DeKruif: Local Government Aid and County Program Aid Have Been Frozen, Not Cut

Editor's note: The following was written by Sen. Al DeKruif (R-District 25), who represents in the Minnesota Legislature.

Since the close of the legislative session, I’ve had the opportunity to meet with many people in district and answer questions about our new two-year balanced budget plan. Two of the most common questions I receive are: “Are you cutting (LGA) Local Government Aid” and “How will loss of Market Value Homestead Credit affect me?”

For all Minnesota cities and counties, Local Government Aid and County Aid has been frozen at either their 2010 paid OR certified 2011 aid amount, not cut. Responsible city managers should have known, with a $5 billion deficit, they would not receive previously projected LGA increases. In this difficult economy, most recipients of state aid were reasonably worried about cuts; therefore, flat funding should be a relief.

Cities and counties may also have property tax changes this year, and some of the information being spread on this topic has been unclear at best. What will take place is a change from the Market Value Homestead Credit (MVHC) to a new Market Value Homestead Exclusion (MVHE). This will begin in calendar year 2012. In 2011, all local governments will receive the same reimbursement as they did last year.

What this means for homesteaded property owners is a more stable tax credit. Since the new homestead exclusion is calculated on the front end, when tax rates are set, there is no reimbursement to local governments. The local governments will receive the full amount that they levy and there is no possibility of a shortfall in levy receipts due to the state not reimbursing local government for the homestead credit.

Some DFL legislators have tried to make the change partisan, and lay the blame for local tax increase choices on the Legislature. The demise of the MVHC has been a long time coming, and was lobbied for by The League of Minnesota Cities, the Association of Minnesota Counties, the Minnesota Township Association and the Minnesota Inter-County Association who all testified in support of this reform during public testimony on the Senate omnibus tax bill. The DFL even called for its end in 2007, with good reason. The MVHC program has been unreliable. Since its inception, local governments have been fully reimbursed only one time.

Year after year local governments were forced to guess what their compensation would be, and inevitably were forced to cut, or raise taxes on all types of property to make up the difference. Therefore, much of the impact on local levies and other properties should have already occurred in past local government budgets.

Changing to the direct-to-taxpayer MVHE alleviates this problem over the long term. Rather than reducing MVHC payments year after year, the Legislature provided local governments with the consistency in local tax revenues they have been asking for. You can also view some good, non-partisan information on the topic, at these websites: Minnesota House of Representative Research Department or League of Minnesota Cities.

An additional reform in the tax bill was the $30 million expansion of the homeowner property tax refund program, which provides direct relief to homeowners whose property taxes are high relative to their incomes. Low- and middle-income taxpayers will now be able to capture more property tax relief through this program directly instead of through local government aid programs.

Following are some of the local funding amounts compiled by non-partisan Senate staff. As always, feel free to write or contact me if you have any questions regarding LGA, or any other legislative issue. I look forward to hearing from you.

Local Government Aid:

                     2010 Paid LGA   2011 LGA        2012 LGA
Northfield       $2,243,397       $2,243,397      $2,243,397
Lonsdale        $245,346          $245,346         $245,346
New Prague    $515,478          $515,478         $515,478
Montgomery   $628,916          $628,916         $628,916
Belle Plaine     $54,473            $54,473          $54,473
Arlington        $636,892          $636,892         $636,892
Waterville       $438,284          $438,284         $438,284
Elysian           $20,524            $20,524           $20,524
Cleveland*     $126,548          $124,558          $124,558
Le Center       $708,459          $708,459          $708,459
Le Sueur        $767,922          $767,922          $767,922
Henderson*    $275,087          $265,687          $265,687
North Mankato $1,358,107      $1,358,107       $1,358,107
Mankato          $6,228,727      $6,228,727       $6,228,727

* LGA amounts for 2011 and 2012 were set at either the 2010 amount OR their certified 2011 aid, whichever was lower. In those 2 cities, the amounts for 2011 and 2012 were based on the original 2011 certified aid which was lower than the amount of aid paid in 2010.

County Aid:

                2010 Paid CPA   2011 CPA        2012 CPA
Le Sueur   $816,500          $816,500         $816,500
Rice          $2,787,080       $2,787,080      $2,787,080
Scott        $3,082,002        $3,082,002      $3,082,002
Sibley       $273,026          $273,026         $273,026
Blue Earth $2,434,865       $2,434,865      $2,434,865
Waseca     $819,957          $819,957         $819,957