 Lakeland Public Television presents Currents. Welcome to Lakeland Currents. I'm Bethany Wesley. In 2002, the city of Bemidji received more than $3.8 million in local government aid. But by 2008, Bemidji's LGA had dropped by just about $1 million. In response, the city raised its property tax levy and cut overtime for all departments, among other actions. Bemidji is not unique. There is clearly a link between fluctuating LGA amounts and city's property taxes, particularly in outstate Minnesota. The Coalition of Greater Minnesota Cities reports that 65% of cities increased their tax rates in the year before LGA was partially restored. The following year, once additional LGA funds were in hand, nearly 63% of cities decreased their tax rates. Today, the coalition continues to lobby state lawmakers to restore LGA to its 2002 funding levels, asking the legislature for a $45.5 million increase in LGA funding. To talk us through this proposal and its potential impacts, I welcome to the program Bradley Peterson, the Executive Director of the Coalition of Greater Minnesota Cities, and Nate Matthews, the Bemidji City Manager. Welcome. Thank you, Bethany. Thanks for coming up. Thank you. As we get started, Bradley, why don't you start by telling us a little bit about what the coalition is and what you guys set out to do? Sure. The coalition is a group of cities across Greater Minnesota. We've got currently 88, 89 members. And it cities everything from the size of Renville, which is about 1,000 people, all the way up to Rochester, which is, of course, over 100,000, and just about everything in between. And Bemidji has been one of our longtime strong members. Okay. And Nate, how long have you been with the city? I have been with the city of Bemidji for about two years now. Okay. And then prior to that, you were still in city services. Yes. And this is the third community I've worked for. Previously, I worked in the city of Staples for almost eight years from 2007 to 2015, and then earlier than that in the city of Winnebago, southern Minnesota, for about five years. Fair to say LGA is a conversation in all cities in all sizes. Everywhere I've been. Let's talk a little bit about what LGA is first. Bradley, why don't you give us a brief history in terms of what LGA is? When was it started? Sure. The state programs started in the early 1970s at the same time that we had the vaunted Minnesota Miracle, where we rejiggered how we fund schools and local services. And the state took on a lot more of the burden in terms of doing those rather than having those local property taxpayers. At the time, there was a hue and cry over the burden of property taxes for these services. And so when the school funding formulas were changed, they also added a component for cities called local government aid. And so since then, the program has evolved into what we see today. And the basic goal of the program is to ensure that no matter what kind of community you live in, you're able to have quality public services and quality infrastructure for a reasonable property tax price. Okay. So, Nate, you've obviously worked with the city's different sizes. Is LGA crucial, no matter whether you're small, whether you're big? I mean, have you seen how your budget could be impacted if there wasn't LGA? Absolutely. Local government aid is a pivotal part of every city's budget, particularly in greater Minnesota. In the city of Bemidji, it represents about 35% of our entire general fund. In smaller cities, it can make up a bigger percentage of the budget, because the tax bases of those communities are much smaller. So, yes, in all the three cities I've worked at, local government aid is tremendously important and is a major factor of our ability to deliver services. Okay. And so I know you mentioned that it's especially crucial in greater Minnesota, but there's actually a big number of cities get this cities and outstate Minnesota, correct? Yep. Overall, about 90% of the cities in Minnesota, there's 850 some-odd cities across the whole state. About 90% of those get local government aid in some form. In terms of the dollars, it varies widely across the state, depending on what the strength of your tax base is and what the LGA formula evaluates your needs to be. Do you sometimes find, as you're talking about this issue, that there's a misconception that cities, that metropolitan cities don't get LGA? There definitely is. And for sure, it is a program that's especially critical to greater Minnesota. If you look at the distribution of property tax base across the state, greater Minnesota communities get about 65% of the total LGA pot, but that's because we only have about 25% of the total tax base. And so it's especially critical for cities in greater Minnesota, but there are a number of cities in the metro area for whom it's also very important. Okay. We know that one of the primary goals is to try to keep services, you could have good services in rural, good services in cities. What is the danger, if there is no LGA, we've heard that Bemidji, for instance, raised its property tax levy to make up for the difference, correct? Correct. What is the danger in having ever skyrocketing property tax increases? The danger of having a much higher property tax burden in rural areas is that it would be harder to attract jobs and investment, particularly in housing, particularly in manufacturing. And so we need that