Bill to Increase Local Government Aid Heard in Senate Committee

The bill would increase local government aid and county program aid annually by $150 million and index the appropriations to inflation.

The Senate Taxes Committee on March 9 held a hearing on SF 1828 (Sen. Matt Klein, DFL-Mendota Heights), a bill that would increase both local government aid (LGA) and county program aid (CPA) annually by $150 million and index the appropriations to inflation so they would continue to grow in future years.

The bill was laid over for possible inclusion in the Senate tax omnibus bill. The companion bill, HF 1377 (Rep. Dave Lislegard, DFL-Aurora), was heard and laid over in the House on Feb. 8.

Testimony from city officials

Two city officials testified in favor of the bill:

• St. Joseph Mayor Rick Schultz spoke about how local government aid provides essential services for St. Joseph and restrains property tax increases even though it has not kept up with inflation.
• Spring Lake Park City Manager Dan Bucholtz spoke about how local government aid address essential infrastructure and public safety projects.

County commissioners from Olmsted and Dakota counties testified in support of the bill as well. The League, along with the Coalition of Greater Minnesota Cities, Metro Cities, the Minnesota Association of Small Cities, the Association of Minnesota Counties, and the Minnesota Inter-County Association all signed onto a letter in support of the bill and explaining how essential it was to the state-local fiscal partnership. View the letter of support from the League and other local government organizations (pdf)

What the bill would do

SF 1828 would update the LGA formula factors to reflect current fiscal and demographic information for cities. This update is based on research jointly conducted by the League of Minnesota Cities, Coalition of Greater Minnesota Cities, Metro Cities, and the Minnesota Association of Small Cities.

The bill would also increase the annual LGA appropriation by $150 million to $714 million, a 27% increase. The inflationary increase in the bill has a floor of 2.5% and a ceiling of 5%, so the LGA increase would be expected to grow to $744 million in fiscal year (FY) 26 and $772 million in FY 27.

Look up estimate of your city’s LGA distribution under the proposed bill

The non-partisan Senate Tax Counsel posted a spreadsheet that provides estimates of each city’s LGA distribution under the formula revisions and the $150 million appropriation increase contained in the bill (pdf).

Background on LGA formula revisions

The updated formula factors included in SF 1828 are the result of a request by the House and Senate Taxes Committees at the end of the 2021 legislative session to review the existing LGA formula factors to reflect the current fiscal and demographic status of cities. The four city organizations worked together with the assistance of staff from non-partisan Senate Counsel and Research, House Research, and the Department of Revenue to evaluate the current LGA formula to determine if any updating or revision of the formula would be desirable.

The work group’s initial meetings largely focused on technical analysis of the existing formula and factors used to calculate each city’s “need.” The analysis of the 2013 formula factors with updated city financial and tax base data, decennial census data, and American Community Survey data indicated that the existing 2013 formula factors are no longer functioning as well to measure each city’s formula need in 2023.

The research effort then focused on identifying and testing new or updated factors to improve the statistical strength of the formula to measure each city’s formula need factor, including the statistical evaluation of more than 40 potential variables.

That research focused on one set of measures that best improved the statistical strength of the formula “need” factor for the three city tiers:

1. Cities under 2,500 in population

• • Logarithm of population, which allows the elimination of the existing $610 per capita cap on LGA.

2. Cities 2,500 to 9,999 in population

• • The percent of housing built before 1940.
  • The population decline percentage since the peak population level of the last 40 years.
  • The percentage of tax base classified as commercial, industrial, and public utility.
  • The average adjusted net tax capacity for cities in the tier.

3. Cities 10,000 and higher in population

• • The percent of housing built before 1940.
  • The population decline percentage since the peak population level of the last 40 years.
  • The percentage of tax base classified as commercial, industrial, and public utility.
  • The percent of population age 65 or older.
  • The average adjusted net tax capacity for cities in the tier.

These are the same factors proposed in the 2022 legislative session that were included in the House omnibus tax bill but ultimately were not included in the tax conference committee agreement that did not become law. The bill does not change other existing features of the system, including the use of each city’s tax base or the guardrails that limit the reduction a city could experience in any year.

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