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What's LGA got to do with it?


Fri, Jan 22nd, 2010
Posted in Progress Edition

What is LGA? Most people consider it a boring acronym appearing in a typical city or county government article in the local newspaper. Some people think it has something to do with golf, possibly associated with Tiger Woods in a league of his own - Love, Golf and Alimony. Those who spend intimate moments with spreadsheets full of "LGA" and "levy" column headers, such as city clerks and city administrators, deem it to be a dwindling source of state aid.

There's nothing sexy about LGA, at all. It stands for Local Government Aid, which may someday be referred to as Lost Government Aid.

While LGA may not sound like a very exciting subject of conversation, city clerks and city administrators hope the public understands the long-term damage based on the path we are currently navigating.

The History

In 1967, the State of Minnesota passed the Tax Reform and Relief Act, establishing a new state aid program funded with 25-percent of the sales tax revenues to be directed to local governments. The formula was pretty simple at that time, making allocations on a per capita basis with the use of the most recent Census figures. At that time, cities, townships and schools were all recipients of those funds.

Then, in 1971, the Legislature raised the state sales tax to 4-percent to maintain the LGA funding program.

Fast-forwarding to 2003, a new formula was established for cities over 2,500 population, along with cities under 2,500.

While the LGA program has undergone 23 slight modifications since its inception, never has there been more tampering with the funding mechanism until recent years. These funds are now distributed using a complex formula that compares a city's spending needs with its ability to raise revenue.

It appears all the trouble started in 2003 when the Legislature reduced LGA funding by 25-percent, eliminating the typical and automatic 2.5 to 5 percent annual inflation index. With 2008 reforms, LGA funding was adjusted to only increase by 2 percent and 4 percent annually for 2010 and 2011, respectively. According to the League of Minnesota Cities, "while some funding was restored in 2005 and in 2008, the total LGA appropriation for 2009 was still slated to be approximately 10-percent below the original 2003 funding level.

Since 2003, LGA funds have been reduced or removed from townships, cities and Fillmore County.

The Unprotected

Up until 2003, cities in Fillmore County maintained a pot of LGA funds that remained undisturbed and progressively increasing based on a pre-determined rate of inflation.

That situation has changed drastically.

Four cities in Fillmore County are currently affected due to their population. According to legislative changes made in 2003, cities under 1,000 would remain protected from LGA funding cuts, while any city over a population of 1,000 was fair game.

Chatfield, Harmony, Preston and Spring Valley immediately fell under the radar for funding cuts to satisfy state budget shortfalls.

Each year, the LGA funding for these cities has been cut a little deeper. The county has felt the bleeding as well.

According to reports appearing on the Minnesota Department of Revenue website, http://www.taxes.state.mn.us, referencing Certified LGA funding for 2009 and 2010, analysis shows that the collection of Canton, Chatfield, Fountain, Harmony, Lanesboro, Mabel, Ostrander, Peterson, Preston, Rushford, Rushford Village, Spring Valley, Whalan and Wykoff, on paper, all cities in Fillmore County were expecting a total of $4,159,844 in LGA funding in 2009 and $4,231,331 in 2010 -- an increase of $71,487. According to Karen Brown, Fillmore County Coordinator, the county "received notice in July 2009 of a proposed un-allotment of $215,310, prompting the county to reduce their projected 2010 Minnesota County Program Aid accordingly." In this scenario, the County is preparing for the worst and hoping for the best. The 2009 County Program Aid LGA funding, $1,081,483, was reduced to an anticipated $817,961 for 2010.

Overall, while the Minnesota Department of Revenue website shows reports with a collective gain from 2007 to 2010 for Fillmore County's four of five cities over 1,000 population, the reality is that they were all cut to pieces to the tune of $284,115. Rushford was Fillmore County's only city over 1,000 to see a gain, amounting to an increase of $40,886 from 2007 to 2010. Meanwhile, during that same date range here's the LGA funding total damage: Chatfield lost $100,590; Harmony lost $49,843; Preston lost $56,278; Rushford gained $40,886; Spring Valley lost $77,404. Combining Rushford's gain with the losses of the four cities, Fillmore County has seen a net loss of $243,229 from 2007 to 2010. If we add the anticipated loss of $215,310 from the county's coffers, the combined total climbs to $458,539.

Fillmore County's biggest loser of LGA funds from 2009 to 2010 is anticipated to be Chatfield, anticipating another decline of $11,993. The biggest gainer is anticipated to be Spring Valley, expecting an increase of $33,806 in LGA funds, followed by Rushford with expecations of a $22,723 gain.

The Protected

As previously indicated, cities under 1,000 population have been protected, but how long will that last? How long before Canton, Fountain, Lanesboro, Mabel, Ostrander, Peterson, Rushford Village, Whalan and Wykoff are dealt the same hand to resolve a state budget deficit?

According to District 31B State Representative Greg Davids, "We're looking at a $1.2 billion shortfall from last year. I don't think a lot of people realize how massive this budget problem is right now."

For Fillmore County cities under 1,000 population, there's a total of $891,333 on the table and up for grabs as legislators desparately seek attempt to satisfy a balanced state budget.

Worst Case Scenario

Hypothetically, if every local government in Fillmore County, along with the county, lost all LGA funding, the total loss would be over $5 million.

This would undoubtedly affect the ability for our cities and our county to operate with a business as usual acumen.

Services would suffer, ranging from emergency response to libraries to community centers to airports to capital improvement projects.

Is this a real issue?

Absolutely!

Just as in years past, the 2010 dependency on LGA funding is substantial. Chatfield's annual budget includes 35 percent as LGA funding, Harmony's annual budget includes 39 percent as LGA funding, Preston's annual budget includes 48 percent as LGA funding and Spring Valley's annual budget includes 57 percent as LGA funding.

The Future

With continuous LGA funding cuts, will local municipalities be in a position to continue to provide the same services? How much will property taxes climb as the levy absorbs LGA funding shortfalls at a local level?

Essentially, the sales tax, which was initiated in 1971 to provide the LGA funding source for our cities, just like those found in Fillmore County, could continue to stay in place even as the dollars are stripped away from our local governments.

So, taxpayers will see a continued sales tax burden while also seeing a reduction in local municipal services. This lose-lose situation should prompt taxpayers to question how much is being spent at a state level.

Unfortunately, for politicians and constiuents, there are more questions than answers.

Thank You

The Fillmore County Journal appreciates the cooperation and assistance of all 14 cities in the county along with the County Administrator as it pertains to providing the information necessary to complete a full analysis of the overall impact of LGA funding cuts.

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