Tax Aids and Credits

Aids - Local Government Aid to Cities

Statewide Outcome(s):

Local Government Aid to Cities supports the following statewide outcome(s).

Strong and stable families and communities.

Context:

Cities across the state have varying service needs and revenue raising capacities. State payments to local governments exist in various forms to enhance local government revenue, assist in basic service delivery, and reduce property tax burdens on homeowners and/or businesses.

Funding Source: State General Fund.

Strategies:

Provide general support aid and property tax relief to municipal governments.

Local Government Aid (LGA) is a general purpose aid to cities that can be used for any lawful expenditure. It is also intended to be used for property tax relief by reducing the amount of revenue that is collected locally, through property tax or other means.

The LGA formula for cities has changed many times since enacted in 1971. The current formula measures city need with factors including population, age of housing, and business property market value and compares this to a city’s ability to pay measured by local tax base. In general, the formula attempts to target aid to those cities with the lowest tax base and highest need.

Results:

Cities across the state are more able to offer their residents access to comparable services at a relatively similar tax cost.

Performance Measures Notes:

Percentage of cities receiving LGA compares payable year 2008 (previous) to 2010 (current).

In 2008, 795 out of 854 cities received LGA. In 2010, 727 out of 854 cities received LGA. The decrease was due to legislatively approved reductions in LGA.

LGA percentage of city spending is based on State Auditor city finance reports for 2008 and 2010 and computes LGA as a percentage of total current expenditures.

For additional information, visit the Revenue Department (http://www.revenue.state.mn.us/Pages/default.aspx) website and search ‘LGA’.