HomeMy WebLinkAbout6.c. 1992 Local Government Aid Payment IncreaseCITY OF ROSEMOUNT
EXECUTIVE SUMMARY FOR ACTION
CITY COUNCIL MEETING DATE: DECEMBER 15, 1992
AGENDA ITEM: 1992 LOCAL GOVERNMENT AID
AGENDA SECTION:
INCREASED PAYMENT
NEW BUSINESS
PREPARED BY: STEPHAN JILK, CITY ADMINISTRATOR
AGENDA NOITEM
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ATTACE ENTS: LEAGUE OF MINNESOTA CITIES LETTER
AP)fRo7y BY•
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The League of Minnesota Cities has provided cities with the notice that the
increased revenue to the State from sales tax above those expected will
cause a larger payment of Local Government Aid (LGA) to.cities.
This increase will be equal to 8.50 of the City's LGA and its Equalization
Aid. For Rosemount this additional amount will be about $31,000. This
extra payment will be included with the Minnesota State payment in late
December.
What should we do with it? As the letter from the League suggests, we
shouldbe very sensitive on how we apply this extra cash revenue.
It is my recommendation that we simply place it in the General Fund Reserve
and wait until the LGA for 1993/1994 is determined. If 1993 LGA is not cut
and projections for 1994 are good then we may consider applying these funds
to a specific needed expenditure.
RECOMMENDED ACTION:
MOTION to apply the additional State Aid payments to be received in
1992 to the General Fund Reserve.
COUNCIL ACTION:
Due to stronger than expected sales tax revenues, the Local Government Trust Fund (LGTF) is
now projected to have a surplus of approximately $30 million for the current biennium. Under
current law, this money must be distributed to local governments in proportion to .their LGA,
equalization aid and community social services aid for 1992. The resulting aid increases will be
one-time increases that will not be built into the aid base for future year aid distributions.
The Department of Revenue advised us today that the aid increase will be approximately 8.5%
of the total amount of LGA and equalization aid each city was originally certified to receive in
calendar year 1992. This amount will be added to the December 26 payment. At this time, the
Department of Revenue does not intend to notify cities of the amount of the increase prior to the
time checks are mailed for the December payment.
The LGTF is working as intended, with the amount of property tax relief increasing as revenues
into the Trust Fund increase. City LGA was cut in 1991 and 1992, and the sales tax was imposed
on local government purchases in order to balance the state budget. The aid increase this
December will help offset the impact of the state sales tax that cities now must pay, will help
make up for cuts in 1991 and 1992, and will help prevent future property tax increases.
Unfortunately, the timing of the official notice from the Department of Revenue that will
accompany the December payment will be too late for cities to adjust their 1993 levies to reflect
the additional state aid.
How should cities respond?
Even without official notice from the state, some cities may want to reduce their 1993 property
tax levies to reflect the additional revenue they expect to receive in December. Others may want
to spend the money on needed special projects or maintenance that has been deferred. Finally,
others may want to save the money to help reduce their property tax levy for 1994. There is some
risk in each approach.
The most important advice we can offer is for you to, document your use of this
unanticipated aid increase. For example, if you decide to reduce your 1993 levy, clearly document
and publicize the amount and reason for the reduction. Similarly, if you save the money to reduce
your 1994 levy, make this decision public and explicit, and earmark the money separate from
your other fund balances. Finally, if you decide 'to spend the money on special projects or
deferred maintenance,' document those costs, and b6 prepared to defend your decision. This last'
alternative may carry the most risk, because of possible legislative action - during the --l993--------1,
legislative
he -1993-- --
legislative session and the projected shortfall in the LGTF for the next biennium. Since this is
a one-time aid increase we do not recommend that it be used to fund ongoing operating cost
increases that will require increased revenues in future years.
It is not clear yet whether this will be a significant or sensitive issue at the Legislature. We will
keep you informed if it does become important. In the meantime please call me or Gary Carlson
if you have any questions about this.
r2lr ,
Don Diddams
Senior legislative representative
Note: This is not an official notification of a change in your LGA amount for 1992. Official
notification from the Minnesota Department of Revenue will accompany the
December 26 payment.