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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 i C111� ATTACE ENTS: LEAGUE OF MINNESOTA CITIES LETTER AP)fRo7y BY• v 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.