Legislature may look to cut local government aid

ST. PAUL -- Browns Valley, a little town in the bump of Minnesota that juts into South Dakota, is about as far west as a person can go and still be in the state. But it's tethered to St. Paul by a financial umbilical cord.

With one of the poorest tax bases in Minnesota, Browns Valley -- population 672 -- drew $345,447 from the state this year to help pay for basic services like firefighters, police, libraries and sewer service.

"We have to supply the same services to our citizens as the metro area does," said city clerk Linda Schwagel. "They have a lot higher tax base to draw from -- a lot more industry and business."

Browns Valley's biggest business is a nursing home and many of its residents are low-income, she said.

But as the Legislature and Gov.-elect Tim Pawlenty struggle in upcoming months to erase the biggest budget deficit in state history, an estimated $4.56 billion, cities and towns across the state are bracing for potentially big cuts. Over the years, they've come to count on that money, called local government aid -- LGA for short.

"They're anticipating this, they're scaling back, they're not filling positions -- they're trying to think of how they can cut back without hurting citizens," said Tim Flaherty, a lobbyist for the Coalition of Greater Minnesota Cities.

The Legislature doled out about $565 million in LGA for 2002, about 4 percent of the state's total general fund budget.

It's not likely that LGA will be completely wiped out, but if it were, it would mean a loss of about $514.06 per person in Browns Valley.

"It's going to make it very tough on the city ... when you're already cut to the bare bones," Schwagel said.

Other cities would take a hit, too. Minneapolis is getting about $64.5 million for its 382,446 residents in 2002, or $291.72 per person. Duluth is getting $29.6 million; Bemidji, $3.8 million; Mankato, $9.3 million; St. Cloud, $12.6 million; and Rochester, $10.7 million. Most cities receive some amount. A handful of wealthy communities -- mostly surrounding the Twin Cities -- get nothing.

Local government aid was created in 1971 as a way to make sure citizens in the state's smaller, older or poorer cities didn't go without basic services -- in short, to hold down local property taxes and allow people to continue living in all areas of the state rather than being forced to migrate to the Twin Cities area.

The system was overhauled in 1992 to account for two decades of changes in demographics, but all the cities receiving money were grandfathered in at that level. Then, a new formula was created to calculate how much above the grandfathered amount a city would get.

These days, the state considers four factors in setting a city's aid: percentage of homes built before 1940, percentage of commercial/industrial property, population decline over the last decade and population.

Several other pots of state money also flow to some local communities, including homestead credits, low income housing aid and a border city disparity credit. In all, intergovernmental aid accounts for roughly 10 percent of the state budget.

Gov.-elect Tim Pawlenty has made it clear that such aid likely won't be spared this year as it was last. At a recent forum organized by The Associated Press, he said he wanted to return the program to its original intent -- "sending money to communities that need it most."

The increasing influence of lawmakers from wealthy Twin Cities suburbs has other communities worried about the future of local government aid. Over the years, those suburbs have grown faster than any other area of the state.