From

Aid To Large Cities Targeted For Cuts
 

Feb 11, 2003

BY BRIAN BONNER and TIM NELSON
Pioneer Press

Minnesota Auditor Pat Awada said on Monday that the state could erase nearly 12 percent of its $4.2 billion deficit in fiscal years 2004-05 with a targeted cut of 43 percent in state aid to cities.

The biggest targets?

Minneapolis, St. Paul and Duluth, three of Minnesota's four largest cities, would bear two-thirds of the cuts in state local government aid, called LGA, under a new assistance formula proposed by Awada at a news conference.

Rochester, the state's third-largest city, also would take a substantial hit. The four biggest cities are the largest recipients of LGA, a program started in 1971 to hold down local property taxes in less-affluent cities. Rural cities also are major beneficiaries, while many suburbs get little or nothing. Last year, the state spent $565 million on LGA.

But Awada found that large LGA recipients also spent at levels higher than the median on "non-essential services" — a broad range of spending that includes parks and recreation, housing and economic development and libraries. She also said cities receiving the most per-capita LGA had lower per-capita taxes.

Awada's findings found high-level endorsement, in principle, from Gov. Tim Pawlenty, who will outline his 2004-05 budget on Feb. 18. Without getting into the specifics of Pawlenty's proposed cuts, spokeswoman Leslie Kupchella said that the governor "agrees overall with the results he's seeing in the report."

Although LGA was established with "terrific purposes" in mind, Kupchella said, Pawlenty believes the state subsidy has evolved into "a virtual slush fund" that encourages excessive city spending.

State Finance Commissioner Dan McElroy, a former legislator and former mayor of Burnsville, called the auditor's report "a useful part of the local aids discussion." He is a key architect of the budget Pawlenty will propose next week. "But I've never suggested cuts this deep," McElroy said.

Minneapolis, St. Paul and Duluth are Democratic strongholds in a state governed by Republicans, including Awada and Pawlenty, both from Eagan.

Kupchella and the auditor, however, said partisan politics has nothing to do with the issue. Awada said the state's current LGA formula is the problem and that changes are long overdue.

Awada said the state subsidy encourages city spending, especially on nonessential services, which she defined as anything other than general government, public safety and streets and highways.

"This study shows that when it comes to overall city spending, the more LGA that a city receives, the more they spend," Awada said.

Pawlenty has promised not to raise taxes to close the $4.2 billion gap that exists between projected state revenue in fiscal 2004-05 of $26.8 billion and projected spending of $31 billion. Based on last year's numbers, Awada's plan would cut about $243 million, or about 43 percent, of the LGA program.

Deep LGA cuts could be made, Awada contended, without harming essential services or forcing cities to raise property taxes.

City officials and their state lobbyists, however, hotly disputed that contention.

Gary Carlson, director of intergovernmental relations for the League of Minnesota Cities, said that a 43 percent cut to LGA would mean "extreme service cuts or extreme property tax increases" for the hardest-hit cities.

"It doesn't sound like a balanced way to reduce state aid," Carlson said. "In the past, the most acceptable way has been to spread the pain as equally as possible across the state."

St. Paul and Minneapolis city officials agreed.

"The city won't be the same," said Robin Madsen, who drives St. Paul's bookmobile and is president of American Federation of State, County and Municipal Employees Local 1842. The cut would translate into about 700 layoffs in St. Paul alone.

With a $64 million LGA cut, as outlined by the auditor, St. Paul would be reduced to its fire and police departments, public works, license office, mayor's office and city council. The city would either have to completely shut down everything else, from the libraries to parks to the city attorney's office or raise property taxes 150 percent to make up the loss.

"I can only hope this is a trial balloon that will quickly be deflated," said Paul Ostrow, president of the Minneapolis City Council.

Deputy St. Paul Mayor Denny Flaherty said it's clear there will be some cuts to the program. "But we would find it hard to believe that the governor or the Legislature would impose cuts this drastic."

The report is online at http://www.osa.state.mn.us, the auditor's official Web site.