Republican lawmakers push for $85M state aid cut to Twin Cities, Duluth

Three of Minnesota's largest cities would see their combined yearly state aid plunge by $85 million a year under a proposal by House Republicans, who are hunting hard for state spending trims in order to make good on their promise to cut taxes by $2 billion.

Minneapolis would lose more than half its local aid of $77 million, while St. Paul would see a similar drop in the $62 million it was expecting. Duluth, which got $29 million in local state aid in 2013, would see its aid whittled to just $9 million.

St. Paul Mayor Chris Coleman appeared in front of House legislators on Wednesday to warn that cuts of that size would trigger substantial property tax increases, reductions to police and fire departments and cuts in other services.

"This proposal is misguided," Coleman said. "It cuts the legs out from under the economic engine of the state, its great cities."

David Montgomery, Duluth's chief administrative officer, told lawmakers, "Our entire fire department budget is $14.8 million. We could eliminate our fire department completely and we would still have to find $5 million to cut."

Montgomery said such a massive cut in aid would likely force Duluth to lay off 300 of its 830 employees.

But House Majority Leader Joyce Peppin, R-Rogers, maintained that the three cities are getting more than their share of local government aid, known as LGA.

Local government aid has long been the state's primary means of distributing revenue assistance to cities and towns that would have to push property taxes too high to raise it on their own. In 2013, the state sent $424 million to communities across the state, from large cities to small towns.

DFL legislators have been the strongest boosters for the program over the years, while Republicans have been more divided. Now, with the GOP controlling the House and the lack of GOP lawmakers from Minneapolis, St. Paul or Duluth, those cities' aid allotments have become a tempting target for cuts.

"Frankly, the premise behind LGA is that cities that don't have the tax capacity would get assistance in infrastructure and basic functions of the city," said Rep. Duane Quam, R- Byron, who proposed the cuts. "You've got these cities where a large portion of their budget is coming from LGA."

The money saved would not be shifted to smaller cities but rather cut entirely from state spending rolls. In the House GOP property tax proposal, assembled by Rep. Steve Drazkowski, R-Mazeppa, the money saved would help finance large cuts to the state's business property tax, reductions for cabin owners and for farm property.

Rep. Greg Davids, chairman of the House Taxes Committee, said the LGA cuts are likely to be included in his House tax bill, set to be unveiled next week.

Quam noted that the one other Minnesota city defined as "first class" under state law — Rochester — gets significantly less in LGA than the other three cities. In 2013, it was $5 million. LGA rates are determined by a complex formula that considers local tax capacity per capita, but also considers various "need" factors over which city officials have little control, like the age of housing stock and amount of property that's exempt from tax rolls.

Some cities, particularly Twin Cities suburbs, get no local government aid. That list includes Bloomington, Edina, Eden Prairie, Apple Valley and a number of other cities.

"You wonder how it got to the point that Minneapolis, St. Paul and Duluth are getting so much more than other cities across the state per capita," Davids said. He acknowledged that House Republicans would likely have to compromise with Senate DFLers on LGA rates, although cutting the aid for those three cities enjoys support at the top reaches of House GOP leadership.

It's not true in all cases that the Twin Cities and Duluth get more per capita than other cities. Sen. Rod Skoe, DFL-Clearbrook, chairman of the Senate Taxes Committee, provided an analysis by Senate staff which found that of the 770 Minnesota cities that get local aid, 449 of them got more per capita than Minneapolis; 417 got more than St. Paul, and 113 got more than Duluth. For many small towns throughout the state, such local state aid makes up more than half the total city budget.

Skoe has said he intends to push small, inflation-level increases this year for all LGA recipients, distributed on the current formula. The total amount of local government aid has yet to rebound to levels before 2002. That was when former Gov. Tim Pawlenty started to push through a series of decreases in the face of persistent state budget deficits. During that period, Minneapolis, St. Paul and Duluth all took greater per capita hits in their LGA rates than most smaller communities.