assistance to help reduce property tax burden because we just don't have that ability. It costs the city of Bemidji, it costs the city of Staples, the same amount to buy a fire truck as it does Moundsview or the metropolitan areas. It costs us the same, but we do not have the same power in our tax base. Okay. I think one of the things that actually makes Minnesota pretty unique is that we've got cities of every size and every corner of our state, and if you go to other states, they don't invest in their rural cities like we do, and I think it's one of the things that makes Minnesota truly a unique place. Have you been able to hear, you know, anecdotally or statistically from cities, you know, when LGA is higher, tax rates are lower? When LGA is lower, tax rates go up? That's definitely true. I mean, there very much is a correlation in terms of the investment that the state makes in local government aid and what happens with tax rates. The statistic that you mentioned at the top of the show shows that, and that was the last time that aid was increased substantially in 2013. The cities do their budgets then for the next year, 2014, and what we saw was that for LGA receiving cities, most of them decreased their rate of taxation against their market value, and so there is a correlation. And on top of that, and certainly Nate can speak to this, but there's just a huge quality of life issue in terms of these rural communities. You know, when I talk to cities and they're looking at what would we do with an LGA increase? The answers are as varied and diverse as all the communities across the state, but they talk about investments in parks, they talk about maintaining their streets, other infrastructure, the police service officer at the school, all of those things that make strong communities LGA is the foundation for. I know you weren't with Bemidji at the time, you know, when some of those cuts went through prior to two years ago, but have you heard like what some cities are Bemidji or maybe the city you were with, what they do in response to cuts? Absolutely. What happened in 2002 to 2004 when the local government aid program was cut in Bemidji, Bemidji rose its tax rate and had to do that. We have a tremendous seasonal population swell in Bemidji that relies on our police needs to provide that service and our parks really are very, very busy. We need to provide and have that public service expectation. We didn't receive that state aid and our tax levy rose 22%, 20% each year while we were receiving those cuts, so we had to provide that money. When I was in Staples in 2009 during the unallotment that occurred with the legislature, we actually shut the street lights off in Staples. We figured that we could shut off about, I can't remember the numbers, I think it was about 181 street lights and it saved us about $38,000. It was a tremendously educational period in Staples when we did that, people didn't like it, but we tied it directly to our loss in aid. It costs money to have street lights. It costs money to have cops. It costs money to pull fire trucks out of the fire hall when we have the calls. And when we receive a promise from the state that is re-nigged on, we have to do what we can do to keep funding city services. And so those are some of the things that, I know Bemidji raised its levy and correlates its levy all the time to what LLGA does. But in some cities as well, they will cut services, delay purchases of vehicles. And in our case in Staples took a drastic measure, shutting street lights off. I think one of the things that happened, especially during that early 2002-2003 time period, was you had cities really working hard to figure out how they could re-evaluate the delivery of services. You had a lot of cities that looked at whether or not they needed a police department or could those services be contracted with the county. You had a lot of consolidation of administrative services within cities. And a lot of cities across the state are running much leaner and meaner than they were now, than they were 15 years ago. One of the things that I often get asked at the legislature as well, isn't there more that cities can do to consolidate services and become leaner and meaner? And I think a lot of that work was already done. And so we had one of our city managers a couple of years ago say, oftentimes we're expected to do more with less. There's a point at which you're at just doing less with less. That's a good point in Bemidji, looking at our data for the last 17 years. We've grown a lot in population. Our service area has grown with annexation. We have not added any new employees. In fact, we have one less employee than we did in 2000. And so we're trying to do the best we can, but we still have costs that go up every year. Our materials, our labor, a 1% cost of living adjustment just for our employees is an equivalent of $53,000. That's just 1% to keep our labor happening in Bemidji. We've received in four years from the state $11,000 of new LGA. So the amount of money we're receiving for property tax reduction and this partnership with the state isn't keeping up with the inflationary costs that we have with the city for labor and materials. Is it fair to say too that regional centers like Bemidji are even almost doubly hurt because we know we've heard you say this before. 