I rarely delve into politics here, but when the time rolls around to decide how we fund government services, it’s hard to avoid. Right now is that time at the Minnesota Legislature, and proposals are starting to surface about how to plug the $5 billion deficit hole. One such proposal, from the Republicans in the House, targets metro cities and counties for big cuts in Local Government Aid (LGA) while preserving it for communities in greater Minnesota.
LGA is a program intended to provide property tax relief to cities by distributing general purpose funds based on a formula. The intended purpose of LGA is to reduce the “gap between cities’ need for essential services and the ability to finance these services through local property taxes”. Steven Dornfeld argues in the Star Tribune that the program could be structured to be more effective, but current proposals don’t address this structural issue, they simply make cuts.
The median property tax burden for homeowners in greater Minnesota is 2.3 percent of income, while in the metro area it is 3.19 percent, according to the Revenue Department.
In many outstate communities, homeowners pay less for police, fire, street maintenance and other municipal services than they do for cable television.
Nonetheless, House Republicans would exacerbate the current inequities by phasing out aid to the central cities by 2014 and the suburbs by 2012, while preserving aid to the outstate cities. (Senate Republicans have not yet provided details about their proposed LGA cuts.)
Why cut LGA to metro communities and not the rest of the state? Rep. Steve Drazkowski from Mazeppa says, “It’s where we can make up the most money”. Let’s leave aside the question of what percent of the total state budget LGA represents. You might wonder where LGA actually goes. In 2008 LGA went to at least one city in every county in the state and apparently 85 percent of cities received LGA in 2010. The figures for the map at right come from a 2009 study from the Minnesota House on major state aids and taxes. You can also see a city-by-city summary of LGA amounts for 2011 here.
So clearly a lot of LGA is going to communities in the metro. To quibble a little bit with Rep. Drazkowski’s point, the cities in the 7 metro counties only received 33% of total LGA in 2008, which is not exactly “the most” if you’re comparing metro to non-metro. Even if you add Saint Louis County, home of Duluth, another major LGA recipient, the total is only 44%, but I digress…
Lots of money is going to the metro, but is it being spent effectively? There are a lot of people in the metro compared with the rest of the state, are we getting our money’s worth (or is the rest of the state getting their money’s worth)? Perhaps this is the source of the metro/non-metro political divide. Perhaps us metro residents aren’t spending our benefits from the state wisely. Well, when you look at LGA per capita, the metro seems like a pretty good deal considering it’s the economic driver of the state. Suburban metro counties receive the lowest per capita LGA in the state, and even Hennepin and Ramsey counties are receiving less LGA per capita than most non-metro counties.
Let’s pull back a bit. LGA is one of only many ways the state funds activities of local governments and one of only many ways residents in different locations receive benefits of state funds. The maps and figures above also don’t account for the revenue side of the ledger. Perhaps communities who pay more in taxes should be getting more state aid. Perhaps aid should be distributed evenly per person or through a need-based formula (which is supposed to be how LGA works). The Minnesota House report also gives some insight into how aids from the state balance out with taxes collected.
While the report itself clarifies that it does not capture ALL taxes collected and aids paid, it does include the major ones. On the aid side, it includes education aid, human services aid, highway aid, local government aid (LGA), disparity reduction aid (DRA), county program aid, community corrections funding, property tax refund, and targeting. On the tax side it captures individual income tax, sales/use tax, motor vehicle sales tax, motor vehicle registration tax, motor fuels tax, corporate franchise (income) tax, and state property tax.
The map to the right shows dollars received (including LGA) per each one dollar sent to the state in taxes, based on the House report. Some counties, but especially the most urban counties, receive significantly less in aids and credits than they pay in taxes. Hennepin County receives just 61 cents for every 1 dollar in taxes it sends to the state. Other urbanized places outside of the metro like Stearns, Wright and Olmstead counties also receive less than they pay in taxes.
It may be fine for the metro to contribute more than its share to the state. Most people (myself included) would probably agree we want consistently good roads, schools, and community services across all of Minnesota, not just in the rich parts. However, zeroing out aid to metro communities while maintaining it for non-metro communities hardly seems like a nuanced policy solution for budget problems – especially when they are already contributing much more than they take. It seems more like us-versus-them politics with little thought about the economic impact that the whole state will feel if our urban communities can no longer provide effective government, plow streets, repair infrastructure and employ cops.