Q&A: The state of local government aid

Jay Kiedrowski, who studies public finance at the University of Minnesota's Humphrey Institute, spoke with MPR's Morning Edition about the state's local government aid program.

Kiedrowski served as state finance commissioner under DFL Governor Rudy Perpich. More recently, Kiedrowski co-chaired the Minnesota Budget Trends Study Commission, which released a report last year on Minnesota's long term fiscal outlook.

Cathy Wurzer: How much has local government aid been cut over the past five to ten years?

Jay Kiedrowski: In 2001, local government aids were at about $425 million and for 2010, they're at $427 million. They rose significantly up to over $500 million and then they fell back during the last three legislative sessions.

Wurzer: Why has local government aid been such an attractive target for state lawmakers looking to reduce state spending in recent years? Kiedrowski: It's a large sum of money, and the impacts that it has is very diffused. You can't say this policeman was let go because local government aids were cut. The program went along fine through about 2000, and then with the change in the leadership at the governor level, there was an effort to cut back on the program. It was part of a shift to try to keep state sales and income taxes lower, but what it did was force up property taxes. Wurzer: I want to ask about that. Republican Tom Emmer wants to further cut local government aid. His opponents say that would raise property taxes. Is that true? Kiedrowski: Generally, yes. Specifically, maybe not. About ninety percent of the cities in the state get local government aid. Some of those cities really have minor amounts, and they could probably do without those, but other communities have up to two-thirds of their city revenues coming from local government aid. I don't know how they would avoid property tax increases with that much coming. The major cities, Minneapolis, St. Paul, are getting thirty percent of their revenue for their general fund from local government aid.

Wurzer: Sounds like a lot.

Kiedrowski: How would you cut your family budget by thirty percent? If you look at what cities do, most of their money is for police, fire, and streets. So which of those do you want to cut back?

National productivity increases by about two percent per year, but let's just say we could get a five percent increase for the cities of Minneapolis and St. Paul, where are you going to get the other twenty-five percent? The math just doesn't work. I think it would be better if people admitted that property taxes would have to go up. That may be okay, but people ought to admit that that's what's going to happen, in part.

Wurzer: When it comes to this formula that I know is very complicated, I don't want you to explain it at this point, (but) the IP's Tom Horner does think that the formula should be revised.

Kiedrowski: Well, I think you're going to have to revise the formula, no matter who's governor because I think resources are constrained. There are ways to rejigger the formula to focus it more on those cities truly in need. With ninety percent of the cities getting it, I'm not sure it's accomplishing what it was originally intended to do. Wurzer: Mark Dayton says if he's elected governor, cities won't have to worry about unexpected local government aid cuts midway through their budget years - and that's what's been happening of late. Why is that such a big deal for cities?

Kiedrowski: I think one of the policy goals we should have for local government aid is to get it to be stable. I think most local officials might even accept a cut if they knew what the cut was in advance, and if you phased it in over three, four, or five years, and they could plan on it. That would be far superior than this rollercoaster ride that they're on currently.

Wurzer: Are cities just too dependent at this point on LGA?

Kiedrowski: Yes, they're addicted, but it was the commitment made in 1971. I don't think it would be fair to eliminate it. I think we need to really do a lot of homework and careful thinking about it, engage the cities and counties in that conversation, (and) try to develop a consensus rather than taking stark positions.

(Interview edited and transcribed by Madeleine Baran)