50% or more of your land is non-taxable. So if you lose LGA and you raise taxes, you almost have to do it even more so. We've done that. Bemidji's a tricky city because of that, because of our university, our school systems, and our county government buildings are here. They generate jobs, they generate activity. It's a great vibrant community. However, it doesn't generate a lot of property tax. So one of the things we've had to do as well during this time is we looked at alternative revenues, franchise fees, cable access fees, gas franchise fees. We've had to find other ways to make up for where the state has not kept up with inflation with us. And for regional centers, especially those over 10,000, the formula really does try to figure out, account for those needs of, you are a center of activity in your region, you've got a lot of folks coming in from outside of the city who aren't paying property taxes in the city. Like Bemidji, you've got a lot of your property that's non-taxable, and so that's a very common story in a lot of our regional centers and something that the LGA formula tries to account for as it distributes the dollars that are available. We've talked a lot about what happens when LGA gets cut. There actually was a reinvestment in LGA recently. That was then that 2013, effective 2014. But your position is that's not quite enough. Right. We're still $45.5 million below where we were at in 2002. And state government has continued to grow in terms of how much they're spending on programs generally. I think since 2002 that state government's grown by about 20%. LGA is still 10% or so below where it is, and that's not even accounting for inflation. So the annual LGA appropriation from the state right now if there are no changes this year, which we're hoping there will be, is $519 million. Had you started and accounted for inflation since 2002, the LGA program would actually be over $800 million. So we're not asking to get back to $800 million. We're just asking to get back to where we were at 15, 16 years ago. What did you see as a city administrator when some of those funds did come back? I mean, even if it wasn't quite enough, what kind of happened within a city operation when you did get a little bit of a boost in LGA? Levies went down. That's primarily my initial reaction in the communities I worked for. We reduced our levies when LGA was restored because we had those funds. We were able to purchase our vehicles. We took a look at our five-year CIP and maybe made it a seven- or an eight-year CIP, but we were able to get our trucks back on our schedules. But fundamentally, though, in Bemidji specifically, local government aid in 2017 is just a little under what it was in 2004. So 13 years, we're basically at the same exact place we were 13 years ago, and that's really not a long-term sustainable solution because the property taxpayers in Minnesota are very burdened right now. In terms of the investments that other cities made, I was amazed in 2014 how many folks bought fire trucks. That was a very common thing that people did. They had been trying to extend the life of that fire truck, and maybe it was three or four or five years beyond where it should have been that they were keeping with it. So when the money came in, a lot of them bought fire trucks. They replaced other vehicles. They rehired staff that maybe they had let those positions lapse through attrition. A lot of communities reinvested in their parks and their streets, two of the things that were sort of first to get reduced when times were tighter. So there was a lot of catch-up that was being played at that time. A common position that I could say that is subject to LGA cuts is a school resource officer position. It's a preventative, proactive way for police officers to get into the school to build relationships with the children and the administrators. When local government aid is cut, it's very common for those positions to go away because they are not a fundamental response position for policing, triaging, so to speak. But that's a good example. In my mind, I know a number of cities that when local government aid was restored, they were able to put some of those positions back that enhance the public service delivery, particularly in this case for police. We've talked a little bit about that rural versus metro. We've covered that. Let's talk a little bit about bipartisanship. Is it cross aisles? Is it a one-party issue? It shouldn't be. Going way back in history, it hasn't been. And what we've seen in the last couple of years is that there is a lot of support for the local government aid program on the part of individual legislators, both Republicans and Democrats. And so the support is there. And I think, you know, certainly our coalition relies on folks like Nate and his colleagues around the state to help educate local legislators when they're back here at home, and then we work on them when they're at the Capitol in St. Paul. But it sometimes, I think, gets framed as a Democrat-Republican issue, especially from a couple of years ago when you did have Governor Palenti who targeted LGA for cuts and was not a fan of the program and made no bones about being a fan of the program. But I don't think fundamentally at the individual legislator level it is. What I think needs to happen then is that those rural legislators, both Republicans and Democrats, who believe in local government aid, who understand importance to their communities, they really need