As the Legislature convenes in January, Cynthia Jaksa and members of the Coalition of Greater Minnesota Cities will be watching.
As an International Falls city councilor, chair of its Finance and Legislation Committee and coalition board member, Jaksa is concerned that the local government aid the city uses for its general fund budget will again be reduced.
The city’s general fund for 2013 is set at about $5.28 million. Local government aid, or LGA, accounts for $3.7 million of the general fund. The remaining $1.5 million of the fund is made up mostly by property taxes.
“Basic government — police, fire, administration, streets, government buildings — is funded by LGA and city taxes,” explained Jaksa.
The LGA provided to International Falls is at the higher range, she said. The Falls’ share is $568 per city resident. She noted at the low end of the LGA range, Waite Park, which is about the same population as the Falls, receives no LGA.
LGA, she said, was created under the same idea as the 1970s Minnesota Miracle that saw the state picking up funding for education to ensure that children — no matter where they live in Minnesota — receive a good education.
“All parts of the state have cities that provide basic services,” she said. “And if we limit funding to what is raised locally, at the same time citizens are paying income and sales tax that goes to the state, and we don’t recognize a partnership inherit in that we do send revenue south as well, the state will not function well.”
Because LGA makes up a majority of the general fund, Jaksa and many other officials from cities in the coalition are concerned that it could face additional cuts when the Legislature convenes and begins to look for ways to reduce another state budget deficit.
Under the current LGA formula, many cities, including International Falls, will face huge cuts. She said it’s time to fix the formula by finding more money for LGA.
“The coalition has created a strategy for getting LGA funded more completely,” she said. “I’m not doing heavy lifting, our lobbying group has created a statewide strategy.”
Where will the additional money come from to fund more LGA? Department of Revenue Commissioner Myron Frans is pushing for tax reform that could include collecting sales tax due on sales via the Internet. Jaksa said that could bring an additional $300 million to $400 million — about 2 percent of the state’s biennial budget — into the state’s coffers. LGA, she said, accounts for about 2.5 percent to 3 percent of the total state budget. She said Frans has also talked about expanding the sales tax to additional items and dropping the rate.
Frans has also discussed ending some deductions on income taxes, which she said would bring in an additional $28 billion.
Funding to the state from property, income and sales taxes was once more equal. But because cities have been forced to increase property taxes to make up for about 10 years of cuts to LGA, property taxes now make up about 40 percent of the state’s funding, with 20 percent coming from sales tax and 33 percent from income tax.
“We need to take a balanced approach with revenue, because we have a state deficit again,” she said.
While unlikely, should LGA be eliminated completely, Jaksa said the city would consider serious cutbacks, first looking at the outside agencies it supports and then the city’s core services.
“I don’t know what we would do,” she said. “We certainly couldn’t triple property taxes.”
Jaksa said it’s important to stabilize revenue streams into the state and create an environment that grows the tax base, so places like International Falls are not so dependent on LGA.
And ways to do that, she said, are also expected to be brought to the Legislature. Among those ideas is increasing an angel tax credit for rural businesses.
The coalition, she said, will try to get rural legislators together to discuss LGA. She said legislators not familiar with the role LGA plays in the state will need to be educated and rural legislators reminded of the common bond their cities share.
“We need to try to build that partnership among the rural legislators,” she said.
Jaksa said International Falls is fortunate to be represented by Sen. Tom Bakk and Rep. David Dill, who understand LGA and its need. And having Bakk serve as the majority leader of the Senate will be helpful.
“But Tom Bakk has to sell it to the whole Legislature,” she said of finding more money for LGA. “The formula needs to be changed for our benefit and the benefit of others and if it doesn’t we have some big issues.”
