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Balancing the budget on rural Minnesota

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By Matt Entenza and Jeff Van Wychen

Minnesota 2020

State aid to rural Minnesota cities has declined nearly 50 percent over the past six years and greater Minnesota mayors are worried about providing critical city services as a result. These are among the findings of a survey of greater Minnesota mayors conducted by Minnesota 2020, a Saint Paul-based think tank, in conjunction with Macalester College and the Coalition of Greater Minnesota Cities.

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A review of the facts reveals that mayors have good reason to be concerned. Large cuts in local government aid (LGA) have compelled cities to increase property taxes at the same time that they are cutting funding for basic local services including public safety, parks, and libraries.

In Park Rapids alone, inflation-adjusted state aids and credits have fallen by $159 per capita from 2002 to 2008. In response, local leaders have reduced city revenues by $30 per capita and increased city property taxes by $128 per capita. In short, at the same time that the city has had to increase property taxes, funding for local services has fallen.

Other cities in the region, including Nevis, Menahga and Detroit Lakes, have seen a similar trend over the last six years.

The LGA program, at its core, was established as a revenue sharing program to allow those closest to the community - local government - to provide services using money raised by the state in a fair, progressive way. Large LGA cuts force rural cities to raise property taxes or provide fewer services, and mayors are telling us there's very little left to trim.

In 2002, State House of Representatives Majority Leader and gubernatorial candidate Pawlenty told greater Minnesota cities, "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." However, after his election in 2002 but before taking office in early 2003, Pawlenty did an about face and urged Governor Ventura to cut city LGA - a request Governor Ventura declined.

Governor Pawlenty eventually succeeded in making large cuts in city aid in 2003 and 2004. Furthermore, the Governor took another $66 million from cities in December 2008. After these cuts, real per capita state aid to Minnesota cities is less than at any point since the inception of the program in 1972.

True to form, the state is once again trying to balance the state budget on the backs of Minnesota cities. Over the next two years, the Governor's budget proposes cutting city aids and credits by another $280 million below current law levels. We understand that the state is facing a huge budget deficit and programs will be cut. However, LGA, which makes up only three percent of the state's budget, has been cut so severely in recent years that cities and city residents are suffering.

Minnesota 2020's survey of mayors found that additional aid cuts are likely to cause property tax increases as well as further cuts in funding for parks and libraries, police officers, firemen, and transportation. Ninety percent of mayors told us that LGA cuts hurt the quality of life in rural Minnesota and nearly 80 percent said LGA cuts hurt economic development in their cities.

The mantra from the Governor's office is that cities need to control their spending growth, just as the state has done. In fact, data from the State Office of Management and Budget prove that local governments in general and cities in particular have been more frugal than state government in recent years.

It is not surprising that greater Minnesota mayors are upset with state policies. It is time for the Governor and state policymakers to practice the accountability they preach by relying more on state spending cuts and state tax increases to solve the state's budget problems and less on reductions in funding that cities rely on for basic day-to-day services that keep our communities safe and thriving.

The full report, including the findings of the mayors' survey, can be found at the website of Minnesota 2020 at www.MN2020.org.

Matt Entenza is the Minnesota 2020 board chair and Jeff Van Wychen is a Minnesota 2020 fellow.

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