issue briefing
Local Government Aid
Background fourth of the tax to LGA. In 1971, the state legislature indexed LGA for inflation, resulting
At the time of this writing, significant cuts increased the tax to 4 percent, repealed the LGA in annual increases of 2.5 to 5 percent.
to Minnesota’s Local Government Aid (LGA) dedication, and began funding LGA through
program were on the table as part of the appropriation. Funding fluctuated over the The state has frequently targeted LGA in tight
solution to the state’s budget deficit. next two decades. budget cycles. In 2003, the legislature cut
LGA by 25 percent and issued further
The state distributes LGA payments to 763 In 1992, the legislature created the Local cuts in 2004. Funding remained
cities. Only 91 cities, typically more affluent Government Trust Fund to stable until late 2008 when
suburbs, receive no LGA. Proponents of LGA finance LGA by dedicated Governor Pawlenty
argue that the payments help cities with limited sales tax revenue. The unallotted $66 million in
ability to provide basic services and keep fund grew steadily for LGA payments.
property taxes lower. Critics counter that LGA three years, but when
is distributed under an antiquated formula that the state transferred The Future of LGA
benefits smaller cities, that there is no oversight the trust to the The 2004 Financing Local
regarding LGA use, and that cities raise property general fund in Government Task Force
taxes to supplement their budgets in addition to 1995, the fund concluded that the
LGA. suffered deficits current LGA funding
that prevented system functions
Funding History LGA increases. The poorly. The 2008
Over its four decades, the LGA funding structure legislature eliminated legislature called for
has oscillated between dedicated tax revenues the fund in 1996. Since the creation of a study
and general fund appropriation. At LGA’s then, LGA has been commission to examine
inception in 1967, the state created a 3 percent funded by appropriation. and recommend LGA reforms
sales tax to finance payments, dedicating one- From 1996 to 2003, the in 2010.
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