LGA mix-up pulls money from out-state cities

An overlooked paragraph in a 2003 tax bill may send

$12.2 million meant for outstate cities to those near the Twin Cities unless there is a special session to fix the error.

Moorhead Mayor Mark Voxland, who called for a special session at a League of Minnesota Cities rally in St. Paul Wednesday, said the technical glitch took "money from cities like Moorhead and puts money in the coffers of cities like Minnetonka."

Though overall the error takes money from cities outside the Twin Cities metro area, Moorhead actually stands to gain about $115,000, compared to the amount it would receive if the money was doled out as intended, according to statistics from the city league.

Voxland said that uncertainty is why the Legislature should fix the mix-up.

"OK, if we got $100,000, do we put that in our budget? Is the state going to send us $100,000, and then we have to send it back?" the mayor asked.

At issue is the $437 million in Local Government Aid cities will receive from the state next year in July and December payments.

Legislators in 2003 thought they changed the law regulating how local aid is spread among cities to allow most of the money to be doled out based on a formula that determines cities' needs and ability to pay for those needs, said Gary Carlson, a lobbyist for the city league.

However, a paragraph legislators meant to delete in the 2003 legislation was left intact. Pawlenty, who supported the changes, agreed to distribute the 2004 aid as legislators intended, Carlson said.

Tax bills that passed both the House and Senate this year struck the paragraph, but legislators did not hold a conference committee meeting on the bill, so it did not pass.

This time around, Pawlenty plans to distribute the aid based on the letter of the law instead of legislators' intent because lawmakers did not fix the problem when they had a chance, said Dan Wolter, a spokesman for the governor.

Unless Pawlenty and lawmakers agree to hold a special session, that is.

Wolter said the governor supports a special session to take care of the LGA glitch, among other items, but has not been able to reach a deal with Democrats on the length and scope of the session.

That possibility has created another consequence of the legal snag: Cities are unsure how much their aid payments will be, which reduces the time officials have to set budgets in a year when many will be required to make cuts.

For some cities, that may mean preparing different budgets for different amounts of local aid, said city league spokeswoman Stephanie Lake.

"It seems like a lot of monkey business for a technical glitch that will have to be taken care of at some point," Voxland said.

Moorhead Finance Director Harlyn Ault said he is compiling preliminary budget numbers on the basis of the Legislature's intent, which would mean a $7.4 million LGA payment for the city.

For Moorhead, that's the lower of the two sets of figures Carlson said are "in play." The estimates are based on the Legislature's intent and those endorsed by Pawlenty.

A third set of figures, from a House of Representatives Research Department analysis, is unlikely to be used, Carlson said.

The city league lobbyist said his organization advises cities to use the most conservative figure from the two sets "in play," because cities are required to set preliminary tax levies by Sept. 15. They can later lower that amount but can not raise it, he said.

That could lead to property tax levies that are "artificially high because they planned for a worst-case scenario," Lake said.

In Hawley, Mayor Joe Pederson said the council is in a wait-and-see mode.

"We have purposefully held off to see what the governor's going to do," Pederson said.

He said the decision to not distribute the aid as intended illustrates Pawlenty's priorities.

"One might question whether he really considers outstate Minnesota as important as he indicated he did" when elected, Pederson said.

Dilworth would lose about $32,000 under Pawlenty's plan. City Administrator Ken Parke said for a small city with a tight budget, that's a big swing.

"It's kind of frustrating. That would have a substantial impact," he said.

Readers can reach Forum reporter Dave Roepke at (701) 241-5535