Tax bill has smaller LGA reform, limits on city levy
ST. PAUL – The final Tax Omnibus bill approved by the Minnesota House and Senate last weekend will have a less robust reform of the LGA formula and limits on the taxation options for cities.
The LGA reforms were designed by a coalition of metro and rural organizations that radically simplified the distribution formula to a few factors, allowing direct impact of LGA funding levels to be clearly seen. The current formula carries confusing factors and creates uneven results from city to city. The formula benefits metro cities to a higher degree, but gives rural cities a locked-in funding level that gradually increases over several years.
The bill also increases total LGA allocations by $80 million, which reform advocates say will help reverse some of the cuts to the program. The Legislature intends the funding to help reduce property taxes by giving cities what they lacked when they raised taxes to compensate for LGA cuts.
New Ulm will gain $600,000 more in LGA funding next year instead of a sizable funding reduction under the current schedule.
But, the provision that increases total LGA funding in pace with inflation was stripped over the weekend to make it more acceptable for Republican legislators, who claim it would “lock in automatic spending increases.” LGA reform advocates have argued that regardless of the cuts to the program, the failure to adjust for inflation means LGA has been funding at a much smaller proportion than several years ago. They argue that it means even keeping funding stable means less impact is made in LGA’s intended purpose of helping all Minnesota cities to have high quality operations like police departments and streets.
Cities limited in taxation
A provision added to the bill will prohibit cities with populations over 2,500 and counties over 5,000 from being able to raise property tax levies more than 3 percent for 2014 budgets. The limitation even overrules the property tax levy limit exempts granted to cities that adopted the Performance Measurement survey.
New Ulm initially adopted the survey in 2011 to allow more budgeting options when after it received $1 million less in LGA allocation than scheduled. Despite the option, the City ultimately made major cuts to its budget in all departments, allowing for less than a 1 percent tax increase for 2012 and just a 4.5 percent increase in 2013. The level of cuts for New Ulm has resulted in a “only-stay-flat” budget this year, the City falling further behind in its street repairs and even a brief consideration to end its K9 unit.
City Manager Brian Gramentz said the hope is the increase LGA funding will compensate to make the limit a non-factor, though the increased funding will not totally make up the cuts.
The long-term goal with the survey is to collect several years worth of information to create a database to track response to city operations. The information from the last two years of the survey has been used in selecting budget cut emphasis areas and in determining a better method for where to store snow after clearing streets in winter.
The final passage of the Tax Omnibus bill was still being worked on by Monday evening.
(Josh Moniz can be e-mailed at email@example.com)