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,- State Auditor Report on LGA Page 1 of3 .I League of Minnesota Cities State Auditor Report on LGA On Monday, Feb. 10, State Auditor Patricia Awada released a special report titled, Local Government Aid and its Effect on Expenditures. The report attempts to examine the relationship between local government aid (LGA) and city spending, and concludes there is a causal link between spending patterns and the amount ofLGA received. Although the focus of the report based on the title is the relationship of city spending and LGA payments, the report makes a large jump by concluding with a recommendation to slash LGA funding by 51 percent to cities over 2,500 population. The auditor's LGA report is unique. The state auditor is generally charged with auditing local government finances. This report goes far beyond the traditional role of the auditor and ventures into the policy arena. The League has serious concerns about the validity of the report's methodology as well as concerns about the conclusions reached by the auditor. The report relies on an analysis of raw, per capita financial data from the Office of the State Auditor to make broad conclusions about all cities' circumstances as well to make policy recommendations that have city-specific impacts. Unique, one-time circumstances--such as spending on flood and tornado damage or financial reporting on joint-powers and other cooperative arrangements--have not been considered in the report. For example, the city of Granite Falls 2001 expenditure data includes significant one-time spending in response to the 2000 tornado and the 2001 floods. As a result, the city appears to be one of the highest spending cities in the state. If cuts are made based on this data, the city of Granite Falls would be penalized for responding to the community's disasters. At this time, the impact of the report on legislative discussions is unclear. On Thursday, the Senate Tax Committee will consider the report. The House has not yet scheduled a hearing, but will hold several hearings next week to discuss the governor's yet-to-be-released budget proposal that will likely included significant cuts in LGA and market value homestead credit. With these events on the horizon, the report findings could find their way into the budget discussions. Auditor's findings on spending and LGA The report, which looks only at cities over 2,500 population, finds there is a relationship between city spending levels and the distribution ofLGA- those cities that receive more LGA tend to spend more. However, the report fails to acknowledge the different characteristics of individual communities that likely have a more profound impact on city spending levels than the distribution of LGA. For example, those cities that tend to receive the most LGA are generally older, fully developed communities and regional centers that provide additional services such as libraries, airports, and a higher level of parks and recreation services as well as redevelopment activities. In addition, other cities that tend to receive more LGA are first-ring suburbs that have aging infrastructure and a greater share of their property classified as tax exempt. Essential services defined In an attempt to suggest ways to cut LGA, the report divides city services into two broad categories: http://www.1mnc.org/main/lmcstory 1.cfm 2/18/2003