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Changes to city aid formula may mean losses for Morris

MORRIS -- The news coming from St. Paul about the future of Local Government Aid, a program designed to help small cities fund basic services, may not be great for Morris.

Although Governor Mark Dayton has proposed injecting an additional $80 million into the program starting in 2014, his administration is also proposing a change to the formula used to distribute LGA that would leave Morris with less money than it receives now.

“I'm getting a little bit worried that this formula issue is gonna wind up being a big thing,” City Manager Blaine Hill told the Morris City Council on Tuesday. “When they start tweaking with the formula, that basically says the rules for why we get what we get are going to change, and when they change them, we don't know what we're going to get.”

Formula shifts where LGA is distributed

The LGA distribution formula has grown to a complex math task in the decades since the program began. Factors to determine aid have ranged from the number of accidents to average household size. What has remained consistent, however, is criticisms of the formula.

“[LGA] is designed to go to cities that have an unusually high need or burden and they don't have the tax base to satisfy the need,” said Revenue Commission Myron Frans. “That focus really makes it difficult. How do you define what is need, and how do you define what is enough of a tax base to take care of it?”

During a meeting with a working group of 15 mayors, Frans said the request was to make LGA more predictable and simpler.

As a result, the new proposed formula is based on just three factors: population, the amount of tax-exempt property and the number of homes built before 1970, said Frans.

Under the Dayton plan, which increases the LGA program by about 19 percent in 2014, each of the 729 cities that receive LGA this year would receive $30 per resident more in 2014. Beginning in 2015, each city’s LGA change would be limited to $10 per person, with no reduction allowed to be more than $300,000 a year.

“The goal is to make sure no city is worse off in the next three to four years, but a lot of people like to run it out 10 years,” said Frans. “It's hard to project a formula into the future like that.”

Eric Willette of the Minnesota Revenue Department reported that by 2018, 686 cities would get more aid, with 67 getting less – mostly higher-wealth suburbs. Also receiving less money would be many cities from 1,500 to 3,000 population.

Tim Flaherty of the Coalition of Greater Minnesota Cities said that he does not see a pattern in how the Dayton plan would affect cities around the state, but overall the formula seems to favor Twin Cities communities.

According to CGMC, when the initial $80 million bump is phased in and being distributed with the new formula, the metro area will receive about $72 million of the total, while just $8 million will go to greater Minnesota. Minneapolis and St. Paul will receive $41.6 million of the new money.

LGA changes may mean instability for Morris

Morris' estimated Local Government Aid allotmentsFor a city like Morris, where LGA payments make up nearly two-thirds of the city budget, changes to the formula make it difficult to plan ahead.

Morris' total budget is about $3.3 million. In 2013, about 64 percent of the budget – $2.1 million – came from LGA. If the state continues with the current LGA formula, Morris will lose about $53,000 in 2014 and maintain that level through 2018.

Under the governor's budget proposal, the city will gain more than $160,000 in 2014, jumping to $2.27 million for the year, but be back down to $2.06 million by 2018.

The problem with injecting money in the short-term is that it can't be used for programs that will continue to grow or need long-term support.

“If we get more money in local government aid next year but we know it's going to go away in four years, what do you spend it on?” Hill asked. “You can't increase your operation or expand what you’re doing for service because you know you're going to have to take it back.”

It also makes it difficult to make long-range planning decisions, noted Council Member Kevin Wohlers.

“We could make decisions today and three or four years from now we may not have the money to do it,” Wohlers said.

Don Davis of the Forum News Service contributed to this story.