA. A 6.5 percent increase in the levy.

Matthew Liedke

Matthew Liedke is the city, county and state government reporter for the Bemidji Pioneer. He also covers business, politics and financial news.

(218) 333-9791
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