It is well reported in the news that the State of Minnesota's $4 billion budget deficit and Governor Pawlenty's desire to personally balance the budget, is resulting in significant reductions in health care assistance, higher education and Local Government Aid (LGA) programs. Cuts to LGA ultimately result in higher property tax rates in cities, as cities begin to fund their budgets more from local property taxes than from the state sales and income taxes.

LGA was designed in 1967 as a state payment to cities to keep property taxes lower. LGA is important for smaller outstate communities because typically we have smaller populations, lower property values (tax bases) and lower average median income levels than larger cities in the metro, yet the costs of purchasing goods and services like snow plows, police cars, fire trucks, gasoline, salt/ sand, tar and personnel are similar, if not the same. The State of Minnesota has changed LGA distribution in many ways over the past 42 years by modifying how the state's revenue is derived and how it is distributed through various need-based formulas. However, during this time cities have largely enjoyed a stable fiscal relationship and could successfully plan operating levies and budgets around the knowledge that the state would provide LGA.

Recently, state LGA amounts have been signifi- cantly reduced and cities have adjusted their budgets, levies and services around the loss of LGA. Over the past six years, Minnesota cities have lost $750 million in state aid and as a result, property taxes have increased over 65 percent statewide. Cities have been more fiscally conservative than the state over the past six years; while funding for state programs has increased three point two percent since 2002, revenues available for local spending have decreased 13.7 percent; cities have shrunk their workforce by six percent between 2003 and 2008, while the state's workforce has grown by 10 percent during the same period.

To put these numbers into perspective, 2009 Staples LGA provides over 36 percent of revenue ($1,056,223) to the General and Special Fund budgets ($2,905,042) while the local property tax levy provides only 13 percent ($389,199). In December of 2008 the Governor announced that the City of Staples would receive $67,000 less than promised. In June 2009, the Governor again announced that the City of Staples would receive a further reduction of $58,216 in 2009 and $134,326 in 2010. These cuts are significant to the operating budgets of the City of Staples.

As always, the City of Staples will do everything possible to protect residents from steep property tax increases and painful cuts to services. Staples is in a fair position to react to additional LGA cuts, as the finances of the city are sound; in May the city received a positive bond rating of 'A/stable' and is seeing upward movement in its property tax base. Additionally, department heads have already been evaluating ways to react to the latest round of cuts without dramatically cutting city service delivery. However, a continued, longt erm under- funding of LGA should be a major concern to all property taxpayers in Minnesota, as the "Minnesota Miracle" of 1967 is fast becoming a distant memory. The city council will be meeting July 21 to discuss the loss of 2009 and 2010 LGA and how this will impact our operating budgets.

Please feel free to contact me or the council with specific concerns you have regarding city services and specific questions on LGA's role in the City of Staples.