What is LGA?
Local Government Aid (LGA) was established as a method of providing fairness in property taxation across the state. The underlying philosophy of the LGA program is that no matter what corner of the state we live in, no matter how poor a city’s property tax base is, and no matter how high a city’s need is, we all have the right to needed services. These services include police and fire protection, libraries, parks and recreation programs, and safe roads year-round, among others.
Cities pay for services through a combination of property tax revenues and state LGA payments. LGA is distributed to cities based on a formula that identifies a city’s need versus its effort, or ability to raise sufficient revenues. Some cities do not receive LGA because they have higher property wealth or lower need than other cities, and can raise enough revenues to cover the cost of services while maintaining a fair tax rate.
However, for the majority of the state, this is not the case. Most cities are unable to cover the costs of services through property tax revenues alone and require LGA to maintain a fair tax rate. For example, the cities in Graph A* generate roughly the same amount of revenue per capita ($467 to $482), yet in order to maintain a fair tax rate, cities with lower property wealth require LGA. Despite offering the same level of services, tax rates among these cities vary from 14% to 54%. Without LGA, this disparity would skyrocket.
What are the consequence of cutting LGA?
When LGA is cut, property taxes go up, services are reduced, or a combination of both occurs.
As Graph B* shows, without LGA funding, cities would have to raise property tax rates dramatically in order to provide a consistent level of services. Furthermore, tax rates among cities would vary considerably—to a great enough extent that many residents and businesses would not be able to afford their current cities.
On the flip side, Graph C* shows what would happen if LGA was eliminated and cities maintained their current tax rates. Unable to spend equal amounts on similar services, the level and quality of services would vary significantly across the state. Would Austin or St. James be able to afford libraries? Would St. Cloud’s streets be as safe as Rogers’ in the winter?
Minnesota needs LGA—now more than ever
In an economic crisis such as this one, our cities must be attractive places for businesses to grow and residents to live. By keeping property taxes low, LGA allows businesses to inject money into expanding their workforce and investing in their communities; at the same time, LGA allows residents to keep more money in their wallets by providing needed services at an affordable price.
Not only do cities attract jobs and businesses; they aslo directly employ thousands of workers statewide, from police officers to librarians to firefighters to snowplow drivers. Retaining these jobs and keeping Minnesota communities strong is critical, and must be a top priority for the state.
*Data source: Minnesota Department of Revenue. Graph B assumes all lost aid is levied back.