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Local Government Aid: Actions Speak Louder than Words

September 15, 2014 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

Gubernatorial candidates of all political persuasions support city Local Government Aid (LGA), at least while on the campaign trail. After all, LGA is an important source of funding for city services and helps keep property tax rates at reasonable levels, particularly in communities that have small tax bases or a demographically driven demand for higher spending levels. Few aspirants to the state’s executive mansion campaign on a platform of kyboshing LGA, given the legitimate role it plays within the property tax system and its statewide popularity, particularly in greater Minnesota.

For example, in 2010 candidate Mark Dayton pledged support for LGA while on the campaign trail. For the most part, Dayton following through on this commitment. In 2011, Dayton’s proposed budget contained no cuts to the LGA program (or—for that matter—to any other property tax relief program), despite the fact that the state was facing a $5 billion deficit. Dayton ultimately acquiesced to conservative demands to cut LGA, the renters’ property tax refund, and other property tax relief programs in order to end the 2011 state government shutdown.

With progressives in control of the legislature in 2013, Dayton proposed an $80 million (19 percent) increase to LGA funding, replacing half of the nominal funding cut to the program over the preceding decade. Dayton also cooperated with the legislature to produce the most comprehensive reform of the LGA formula in twenty years, resulting in a better targeted and less volatile distribution of aid dollars. The only disappointment from the perspective of LGA advocates was the failure to enact an ongoing adjustment to the LGA appropriation to ensure that it keeps pace with inflation and population growth in future years, although state policymakers did approve a one-time LGA increase for 2015. All in all, Dayton gets solid marks for following through on his 2010 commitment to LGA.

While nearly all credible gubernatorial candidates voice support for LGA, not all of them follow through. For example, in 2002 candidate Tim Pawlenty made the following statement to a group of city officials regarding his commitment to LGA:

In the near term we need to preserve and protect your aid, government aid, and in the long term too. And I want to make sure that that commitment is there... you know you can’t turn around the state and say I’m not going to increase taxes and then cut LGA in a way that drives up local property taxes. I understand that.

Pawlenty was not the first candidate to renege on a campaign promise, but most at least wait until taking office before doing so. However, after winning the 2002 gubernatorial election in November 2002 but before taking the oath of office in January 2003, Pawlenty urged outgoing Governor Jesse Ventura to cut the December 2002 LGA payment to cities. (Ventura declined.)

After assuming office, Pawlenty sought and achieved a series of LGA reductions. In fairness, Pawlenty was not the first governor to cut LGA during a recession. Twice before—during 1981-82 recession and the 1990-91 recession—city LGA was trimmed. However, the depth and duration of the aid cuts during the Pawlenty years were far greater than anything seen previously. For the sake of consistency of comparison, the graph below focuses on all general purpose city aid, of which LGA is by far the largest but not the only component.*

Total city aid and credit reductions

Despite the fact that the recession of the early 2000s was less severe than either the 1981-82 recession or the 1990-91 recession,† cuts to city aid—measured as a percentage of the aid level prior to the cuts—were over four times deeper. Furthermore, after the 1981-1982 and 1990-1991 cuts, funding for general purpose city aid was restored to its pre-cut level within one or two years. Not so with the 2002-2005 cuts. In fact, two years after the 2002-2005 aid cuts ended, a new round of aid cuts commenced. At the end of the Pawlenty administration, general purpose city aid was 33 percent less than it was at the beginning, even prior to factoring in the effects of inflation. The net result was a dramatic reduction in funding for city services and a dramatic increase in city property taxes.

So when it came to support for LGA, Tim Pawlenty talked the talk, but didn’t walk the walk. Mark Dayton, on the other hand, did both—not only keeping his commitment to increase LGA funding but also participating in substantive reform of the LGA formula. What about 2014 conservative gubernatorial hopeful Jeff Johnson?

In a recent appearance before city officials, Johnson expressed general support for the city LGA program. However, Johnson’s record on LGA as a member of the Minnesota House is less than encouraging. As assistant majority leader of the Republican caucus from 2003 to 2006, Johnson generally supported the Pawlenty fiscal agenda, which included perennial cuts to city LGA. There is certainly no indication that Johnson used his leadership position to block or mitigate the 22.9 percent cut to LGA from 2003 to 2005—the largest cut in the history of the LGA program.

Jeff Johnson’s “legislative record” on his website gives no hint of support for LGA, something that he would presumably tout if there were anything there to tout. The “issues” section of his site contains the standard right wing platitudes about “cutting taxes” and “reducing government” (the same rhetoric that Tim Pawlenty used in justifying his cuts in aid to cities, counties, and school districts), but again is silent on the topic of support for LGA or any other property tax relief program. Apparently candidate Johnson is comfortable talking about his fondness for LGA to city officials, but not on his website where his Tea Party supporters might see it.

When it comes to support for Local Government Aid, actions speak louder than words. Jeff Johnson’s past actions regarding LGA give no indication that his current support for LGA—like Tim Pawlenty’s support in 2002—is anything more than a soothing bromide designed to pacify unsuspecting city officials and local property taxpayers.

*During the 1981-1982 period, general purpose city aid was comprised entirely of LGA. During the 1990-1991 period, city general purpose was comprised of LGA, Homestead and Agricultural Credit Aid, Equalization Aid, and Disparity Reduction Aid. During the period from 2002 to 2012, general purpose city aid consisted of LGA and the city portion of the homestead market value credit.

†This conclusion is based on a model-based ranking of U.S. recessions published in a 2010 issue of Economics Bulletin (volume 30, issue 3).

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