to speak up now as the process goes forward to roll out budget bills and tax proposals, it's important that those individual legislators speak up on behalf of their community. That is how it gets done. In my observation, when you get out of state in greater Minnesota, it's not a very partisan issue. And Bradley could speak to this because he works much more closely with the politics of this. As you're in the metro area, in the metro cities, it feels a little more partisan because the Republican caucus in the metro area is a little more hesitant to support local government aid and the Democrats in the metropolitan area seem to be much more receptive to it. But that's a generality in my perception as the city manager who's worked out state my entire career thus far. I don't know what you think about that, Bradley, but I generally feel out state, it crosses party lines. Both sides of the political parties understand the importance of local government aid in the rural communities in my observation. From the suburban Republican's point of view, they represent a lot of the communities that don't get local government aid. They come from communities that have more property tax wealth and can provide services a lot more easily at a lower cost burden than you can otherwise in greater Minnesota. Is the challenge with that then to convince them that if they still want to keep coming up for fishing and hunting and using the amenities that are here, can they still be strong and in a good space for when they do visit? There's that, but there's also the perception and Mayor Albright does a great job of speaking to this. We're one Minnesota. We are one Minnesota. We make decisions together. We're better when we think of ourselves as that. Talk a little about how the process is going down in St. Paul. Are you feeling fairly confident? Are people being pretty receptive to the idea of a reinvestment? Some legislation that had strong bipartisan support to get back to the 2002 level, the $45.5 million that you mentioned. There's been a lot of discussion. Newspapers across the state have been very supportive of our position. But at least right now where we're at in session, decisions are still being made. They've got until the third week in May to wrap up the legislative session. And this is going to be a hard year in terms of getting things done, I think, because it's a budget year. We've been nominated by one party with a governor of an opposite party. When we've had those situations in the past, it has taken a lot of time and effort and work to get just the regular state budget done. In 2011 and 2015, we had special sessions. We had shutdowns. And so it's going to be difficult. And the local government aid program is usually carried in what's called the tax bill, a proposal that deals with tax issues of all sorts, not only property taxes, but tax sales tax, tax increment financing issues that individual communities need. There's a whole laundry list of things that end up in these bills. And the issue ends up being is for state government to continue to run, you don't need a tax bill. And so what we saw both in 2015 and 2016 is that it's very difficult to kind of come together on a tax bill. In 2015 when they were doing the last state budget, it was just too hard and issues of taxes and transportation were put on the shelf. Last year there was a tax bill that had $20 million increase in local government aid but due to a drafting error that would have cost the state $100 million over three years, it had to be vetoed by the governor. And so it's not easy and it's not one of those things from the perspective of keeping the doors open in state government is necessary, but boy it sure is important to the communities around the state that it gets done. You know there is a surplus predicted, quite a big one. It's 1.65 I think is the last number we heard, billion. It's got to be an easier position to be in to ask for more money than if there was fewer dollars coming through. Oh absolutely and our position is that with a 1.65 billion surplus there's no reason that we can't finally get back to this 2002 level. They've got the resources there to do it. But I think then what we get into is the divide again between the Republican legislature and the Democratic governor. And there are a lot of claims on that 1.65 billion dollars and a lot of folks with different ideas on how to spend it. And I think what you will see as the session progresses is that there will be this tension between the Republicans wanting to do large tax cuts as well as use some of that surplus money for transportation versus the governor's priority, which is to increase spending on a number of different programs including local government aid and do new revenue for transportation. And so that's why I think it's going to be difficult no matter what. But it should be with a 1.65 billion dollar surplus we should be able to get there. And our ask isn't that big of that pie. And we're really feeling hopeful that we can get back to where we were when we had Bemidji day at the Capitol. We were fortunate to have the speaker come visit us. And I asked him that question. Are you confident that you're going to be able to help us with property tax relief? And he's indicated to Bemidji, he thinks we'll be able to get there. The devils and the details. Tell me a little bit about the budget process from a city's perspective and at