Suburbs want new recipe for how state aid is given

01/11/2008

They say the current formula is preventing them from properly providing essential services.


By LORA PABST,
Star Tribune
January 10, 2008

The five factors that could help a city with a population over 2,500 get more in local government aid each year are: a high number of traffic accidents, a high number of houses built before 1940, a declining population, a low average household size, and location outstate vs. in the metro area.

The formula also compares the city's tax base to the average city tax base in the state. Some cities also get individual increases based on previous amounts they were promised.

When the mayor and city manager of Fridley think about the future of the aging inner-ring suburb, they hope it won't bring canceled recreation programs, fewer police and more potholes. But without more money, they say, these fears could become reality.

Many cities are able to provide these basic services because the state's coffers deliver millions of dollars in aid every year. But other cities have seen their aid slashed in recent years and are now demanding a bigger piece of the pie. As the legislative session approaches, officials from Fridley and other cities will lobby for more money from the state to provide better police and fire service and keep up with repairs on crumbling infrastructure.

Larger organizations such as the League of Minnesota Cities have also started discussing ways to change the formula the state uses to give out local government aid (LGA).

"I'm trying to get people to understand where the inner-ring suburbs are coming from," said Fridley City Manager Bill Burn. "We have a lot of the same issues as bigger cities."

Gary Carlson, intergovernmental relations director for the League of Minnesota Cities, leads an LGA study group of several city associations, including the North Metro Mayors Association, the Minnesota Association of Small Cities and the Coalition of Greater Minnesota Cities. The associations represent cities from Minneapolis to small towns in northern Minnesota.

"Legislators are hearing from their cities again to see if we can come up with some common ground," Carlson said.

Formula changes stir the pot

In 2003, the state changed the formula it uses to dole out the approximately $485 million in local government aid to cities every year. Many cities have seen drastic cuts in their aid since then -- Fridley went from $1.3 million in 2003 to zero in 2006 and back up in 2007 -- but some cities have ended up receiving more.

Last year, Fridley, which has a population of about 27,100, received $382,341. Winona, population of about 26,600, received a little over $10 million.

The reason for the disparity is based on a complicated formula that tries to balance how much help a city needs to provide basic services with how much money it can generate from its tax base. Burns and Fridley's mayor, Scott Lund, say the state should consider determining need by looking at how much a city spends to provide services for its residents.

Winning cities, losing cities

Any proposal to change the formula is often contentious because it has to balance the interests of three main groups of cities: greater Minnesota cities, Minneapolis and St. Paul, and suburban communities, said the state's Commissioner of Revenue Ward Einess. He has met with officials from several city associations and individual cities, including Fridley.

"We need to find a formula that works and has a shelf life more than a couple years," he said. "Every time you tweak [the formula], there's a winner city and a loser city."

Mayor Lund said local government aid was set up to aid cities with providing basic services, such as police and fire protection. According to 2006 state crime statistics, Fridley had 110 crimes per police officer while Winona had 60 per officer. That factor isn't taken into account, he said.

"Our officers are twice as busy," he said. "We need more cops and more government aid because police are a basic service."

Winona City Manager Eric Sorensen said cities such as Winona need more local government aid because they serve as regional centers, unlike metro suburban communities that can rely on Minneapolis and St. Paul for services such as libraries and parks.

Rising property taxes

One of the biggest issues for cities has been an increase in aid one year followed by a dramatic loss the next, several city officials said. This is, in part, because factors such as the number of traffic accidents can change drastically from year to year, said the League of Minnesota Cities' Carlson.

"Put yourself in a council member's shoes," Carlson said. "They see their [state aid] going up one year and they pass it along as a tax reduction, but then they have to turn around and raise taxes [the next year]."

Both Minneapolis and St. Paul officials have been vocal about the impact their LGA cuts have had on city residents. St. Paul lost $13 million in LGA and Minneapolis lost about $26 million when the formula changed in 2003. Since then, both cities have gone through periods of higher and lower LGA funding, but in 2007 they were millions of dollars below what they received before the formula changed.

St. Paul Council Member Kathy Lantry said changing LGA distribution is the city's top legislative priority.

"There is a direct correlation between a decrease in LGA and the shift in property taxes in St. Paul," she said.

New Hope Mayor Martin Opem said that when his city's local government aid dropped from almost $600,000 to $100,000 in 2007, the Council had difficult spending decisions.

"What we end up doing is increasing property taxes and postponing [repairs] on other things," Opem said.

Officials from some cities that don't get any local government aid, such as Maple Grove, are willing to help fellow suburbs lobby for a fairer system.

Maple Grove Mayor Mark Steffenson, who is also the president of the North Metro Mayors Association, said he understands that inner-ring suburbs have a greater need for the aid so they can provide basic services.

Carlson said his group is beginning to work to fix the formula - a difficult task considering the variety of cities his group represents. He doesn't expect the group to give a recommendation to the Legislature until its 2009 session.

Other cities say they don't have that much time and want to approach their legislators this session. Fridley can survive on its reserves only for another five to seven years, Lund said.

"We've lived with this for four years, and we can't continue to draw down our reserves to nothing," he said.