LGA appears to be on upward trend

MARSHALL – After 10 years of cuts, Local Government Aid for Minnesota cities is projected to increase in 2014. It’s good news in more ways than one, a Minnesota-based think tank reports.

Updated LGA formulas, renewed support for LGA in the state government, and reinstated tax credits are all factors that will lead to lower property taxes for southwest Minnesota residents.

On Monday, Matt Entenza, a senior fellow with the nonpartisan Minnesota 2020 think tank, shared some of the data the organization has gathered in studying LGA and its effect on property taxes around the state.

The city of Marshall received about $2.1 million in LGA for 2013. But that total is the result of significant state cuts over the past decade. Between 2002 and 2013, the city has lost more than $2 million worth of state aid and credits, Entenza said. At the same time, property taxes in Marshall increased by more than $1.5 million, and the city’s revenue base shrank by more than $500,000, he said.

Minnesota 2020’s research found that Marshall was far from being the only Minnesota city in that situation, Entenza said. All around the state, property taxes were increasing to help make up for LGA. At the state level, reducing LGA and funding for public schools wasn’t so much a solution to state deficits, as it was shifting the cost of essential services onto local property taxes, he said.

“Property taxes are the least fair taxes, because they don’t account for a person’s ability to pay,” Entenza said. In areas like southwest Minnesota, where there is a higher population of elderly people with limited income, that becomes clearer.

However, the Minnesota 2020 study projects that things are starting to change. Based on an analysis of data from the Minnesota House Research Department, Minnesota 2020 is projecting an average 1.5 percent property tax cut on all classes of property statewide, after accounting for direct credits to taxpayers.

Entenza said the change is due partly to increased support for LGA funding in state government. State legislators and Gov. Mark Dayton invested $80 million into city LGA, he said. Restoring nearly half a billion dollars in funding to Minnesota’s public schools can also help reduce property taxes, he said.

Entenza said new formulas for calculating LGA project that Marshall will receive a small boost in state aid next year, for a total of about $2.4 million instead of the current $2.1 million. It should be good news for local property taxes, he said. LGA can be especially important for regional centers like Marshall, Entenza said – more people use city infrastructure and services than actually pay taxes on property there.

Other measures that will likely lower property taxes in 2014 include direct aid to taxpayers, Entenza said. Measures like the homestead credit and renter’s credit have been restored by the Legislature, he said.

Entenza said LGA funding was the subject of a lot of debate in the Legislature at its last session. However, he said the Minnesota 2020 study’s results made a good case that increasing LGA will help lower property taxes.

“Our biggest takeaway is that it worked,” Entenza said.

More of Minnesota 2020’s data on projected LGA for Minnesota cities is available online, through an interactive map at http://bit.ly/16uYMMV.