what point do you really need to know what your LGA is to help plan appropriately for the future? We have a budget process in Bemidji next month. We have our first budget workshop and we start our capital improvement planning now. We adopt our preliminary levy in September. And so that's usually our kind of our drop dead deadline that we need to know what the local government aid forecast is for the next fiscal year. And our fiscal year is on the calendar year. The states is on the fiscal year. And so they usually mount in the summertime in July. And so that's when our budgeting we start to fine tune much more carefully because we receive that notification from the state. So September is our time. However, we do not adopt our final levy until December. And as you've talked to legislators you know your local legislators and I know recently there's been some changes because of the election this past fall. Do you find that they're generally supportive of LGA? We have a new legislator representing Bemidji and he is still learning about the merits of local government aid and so but he's very receptive to it as well as our state senator. But we really have not pushed it right now. There's so much coming at him both of our senator and our representative in this session as first time legislators. But I do believe that they will be receptive to increasing local government aid for us. Do you find readily that when you sit down with like perhaps a new legislator or somebody who's not familiar with the issue but you kind of start to work with them to get them familiar they understand more? Yeah and you know being in the legislature is a learning process and it's got to be incredibly difficult to be a new member you're trying to figure out where your office is you're trying to figure out how the procedure works and you've got group after group lobbyist after lobbyist constituent after constituent coming to talk to you about a whole bunch of different issues. And so what we find is certainly those legislators who have some local government experience have a little bit of a leg up in terms of their understanding. But oftentimes when you work with folks and you know it takes a couple of meetings sometimes to kind of walk them through issues. You give them a little bit of a time they sort of digest it and then you go back and give them a little bit more and they begin to gain a fuller picture and so over time and I think what we've seen with the group of legislators that are there now from rural Minnesota is that the folks who have been there for a long time who are much more seasoned who have been involved in the cities across their districts have a much greater appreciation and so that's a there's a learning curve to being a legislator and there's a maturity curve I think to being a legislator as well and but most of them get there. Fair to say that is there a danger in LGA becoming too politicized? You know we know that representative Steve Dreskowski has introduced different bills trying to tie LGA to certain policies you know taking money away if you're spending money on lobby and stuff like that. Is there a danger in that? Absolutely and we really tried to downplay the political elements of local government aid. What we say is you know it is a formula that evaluates a community's needs versus their tax base and that has the impact on what their LGA is. And that's been what has worked for the last 40 years in terms of the program. When it becomes political then it becomes dangerous and it's really too important I think to the communities that we represent for it to be political. This should be good, solid, bread and butter stuff that government does and it shouldn't get tied up in Democrat, Republican Metro Rural all of that. Every so often you hear talk about possibly tinkering with the formula. When was the last time the formula was really taking a look at? So the last major overhaul of the formula was in 2013. Before that it had been in 2002. And so kind of on a schedule of every 10 to 15 years there's a major look at the formula. But the basics of it remain the same. It looks at a community's needs and their tax base. The need factors might change and how you evaluate the needs of a community might change. But that basic model has been what has prevailed the last couple of decades. And so there are always tweaks here and there that are needed as you get into it and see how it actually works versus the models that you do. But I don't anticipate there being a need for a major overhaul anytime soon. From your perspective, Nate, from what you've heard and what you've seen, the formula seems to be working fairly well. The formula works. It's a difficult, tricky beast to tame because there's a lot of competing interests. But largely it does work. It needs to be a reliable and a stable element of a city's financial understanding. And if it gets tinkered with too much, we in my chair as a city manager get very nervous because we are concerned about the reliability of that partnership and that funding. Well listen, I want to thank you guys both for joining me today. I thank you for tuning in. If you're interested in learning more about LGA or the Coalition of Greater Minnesota Cities, I encourage you to visit the website on the bottom of the screen. There's a link on that website that will take you specifically to a site that discusses LGA. Thank you. Thank you very much.