The Governor's Local Government Aid proposal: Impact by city

Even with a proposed $80 million increase to city Local Government Aid (LGA), real (i.e., inflation-adjusted) per capita LGA will remain less than what it was in 1972—the first year of the LGA program. That's due in large part to city LGA cuts made since 2002.

The Governor proposes a new formula for distributing LGA; however, that formula will have little effect on the distribution of aid in 2014—the first year that the Governor’s proposal would be in effect. In 2014, the aid distributed to most cities under the Governor’s proposal would equal the aid they received in 2013 under current law plus $30 per capita.

Over time, cities would gradually transition from their 2014 aid levels to the amount that they would receive under the Governor’s “pure formula.” For some cities, the transition to the Governor’s “pure formula” amount could take many years. Furthermore, the 2014 aid amounts that cities would receive under the Governor’s LGA proposal might be dramatically different from the amount they would receive under the Governor’s pure formula.

See below for a printout that shows the following amounts for each Minnesota city: (1) 2013 certified LGA, (2) preliminary 2014 under current law, (3) preliminary 2014 LGA under the Governor’s proposal, and (4) preliminary LGA under the Governor’s pure formula. In this printout, cities in the seven county metropolitan area are listed first, followed by cities in greater Minnesota.* Cities are listed alphabetically within each group.

Comparison of LGA by city (Click here to view with Scribd.; scroll down for link to PDF)

Because the 2014 LGA amounts under the Governor’s proposal are transitional, the best indicator of the long term impact of the Governor’s LGA proposal can be obtained by examining the pure formula amounts.

Under the Governor’s pure formula, approximately 90 percent of the $80 million LGA appropriation increase goes to cities in the metropolitan area, while 10 percent goes to cities in greater Minnesota. Furthermore, preliminary indications are that the city tax rate disparity between metropolitan cities and greater Minnesota cities would increase under the Governor’s pure formula. However, under the Governor’s pure formula, greater Minnesota cities still receive significantly more LGA per capita than metropolitan cities.

An analysis that focuses on the regional impact of the Governor’s LGA proposal can mask significant variation among cities within each region. Refer the printout for information on the preliminary impact on specific cities.

While the Governor’s LGA proposal increases the LGA appropriation from $426 million to $506 million in 2014, aid amounts are frozen at this level in future years. Without an adjustment for inflation and population growth, the real per capita purchasing power of LGA will decline over time, thereby contributing to increased dependence on property taxes.

*The seven metropolitan counties are Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, and Washington. The remaining 80 Minnesota counties constitute greater Minnesota.

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    Jeff Van Wychen's picture
    Jeff Van Wychen

    Jeff Van Wychen is the fiscal policy fellow at Minnesota 2020.