Agenda - Council Work Session - 06/28/2016

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LEGISLATIVE UPDATES Despite the 2015 legislative session beginning with a projected budget excess of $1.87 billion for the 2016-2017 biennium,the most favorable budget forecast in over a decade, little was accomplished during the regular legislative session due to partisan disagreement. The regular session adjourned without the Legislature bringing forth a number of significant funding bills, including the Omnibus Legacy Bill (funding for outdoor heritage, clean water, parks and trails, arts, and cultural heritage) and a bonding bill for capital projects. The Governor subsequently vetoed a number of other funding bills, including the Omnibus E-12 Education Bill due to the Legislature not addressing his demand for a universal preschool provision. Eventually, a one-day special session produced funding bills for E-12 education, jobs and energy,Legacy programs, environment and agriculture,and capital investment. The following is a summary of recent legislation affecting Minnesota cities in 2015 and into the future: Local Government Aid (LGA)—The Legislature completely overhauled the LGA formula for fiscal year 2014 and thereafter, creating a three-tiered formula that includes separate "need factor" calculations for cities with populations under 2,500, between 2,500 and 10,000, or over 10,000. The new formula simplified the LGA calculation, and reduced the volatility of the LGA distribution by limiting the amount it may decline in a given year. Beginning in 2015, any reduction to a city's calculated LGA distribution will be limited to the lesser of $10 per capita, or 5 percent of their previous year net tax levy. For cities that gain under the new formula,the increases will be distributed proportionate to their unmet need, as determined by the new "need factor" calculations. The state-wide LGA appropriation was $516.9 million for fiscal 2015, and is $519.4 million for fiscal 2016 and thereafter. Sales Tax Exemption —Cities (both home-rule and statutory) were exempted from paying sales tax on qualifying purchases, effective for purchases made on or after January 1, 2014. Purchases of goods or services by an exempt local government for a publicly-provided liquor store, gas or electric utility, golf course, marina, campground, cafd, laundromat, solid waste hauling or recycling operation, or landfill will remain taxable. The 2014 Legislature extended the defmition of tax exempt local government to include all special district; city, county, or township instrumentalities; economic development authorities; housing and redevelopment authorities; and all joint power boards or organizations. However,the effective date of this expanded exemption list was delayed until January 1, 2017 by the 2015 Legislature. Omnibus Bonding Bill—The Legislature approved a scaled-down Omnibus Bonding Bill during the special session, authorizing approximately $370 million in capital improvements. Included in the funding approved was $172.5 million for transportation infrastructure, $23.5 million for flood hazard mitigation, $10 million for Public Financing Agency (PFA) grants to municipalities for wastewater infrastructure, and $1.5 million to the Metropolitan Council for inflow and infiltration improvement grants to metro area cities. Legacy Funding— The Legacy bill included $9.25 million annually to finance grants for city water infrastructure improvements through the PFA. It also included $17.25 million annually to fund "SCORE" block grants to counties for recycling and waste reduction (a portion of which is passed through to cities) and $1 million of annual funding for a new grant program to establish or improve recycling programs in non-metro area cities. Broadband Initiative — The Omnibus Jobs and Energy Bill passed in the special session included $10.6 million to finance the Border-to-Border Broadband Grant Program, a one-time appropriation available until June 30,2017. -16-