Quick fix LGA boost helps “HawleyWould”; real threat still looms

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Count the Red River Valley city of Hawley among communities receiving a surprising boost in Local Government Aid from the Minnesota Legislature’s recently passed tax bill.

It will be a big help given the impact of rising fuel costs and the slumping Minnesota economy, said Hawley Mayor Davis Blakeway. Just how it will be used will be determined later in a budget review and after the city gets assurance of what the extra state aid will be, he said.

Based on Minnesota 2020 calculations of the new tax bill from House and Senate committee projections, Hawley should see a 29.7 percent boost in Local Government Aid in 2009 from the currently projected state aid formula. That means the city of 1,800 people will receive nearly $100,000 more next year than it was previously set to receive.

It most likely will go to cover inflationary increases in costs, and not for economic development, Blakeway said. That is the problem communities throughout Minnesota, and especially small cities, are facing as costs mount and local governments cut budgets to cope with lesser resources.

In Hawley’s case, the city has a year-old economic development promotional campaign called “HawleyWould.”

Convincing people that Hawley would be a good place to live and work isn’t easy. Housing “starts”, commercial building, and remodeling work have come to a screeching halt, the mayor said. And Hawley now seems a bit out of the way at current motor fuel costs for people who have lived there and commuted 22 miles away to jobs in the Fargo-Moorhead metropolitan area.

Addressing these challenges, the Legislature changed the formulae for determining LGA to local governments based on criteria that reflect need and changing tax bases, said Dave Engstrom, executive director of the Minnesota Association of Small Cities.

“It was a way to balance out LGA,” Engstrom said. As a result, communities that have high tax bases or growing tax bases will see declines in LGA, with 37 communities losing their payments entirely. Most other cities, however, will actually see increases that should exceed the rate of inflation over the next two years.

Next year’s LGA package will increase about 9 percent across the state. “The fabulous news of the Legislative session was that we didn’t get cut despite the huge, huge state deficit,” said Engstrom. This restores some of the aid taken away from local governments since 2002.

All associations of local governments worked with lawmakers to massage the formula, Engstrom said. Building on that cooperation, the Legislature also approved setting up a study group of municipal organizations to work on finding a long-term, sustainable fix to LGA eligibility. “It’s not just more money,” he said. The purpose will be to simplify the formula and make it more transparent so local people can anticipate LGA from year to year.

Small cities were helped by one formula change that affects the per capita rate of payment. Cities under 2,500 population in the past got $6 per person. Now, cities under 5,000 population will get $8.50 per capita. For some small cities, the different might amount to a tank of gas for a patrolling county sheriff deputy. For most small cities, however, the boost in LGA will slow the cutting process now stripping local communities of services.

What cities from Minneapolis to Hawley must confront is that the 2008 tax bill was really a one-time, quick fix. Or, as Engstrom put it, “We need to hope the economy is going to turn around and be a lot stronger next year.”

Moving Minnesota’s economy forward requires more than a larger finger stuck in the proverbially growing dam leak. Only real, effective property tax reform and revenue restructuring will reduce reliance on “quick fixes”. Unless that happens, “HawleyWould” risks becoming “HawleyWas”.