Focus on New Laws: Small Cities Assistance Account Funded

The omnibus transportation bill contains $8 million per year for the Small Cities Assistance Account for the biennium beginning July 1, 2017.
(Published Jun 5, 2017)

One of the positive outcomes of the special session that concluded May 26 is the Legislature’s appropriation of funds for the Small Cities Assistance Account. Securing this appropriation was one of the League’s legislative priorities for 2017.

The omnibus transportation bill (Chapter 3), which was signed into law on May 30, contains $8 million per year for the Small Cities Assistance Account for the biennium beginning July 1, 2017.

History of the program
The Small Cities Assistance Account, a program created in 2015, is aimed at providing street funding for cities that do not receive municipal state aid (MSA) because they do not meet the 5,000 population eligibility threshold for dedicated funds (gas tax, tab fee, and motor vehicle sales tax revenues) established in the state’s constitution.

The program received one-time funding of $12.5 million in 2015. The 2017 transportation bill provides two years of funding from the general fund for the account, but it does not provide a dedicated revenue source for future years.

Funds are distributed through a formula to the 704 Minnesota cities with populations below 5,000. Payments will be made concurrently with local government aid (LGA) payments from the Minnesota Department of Revenue.

FAQs
Here are answers to frequently asked questions about the Small Cities Assistance Account:

Q: Do I need to apply for funds from the Small Cities Assistance Account?
A: No. Cities with a population under 5,000 automatically receive payments from the Small Cities Assistance Account. Funds are distributed on a formula basis and will be received concurrently from the Minnesota Department of Revenue with July and December LGA payments.

Q: Will this account be funded in future years?
A: The 2015 Legislature created the Small Cities Assistance Account as Minnesota Statutes, section 162.145. Although the account was created in statute and will remain there unless it is repealed by a future Legislature, it has only been funded twice. The League is working to secure ongoing and increased funding for the account, but cities should not automatically build this revenue into their budgets for FY 2020 and beyond.

Q: Are there restrictions on how my city can spend the money?
A: The law provides that funds distributed through the Small Cities Assistance Account are available only for construction and maintenance of roads located within the city. Eligible expenses include:

  • Land acquisition, environmental analysis, design, engineering, construction, reconstruction, and maintenance.
  • Road projects partially located within the city.
  • Projects on county state-aid highways located within the city.
  • Cost participation on road projects under the jurisdiction of another unit of government.

Q: Is my city required to document and report use of the Small Cities Assistance Account funds received?
A: The law currently does not contain a reporting requirement; however, the League advises cities that as a best practice, they should keep careful records of their use of Small Cities Assistance Account funds. This documentation will be helpful to future efforts to secure new and dedicated funding for the Small Cities Assistance Account.

Q: Since the funds are coming from the state, do projects funded from the Small Cities Assistance Account have to meet MSA standards?
A: The law provides that projects funded with Small Cities Assistance Account dollars are not subject to state-aid requirements unless the project is part of a county state-aid highway project.

Q: Is there a time limit on spending my city’s appropriation from the Small Cities Assistance Account?
A: The law is silent on when cities must expend funds. That said, the League recommends that cities put the funds to good use during the current fiscal year if possible. The League understands cities have already budgeted for and planned projects for this construction season, and could not have anticipated this new revenue during their budgeting process; however, using the funds this year will demonstrate to the Legislature that funds were put to the intended use in a timely manner.

Q: How does the distribution formula work?
A: Below is the distribution formula as enacted:

(a) In each fiscal year in which funds are available under this section, the commissioner shall allocate funds to eligible cities.

(b) The preliminary aid to each city is calculated as follows:

  1. Five percent of funds allocated equally among all eligible cities;
  2. Thirty-five percent of funds allocated proportionally based on each city’s share of lane miles of municipal streets compared to total lane miles of municipal streets of all eligible cities;
  3. Thirty-five percent of funds allocated proportionally based on each city’s share of population compared to total population of all eligible cities; and
  4. Twenty-five percent of funds allocated proportionally based on each city’s share of state-aid adjustment factor compared to the sum of state-aid adjustment factors of all eligible cities.

(c) The final aid to each city is calculated as the lesser of:

  1. The preliminary aid to the city multiplied by an aid factor; or
  2. The maximum aid.

(d) The commissioner shall set the aid factor under paragraph c, which must be the same for all eligible cities, so that the total funds allocated under this subdivision equals the total amount available for the fiscal year.

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