Update 10:48 p.m. June 16, 2009: OK, I’ve got a better handle on how this LGA cut works in relation to any potential tax hike after talking with East Grand Forks City Administrator Scott Huizenga.
LGA is determined by a complex formula that determines the city’s needs versus its ability to pay, including its tax base. I’m not exactly sure how the property tax cap works, but it has been 3.9 percent, which includes the amount of LGA that the state didn’t pay but should’ve plus something called an "implicit price deflator." The deflator is kind of like the consumer price index. Currently, it’s at about 0.86 percent.
When the governor decides to cut LGA in fiscal year 2011, which occurs in mid-2010, that amount changes the tax cap. You’ll see below that the cut is $420,019.
The total amount of property taxes and LGA is $5,494,895. The city cannot have more than this. So, if LGA totaled $2,831,969, that means taxes totaled $2,662,926. That’s the way the cap works. Notice that the state works with actual dollar amounts, not percentages or mills.
Because the state cut $420,019, the city could raise the same amount in property taxes to compensate. That means it could collect as much as $3,082,945. (I’m leaving out the implicit price deflator for the sake of simplicity because it’s so tiny.)
If the City Council were to try to collect $3,082,945, that would mean a tax hike of 15.8 percent. Add the implicit price deflator on top of that and you get 15.9 percent.
I asked Council President Dick Grassel if he thought the council would try to go that high. He said he wouldn’t support it and doesn’t think anyone else would either. The max, he said, would probably be more like 7.5 percent or so.
That means the city would collect $2,862,645.
City leaders have been saying for several years that they’ve cut pretty close to the bone. A lot of their colleagues all over the state are saying kind of the same thing. There’s not a lot of love for Gov. Tim Pawlenty and his LGA cuts.
If the city collected only 7.5 percent and not 15.9 percent, this would mean it’ll be running leaner than lean.
Things like furloughs, four-day workweeks, wage freezes, closing one of the areanas, closing the pool, cutting library hours and so on, will become real options, even if they’re not politically popular, according to Dick.
What’ll be hard to balance is that the city might be doing those things and more and, with some of the money saved, fix old vehicles or replace busted equipment. In other words, it’ll sacrifice services in favor of hardware simply because that hardware hasn’t been replaced over the past several years.
City leaders have said the city’s still catching up from the 2003 LGA cuts that the governor pushed. In two or three years, one has to wonder how much of a catch-up game the city will have to play.
Update: 3:06 p.m. June 16, 2009: Here it is, straight from the city of East Grand Forks:
| Pop. | Tax + LGA | LGA | LGA as % of T+LGA | 2009 unallot | 2009 LGA | % change | 2010 unallot | 2010 LGA | % change | |
|---|---|---|---|---|---|---|---|---|---|---|
| EGF | $7,879 | $5,494,895 | $2,831,969 | 51.5% | -$173,338 | $2,658,631 | -6.1% | -$420,019 | $2,411,950 | -9.3% |
| Crookston | $8,051 | $5,040,959 | $3,471,724 | 68.9% | -$166,995 | $3,304,729 | -4.8% | -$385,321 | $3,086,403 | -6.6% |
| TRF | $8,515 | $4,267,376 | $2,684,970 | 62.9% | -$141,368 | $2,543,602 | -5.3% | -$326,190 | $2,358,780 | -7.3% |
Sorry. It’s tiny. I’m in a rush.
Minnesota Gov. Tim Pawlenty will be announcing how deep he’s cutting local government aid, or LGA, in about an hour a few minutes.
Minnesota Politics is saying that the effect of unalloting LGA in fiscal year 2010 and 2011 will increase the cap on local property taxes, meaning that cities like East Grand Forks will be able to raise taxes above the minimal levels of past years.
I’m not sure what the cap was for this fiscal year, but I reported back in November that the city raised the general levy by 2.2 percent.
The question is, can the city justify that politically? Minnesota Politics says many can’t.
Oh, here’s something else from MP last month: The Dems were doing a good job blaming future property tax hikes on the governor. Maybe justification is possible?
EGF can make a decision: either raise property taxes, or decrease spending. I’m sure there are plenty of items that could be cut from the budget that won’t put the city in jeopardy.
I think the first thing to do is make the Mayor stop wasting money…No more fiberglass animals, Christmas decorations, sell the Infill building and end the subsidies (in the form of unpaid rent) to the businesses.
Then make following adjustments, as according to this week’s Exponent, as much is spent on Parks and Recreation as the Fire Department:
Have local groups adopt flower beds and pots instead of paid staff.
Adjust Hockey, Figure Skating, and ice rental fees so the arenas are self-sufficient, and not subsidized by the taxpayers.
Adjust Pool fees to do the same..
Adjust staffing levels according to demand after the fee changes.
Excellent Ideas Jay, I hope you can get someone to listen to you and implement them, however be careful and thick skinned; those comments will only cause the Journalist who oversee’s this blog to call you arrogant and dense.
Tu-Uyen,
The Current Formula for LGA is as follows:
-Percent of city’s housing units that were constructed before 1940
-Percent of Population decline over previous 10 years
-Number of vehicular accidents per capita
-Average household size
-Metro or non-metro
-City’s adjusted net tax capacity
Regardless of the CGMC take and Mr. Huzinga’s info these are the facts.
Now if that isn’t a goofy formula for determaning need for LGA I haven’t seen one, but it is what it is and it allows city’s to mismanage their funds as EGF has for so many years…especially if you are in out state Minnesota.
Call me arrogant, ignorant and dense that is fine I am right! The State and the City need to cut expense just like every family has to if the income is declining. Simple math problem the the Newspaper industry is discovering as well.
GHB: That formula is in a link in my post, though in far more detail. Thank you for repeating it.
All states offer some kind of aid to ensure local governments don’t slip too far below average. Minnesota just happens to be a lot more aggressive in its use of aid than others.
I’m not sure how any of this “allows” cities to mismanage funds. LGA isn’t their only source of revenue. Cities still have to levy property taxes and tax hikes are always politically painful.
You’re right that the state and the city will have to cut expenses — that’s blindingly obvious to everyone already — the question is where those cuts are applied and how much to whose funds. Cutting LGA simply moves more of the burden of funding to the local level.
Jay suggests running the arenas and pools on fees only. That actually means they will have to close. Fees can only go so high before people lose interest. Some city leaders have argued that parks and rec ought to be subsidized to keep fees low because they help keep the kids out of trouble.
“because they help keep the kids out of trouble.”
That is the difference between now and past generations, when it was the parents’ responsibility to keep their kids out of trouble by teaching them right from wrong.
Like “the difference between now and past generations” when local communities saw investment in pubic works and civic use projects as a benefit to the whole community as opposed to “get mine” capitalism?
Like in the past the purpose was recreation, not controlling juvenile deliquency.
That’s not really true at all. In the early 20th century the creation of municipal playground and parks commissions very much had as one of their main purposes cutting juvenile delinquency. For example, from a history of the L.A. parks dept: “[they planned] for the prevention and control of juvenile delinquency and to provide wholesome and constructive play and recreation for youth, in supervised playgrounds, as an alternative to play in the city streets.”