Agenda - Council - 03/06/1986 - Special

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RS-2. Loca] Governmen! Aid (A) The League itrongly supports continuation of the local Iovernment aid program as an essential component of the Itate't property tax relief sy~,tem. It b recommended that a six percent increase In the total appropriation be authorized for 1987 (state fiscal year 1988), The ,formula u~ed to distribute 1986 local government aid (LGA) should be continued for 1987. There should be a comprehensive study and review of this distribution formula and alternatives prior to the 1987 legislative session. The League is prepared to assist in that study. Major changes in the distribution formula should walt until the 1987 legislative session, Local government aid is an important com- ponent of the state's property tax relief system. It complements cities' other major revenue source, the property tax. A complementary revenue source for cities is necessary because a city's ability to raise revenue from the property tax does not necessarily coincide with the cost of the services which that city must provide to its residents. Because of the payment schedule shifts enacted in response to a past state budget crisis, aid for calendar year 1987 is paid out of state fiscal year 1988. Because cities must set their levies in the fall of 1986, the 1986 Legislature mu~t establish the 'funding level and formula for 1987 during this legislative session. A six percent increase in LGA is recommended for calendar year 1987. Property tax relief has always been a high priority for the state. Cities will continue to try to keep levies down as far as possible but will find that a tough challenge in 1987. Federal revenue sharing has been used by many cities to fund essential services and will be completely eliminated for 1987. Further budget pressure will likely result from continuing increases in insurance, implementation of comparable worth studies, increased debt service costs, and cutbacks in other intergovernmental revenues. A six percent increase in LGA will assist cities in avoiding sudden large increases in property taxes. It is recommended that the distribution formula adopted for 1986 be continued for 1987. Studies of distribution formulas should continue prior to the 1987 legislative session and major changes should wait until that session. The League is willing to again bring various city interests together to assist in analyzing and responding to proposals..