Minneapolis and St. Paul are set to get their first pay raises in five years as a long-awaited plan to retool local government funding nears a vote at the State Capitol.

Legislators in the House and Senate are pushing bills that would make the first major change in a decade to how state funds are distributed to cities, while also increasing the total aid amount by $60 million or $80 million, respectively, to about $500 million.

The extra money would have a significant impact on local budgets across the state, which have endured years of aid cuts as legislators grappled with perennial deficits. The program, known as local government aid (LGA), helps to pay for everything from public safety to road improvements in cities large and small.

The state’s cuts have fallen disproportionately on metro-area governments, which now take only about 30 percent of the funds. The new bill would give Twin Cities suburbs a larger slice of the pie starting in 2014, partly by factoring midcentury housing stock to determine a city’s need.

The new formula has just seven variables, down from a list of 17 that included, for example, the number of car accidents in a city.

“We made it make more sense,” said Rep. Jim Davnie, DFL-Minneapolis, who chairs the House committee focused on property and local taxes. “And it actually is a better measure of need, mathematically, than the existing formula.”

Groups representing cities across the state have reached a rare accord on the new structure for distributing LGA funds.

Patricia Nauman, with Metro Cities, said it was the first such agreement since the early 1990s.

Cloquet Mayor Bruce Ahlgren, president of the Coalition of Greater Minnesota Cities, called the new LGA formula “a great compromise, probably one of the few times that metro and rural cities have agreed on a formula about just about anything.”

The share of LGA targeted for rural cities would decrease under the formula, which is why the coalition wants the full $80 million increase in the Senate bill. Anything less, Ahlgren said, would fail to provide needed property tax relief.

No cities would see a 2014 aid reduction under the bills, although about 90 cities eventually would get a cut.

Both Minneapolis and St. Paul have endured flat LGA funding since 2010, but they could see 19 percent and 20 percent increases next year. Under the Senate bill, their total payments would grow to $76 million and $60.4 million, respectively.

Rybak counting on it

Minneapolis Mayor R.T. Rybak, who has made annual trips to the Capitol to protest LGA cuts, said his top priority for the funds will be to “take pressure off property taxes” while providing core services.

As recently as 2011, Rybak laid off 10 firefighters because the state promised more aid than it delivered. City Council President Barb Johnson said she would embrace trying to lower the city’s total tax levy if the funds come.

Despite years of the state setting and then cutting LGA payments, Rybak will count on the extra money in his next budget. “I believe we have a governor whose word is good,” he said. “Unlike, frankly, the previous governor [Tim Pawlenty], who said one thing and then changed it after we already budgeted.”

A number of suburbs stand to receive their first LGA payments in years under the new formula, including Burnsville, Bloomington, Golden Valley, Maplewood and Roseville. However, several city officials said that after years of LGA volatility, they weren’t yet banking on the money.

Roseville City Manager Bill Malinen said the funding, potentially about $225,000, likely would go toward infrastructure. “It’s better used for unmet needs in the capital plan, so that if in fact another change occurs we wouldn’t be adjusting our operating budget,” he said.

Bloomington likely would spend its potential $404,000 allotment on road improvements, said chief financial officer Lori Economy-Scholler, who doesn’t expect it to go to the city’s general fund. “There’s always concern what the state might do the second year or the third year,” she said.

In 2002, St. Paul’s LGA represented 41.9 percent of the city’s budgets for the general fund and libraries, and property taxes 24.4 percent. This year, those figures are practically reversed: LGA makes up 21.2 of the budget, while property taxes pay for 36.4 percent.

In Minneapolis, the general fund covered by property taxes jumped from 29 percent to 45 percent between 2003 and 2013 as LGA payments fell.

“Our No. 1 legislative priority is making sure this gets fixed,” said Joe Campbell, St. Paul Mayor Chris Coleman’s spokesman. “I think we’re all in agreement that when the cities are strong, the state is strong.”

Campbell added that it’s important LGA once again be indexed to inflation, as it was before 2003.


Rep. Paul Torkelson, meanwhile, the lead Republican on Davnie’s committee who thinks the new formula makes LGA more stable and predictable, objects to a provision that would raise payments by between 2.5 percent and 5 percent annually based on inflation and population changes.

“Putting this on autopilot to increase year after year is not something I can support,” said Torkelson, R-Hanska. “It’s fine as long as the economy’s growing and we have more revenue, but we don’t always have that, as people learned in the last few years.”

That provision proved to be one of the most contentious facets of the bill at a Senate hearing Tuesday. “I think that the inflation adjustment is at risk of not surviving the process,” said Sen. Rod Skoe, DFL-Clearbrook, who chairs the Senate Taxes Committee.

Davnie said the provision would be a benefit because it would allow local governments to depend on the money in their budgets. “You can make prudent, rational decisions on the local level and not have to come down here and fight about it every two years,” Davnie said. He said the Legislature could revise the increase in a bad economy.

Despite broad agreement on the new formula, Rybak still would like to see more fundamental reform to the 40-year-old LGA system. He frequently says Minneapolis sends much more to the state in sales and other taxes than it receives in LGA, a gap of more than $300 million.

“Having regional centers like Minneapolis control more of the resources we generate, I think, is part of a longer-term discussion we should have,” he said.