Minnesota 2020 study: LGA cuts hurt quality of life in Minnesota cities

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In six years, Bemidji lost nearly 50 percent of its state aids while increasing property taxes 68 percent, a new study says. And city officials want to stop the bleeding.

Given Gov. Tim Pawlenty’s late-year unallotment and his proposed 2010-11 budget proposal, Bemidji will lose $1 million in Local Government Aid, Mayor Richard Lehmann said Tuesday.

“With the cuts that have occurred, Bemidji has lost a considerable amount of money over the course since 2002 in the form of Local Government Aid and revenues from the state,” he said.

A new study, “Bleeding Communities Dry,” by the progressive think tank Minnesota 2020 shows that Bemidji since 2002 has lost $2.26 million in state LGA and credits, in figures adjusted for inflation, a 47.6 percent cut or $208 per capita. It has raised property taxes, in part to make up for the state aid loss, 68 percent since 2002, or $82 per person.

That leaves a per capita revenue base that is $125 lower now than in 2002.

“In a community like Bemidji, where roughly 50 percent of the property within the city of Bemidji where the property is not taxable, the burden of the property taxes gets shifted more to a smaller section,” he said. “They’re paying a larger percent of the bill by virtue of that.”

The loss of state aids and higher property taxes as a result “have hurt us immensely,” Lehmann said. “The things that suffer the most are the things that people use for recreation and leisure. And that is the parks and recreation options and offerings that the community is able to make, as well as libraries and cultural types of things.”

The city is also unable to donate to various organizations that add to the community’s quality of life, Lehmann said, “because all of the revenue the city has, has to go toward providing the basic services that the citizens have come to expect.”

The same story is repeated across Minnesota in rural cities, where the Minnesota 2020 survey of rural Minnesota cities found that 90.7 percent agreed that the LGA cuts hurt the quality of life in their cities. Of 81 mayors, 43 responded to the survey, report author Jeff Van Wychen, a Minnesota 2020 fellow, said Tuesday.

“We are deeply concerned that the Minnesota budget over the last six years has been balanced on the backs of our rural Minnesota communities,” Matt Entenza, Minnesota 2020 founder and board chairman, said during the news conference at Bemidji Regional Airport.

“Over three-quarters of mayors say that parks and libraries will have to be cut, and almost 50 percent of mayors say that if there are additional cuts, we’ll see our important public safety services — police and fire, snowplowing, things we count on in our rural communities — being adversely impacted,” said Entenza.

With further LGA cuts, the public service last to reduce on the mayors’ survey was employee positions, at 4.7 percent, but with reason.

“The fact that is one of the bottom ones … it should be noted that back when we took our first wave of cuts in 2003, that’s where a lot of the trimming went,” Bemidji City Councilor Ron Johnson said. “It’s gotten to the point where we just don’t have the people to cut.”

Cuts in LGA have been led by Pawlenty, a Republican, to help balance the state budget in times of deficit. The state budget now faces a $6.4 billion deficit in the next biennium, which will be helped by $2 billion in federal stimulus funding.

“When budgets have been balanced over the course of the last six years, rural communities have seen sharp drops in their amount of state assistance,” said Entenza, a likely 2010 Democratic gubernatorial candidate.

“The reason for the state assistance is to make sure that all of our communities can at least have basic amounts of public safety and other public amenities — things that our communities need so that they can thrive and do well,” he said.

Adjusted for inflation, rural communities are spending 10 percent less than they did six years ago, he added, and operating more efficiently. And most cities are operating with fewer employees. At the same time, state government hasn’t taken a similar level of cuts.

Minnesota 2020 is asking for a balanced approach. “We recognize that there are going to have to be cuts to the state budget,” Entenza said. “The deficit is substantial. But it shouldn’t be done on the backs of our rural communities who have suffered so much.”

LGA cuts under Pawlenty’s budget proposal “is fairly large,” said Wychen, with at least a 10 percent cut of the revenue base, which is the city’s levy plus aid it receives. “The governor’s cuts were fairly steep.” The Senate DFL’s proposal cancels proposed LGA increases for 2010 and 2011, but would not cut the aids already certified for 2009.

House DFL tax chairmen on Monday came out with a proposal to mitigate LGA cuts by allowing counties to issue a local sales tax of 0.5 percent. “If enough counties adopt that local option sales tax, enough revenues would be generated so that hopefully there would not have to be extremely large cuts either to counties or cities,” Wychen said.

Under that proposal, county boards could vote for the increase, subject to a reverse referendum of voters, and any current city sales taxes would be ended. The counties, however, would have to use their tax to pay for whatever the city tax levied. The excess would go to the county, with half of that dedicated to property tax reductions.

Bemidji would be unique, as its 0.5 percent sales tax, once done collecting for parks and trails improvements, would run for 40 years to pay for Bemidji Regional Event Center construction.

In 2006 figures, the latest available, Beltrami County’s taxable sales of $391.5 million would yield $1.96 million with the half-cent sales tax. The city of Bemidji’s $262.6 million in taxable sales yields $1.3 million with a half-cent tax.

Under the House DFL proposal, $1.3 million of the county tax would continue to pay for the event center, leaving $644,500 of which $322,250 would be targeted to reduce the county’s $17 million property tax levy. The other $322,250 would help mitigate the $2 million expected cut in County Program Aid from the state, of a total of $3.55 million.

“That’s not much of an offset,” Entenza said.

“It’s a very interesting proposal,” Lehmann said. Asked about the possibility of a county sales tax paying for the event center, “it would be an interesting discussion.”

“The proposals that have been put forth by the governor and potentially by the House would have an impact mostly on rural communities, because the wealthier suburban communities in the Twin Cities don’t get this state aid,” Entenza said. “What we’re calling for is fairness across the board and fairness in sharing the pain.”

Tags: state and region, bemidji, lga, localgovernment, aid, minnesota2020, daily updates