GRANITE FALLS -- Mayor R.T. Rybak of Minneapolis is urging fellow mayors not to squander the opportunity to propose significant changes in how the state distributes Local Government Aid, even if it means bringing a "politically risky" plan to the Legislature in 2013.
"I'm up for it. I hope you guys are too," said Rybak as he and fellow mayors on Gov. Mark Dayton's tax reform advisory group met Friday in Granite Falls.
The governor appointed 15 mayors in February to recommend tax reforms related to Local Government Aid. The goal is to find the best way to fund city services while putting a lid on rising property taxes, according to Minnesota's Commissioner for the Department of Revenue, Myron Frans.
The group has held previous meetings in Rochester, St. Cloud and St. Paul, and will meet again in Cloquet before developing a recommendation to the governor.
The mayors represent communities small and large, with many different concerns, but some things in common. All are looking for stability in the funding they receive from the state.
Mayor Joyce Nyhus represents Buffalo Lake, population 773, and pointed out that her city council has balked at investing in the community's parks. Uncertainty about LGA payments has the members worried they might lack the funds needed for essential police and fire services, she explained.
Rising property taxes are causing lots of pain in Richfield, but Mayor Debbie Goettel noted that she does not dare count on LGA payments to provide any help when setting the budget. "Because there is no way I can count on it," she said.
Yet the mayors speaking in Granite Falls also made it clear they believe that some form of Local Government Aid is essential. If LGA were to be lost, property taxes in Worthington would double, and the consequences would be dire, according to Mayor Alan Oberloh. "It would be an exodus out of town," he said.
Local Government Aid worked well in the 1990s when sales tax and income tax revenues to the state continued to rise, according to Pat Dalton, of the Minnesota House of Representatives research office. Declines in state revenues in more recent years has led the Legislature to cut the amount of funding distributed to the cities, often making the reductions after cities had already adopted their budgets.
Last year the state distributed about $426 million in LGA payments to cities under a complicated formula that takes into account factors ranging from housing values and population decline to the crime rate. Dalton and Department of Revenue staff members Eric Willette and Nick Greene offered the group a variety of different types of formulas to revise the system and meet the desire by group members for more fairness.
Options range from dedicating a portion of state revenues such as sales tax collections to LGA; grandfathering payments based on the existing system; making straight per capita payments; or, developing an entirely new formula for calculating needs.
No one can predict how a new Legislature will view tax reform, but state Rep. Andrew Falk, DFL-Murdock, and Sen. Lyle Koenen, DFL-Clara City, both told the mayors that changes are needed. "There definitely needs to be some reform, there's no doubt about it," said Koenen.
The advisory group will meet Sept. 14 in Cloquet, and at a later date yet to be determined to put a final proposal together for the governor. It will be considered by the governor when he drafts his budget proposal, which will be released before the Legislature meets. Adding to the challenges of the advisory group's role is the projection that the new Legislature will be facing a $1 billion budget deficit.