Agenda - Council Work Session - 06/14/2011

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LEGISLATION FUNDING CITIES IN MINNESOTA The following is a summary of significant legislative activity passed in calendar year 2010 affecting the finances of Minnesota cities: Local Government Aid and Market Value Homestead Credit — The 2009 legislative session ended without an agreement on how to address significant projected state budget deficits for the 2009 and 2010 fiscal years. The Governor vetoed the budget bill proposed by the Legislature and balanced the budget using his power of unallotment. The Governor's unallotment plan included delays in the payment of state revenues to school districts, and a reduction in appropriations to other state programs, including local government aid (LGA) and market value homestead credit (MVHC) to Minnesota cities. The unallotments included reductions of approximately $128 million to calendar year 2010 LGA and MVHC, calculated at 7.64 percent of the total calendar year 2009 aggregated levy and LGA of the city, not to exceed $55 per capita. Cuts were to be first taken from LGA and then from MVHC, as necessary. Cities with populations below 1,000 and below the state -wide average tax base per capita were exempted from these cuts. The February 2010 state budget forecast predicted an additional shortfall of $994 million for the remainder of the 2010 -2011 biennium. The 2010 Legislature passed a supplemental budget bill in April that addressed roughly $312 million of the additional shortfall. The bill reduced fiscal 2010 LGA and MVHC for cities by an additional $52.5 million, calculated at 3.43 percent of the total 2010 aggregated levy, LGA, and taconite aid of the city, not to exceed $28 per capita. These cuts were to be first taken from MVHC and then from LGA, as necessary. Cities with populations below 1,000 exempted from previous LGA and MVHC cuts were included in this round of cuts. The April 2010 supplemental budget bill also reduces city LGA and MVHC for fiscal 2011 by $56.5 million. About $25.4 million of this reduction is a permanent extension of the MVHC portion of the cuts originally made through the Governor's unallotments. The Legislature also made a permanent reduction of $31.1 million to the state's annual LGA appropriation for cities, beginning in 2011. In May 2010, the Minnesota Supreme Court issued a ruling on a lawsuit overturning the Governor's unallotment of funding to a state special nutrition program. The decision, which applied only to the cuts to this specific program, called into question all of the Governor's July 2009 unallotments. In a one -day special session in May, the 2010 Legislature took action to ratify the majority of the Governor's 2010 unallotments, and dealt with the remaining projected shortfall. Levy Limitations — A 2008 law limited general operating property tax levy increases for cities with populations over 2,500 to an inflationary increase based on the state determined implicit price deflator (IPD) to a maximum of 3.9 percent annually for the next three calendar years. Modifications were made in subsequent legislative sessions to allow cities subject to levy limitation to declare "special levies" to replace the LGA and MVHC losses described above. The 2010 Legislature also established a floor of zero percent for the inflationary increase, so levies would not be reduced in the event of IPD deflation. The Governor's proposal to extend levy limits was not adopted by the 2010 Legislature, and levy limits remain set to expire after the 2011 tax year. However, the extension of levy limits is expected to be revisited by the 2011 Legislature.