Why all that LGA stuff really is a big deal

Published 11:33 am Friday, January 21, 2011

If you have owned, do own or know someone who owns a home in one of the Twin Cities exurbs, you probably know how much the property values differ between those places and outstate cities such as Austin.

Houses with just about identical square footage and amenities cost a relative fortune in those growing and popular areas, where buyers compete for quality housing that offers a relatively easy commute to the downtown area.

Moving from Austin (or almost anyplace else in rural Minnesota) to those exurbs can be a shocking experience, because the housing dollar just doesn’t seem to go as far in those cities where streets seem to be endlessly lined with large, nice homes.

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All that high-value housing provides a gigantic tax base for the surrounding cities, counties and schools — which in turn means elaborately nice parks and school buildings, top-of-the-line public safety services and all kinds of nice community programs.

Outstate communities, where people aren’t necessarily swarming to build homes or drive up the values of existing homes, are seemingly being left out in the cold.

Wait a second, though. Austin is a small, rural, city, and it too has excellent schools, well-staffed public safety departments, top-notch recreation programs and parks — with a much smaller tax base.

That is the result of the state’s aggressive tax revenue redistribution policies which are designed to ensure that people throughout the state have equal (or, at any rate, not too unequal) access to education and other government services.

About 5 percent of the money that the state government takes in gets redistributed in the form of Local Government Aid, County Program Aid and other various tax credits. The state’s K-12 education spending makes up 23 percent of the budget, of which a major part is used to equalize the revenue per student among public schools.

The formulas by which these monies are shared out are complex, but their overall aim is to ensure that no matter where in Minnesota you live, you’ll have good schools and good services. This idea was known, back in the 1970s, as the Minnesota Miracle.

Whether or not this kind of redistribution is a good idea depends on your political views. But spending any time in the schools of states that don’t do these redistributions certainly makes a powerful argument for why it is a good idea. In some states, the poor just keep getting poorer, not least because they never get much opportunity to do otherwise.

How big a deal is it? This year, the city of Austin expects to get $7.8 million in aid from the state. It plans to collect about $4.1 million in local taxes. If LGA were to suddenly go away, as some have suggested, there would either be a lot less street plowing and a lot fewer police on the streets, or a much bigger local tax burden. Or both.

While that’s a scary prospect, it’s also the extreme end of the spectrum. Most likely the state Legislature, facing a $6 billion deficit, will instead chip away at LGA, CPA and maybe even K-12 equalization aid, just as it has done for years.

There is something to be said for putting control of local taxes fully in the hands of local officials. But there’s not as much to be said for it as against it, given what a shock it would be to rural Minnesota, where local taxes simply cant’ support services at the level most people expect.

It will be several months before lawmakers figure out the state’s budget mess (if they ever do; the track record at the Capitol isn’t good), and there will be a lot of talk about these various aid programs. It’s talk that’s worth paying attention to, because it is going to directly affect every Minnesotan in one way or another.

There are arguments to be made both for and against redistribution of tax revenues. One thing can’t be argued: If the system is going to change, it needs to be gradual and planned. Let’s hope our lawmakers have the wisdom to see that.