1996 Proposed General Fund Budget

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LOCAL GOVERNMENT AID (LGA) Background Local gover:nment aid was originally established in 1971 as a per capita revenue sharing/property tax relief program that initially replaced the exempt property reimbursement program and the sales tax per capita aids. In 1973 cities lost other miscellaneous revenues, including cigarette and liquor tax aids, the bank excise tax aids, the railroad and telephone gross earnings tax aids, the mortgage registry tax aids and the inheritance tax aids. In conjunction with these lost revenues, the LOA program was expanded. Since the"LOA program was created, the formula has been amended and changed frequently. The 1993 Legislature enacted an entirely new formula that distributes future aid increases to cities based on relative city "need" and tax base. Cities with higher "needs" or lower tax bases will receive more LOA than other property wealthy or low need cities. However, cities having received high levels of LOA in the past have been "grandfathered" in at these levels. Currently, most cities receive a distribution from the LOA formula. However, several cities receive no LOA due to extremely strong local tax bases or a combination of other factors including a shift of nearly $100 million in state aid from cities to school districts that occurred in 1990. LOA payments are made to local units of government in two equal installments, on or around July 20 and December 26 each year. ~otification and Levy Certification By August 1 of each year, the State Commissioner of revenue notifies each city of its LOA distribution for the following year. This notification includes the data and factors used to compute the LOA distribution. Cities have 60 days to appeal the calculation or factors used in the computation. The LOA notification is intended to be used in the budget setting process by city officials. LOA is a general revenue sharing distribution that can be considered a separate revenue source for all cities. \~