Cities hope for government aid increase in 2023

By Anne Holzman

City officials across Minnesota will enter January with recent municipal tax hearings on their minds and with ideas about how the state Legislature might address increases in home property taxes.

Lauderdale city officials are joining a chorus of local government officials who favor increasing state aid to cities. Mayor Mary Gaasch told the Bugle she’s concerned about her city’s increase in property taxes, which she attributed in part to a reduction over the years in local government aid.

“Eventually the loss of LGA means property taxes will not be affordable for homeowners,” Gaasch said.

She said she intends to raise the issue in meetings with legislators in the coming months. “We’re looking forward to their support,” she said.

The new legislative cycle brings challenges and opportunities. The challenges include new House and Senate district boundaries and new faces in both chambers. This year’s big opportunity appears to be control of both chambers and the governor’s pen by the Democrats, who have historically favored aid to municipalities.

A lingering state budget surplus also gives officials hope. At the same time, a flood of federal aid that filled budget holes during the coronavirus pandemic is likely drying up.

State aid takes many forms, but two of them affect the cities’ bottom lines most directly. The first is LGA, which is granted to cities across Minnesota based on population, housing density and other conditions.

The second is the fiscal disparities program, or FD, funding that is specific to the Twin Cities metro area. It attempts to balance the variation of tax bases (industrial, commercial and residential) across the region. In theory, this keeps cities from competing with each other and encourages non-taxable uses of funds for things such as parks and conservation areas.

Asked about the importance of LGA, Metropolitan Council member Peter Lindstrom, responded, “LGA and FD have been invaluable in ensuring that communities with aging infrastructure and limited opportunities for growth are able to provide the services we all expect.”

Lindstrom was on the Falcon Heights City Council from 1999 to 2007 and then mayor from 2009 until he left in 2018 to take a seat on the Metropolitan Council.

Gary Carlson, intergovernmental relations director at the League of Minnesota Cities, said that while the state has increased LGA funding most years (with notable drops during recessions), “the buying power of LGA has diminished” since it started in 1986.

 Lauderdale has lost ground in both LGA and fiscal disparities for 2023. The city will get $47,000 less LGA compared with 2022 and a drop in fiscal disparities of more than $17,000, for a combined negative impact of almost $65,000 out of a $1.6 million budget.

Falcon Heights has seen steady levels of LGA and even a slight increase for 2023, but the city did suffer a slight drop in fiscal disparities funding.

City administrator Jack Linehan said, “Communities with larger levy increases tend to see an increase in fiscal disparities the following year.”

Rising property values, coupled with stabilized expenses for public safety, have meant smaller levy increases. Linehan said Falcon Heights has not been discussing legislative lobbying.

Carlson noted that fiscal disparities funding depends on commercial and industrial property values, which tanked during the pandemic.

In a September 2022 policy paper, he estimated that 2022 tax receipts would result in about a 2 percent decrease in the pool of money for 2023, inevitably causing declines for metro-area cities receiving them.

Meanwhile, Carlson noted home property values across the state have risen dramatically, attributing that gain to a wave of home buying during the pandemic. He highlighted an estimated 17% growth in homestead values and a 24% increase in cabin (second home) values statewide.

Carlson said LGA increased steadily from 1986 to 2002, then took a dive as the country found itself in a post-9/11 recession. The Great Recession in 2008 caused another tumble.

Taking inflation into account, the state has never caught up again with those earlier levels of aid. 

Anne Holzman covers Falcon Heights and Lauderdale government news for the Bugle.

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