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State Auditor Report on LGA Page 2 of3 , essential services, which includes public safety, roads, and general government; and non-essential services, which include all other spending categories such as parks and recreation, libraries, airports, economic development, and sanitation. According to the report, capital expenditures are excluded from the analysis. Cities would not be penalized for their spending on "essential" services. However, the degree to which a city exceeds the median per capita spending on "non-essential" services, the city would lose LGA in a commensurate amount. The cut proposed by the state auditor would reduce LGA by more than $240 million. Nearly two-thirds of the total cut would be borne by the cities of Minneapolis, St. Paul, and Duluth. Another 25 percent would be borne by cities throughout greater Minnesota. For example, the proposal would reduce St. Paul's LGA from $73.5 million to $9.5 million. Report criticisms The report's distinction between essential and non-essential spending is arbitrary and ignores the fact that cities across the state are facing very different circumstances. The report claims high-LGA cities offer "non-essential" services such as libraries, transit, airports, and parks at a level significantly above that offered by low-LGA cities. But the reality is that most low- LGA cities have other levels of government performing many of these functions, and so these cities tend to also have lower spending in these "non- essential" service areas. For example, the report results would look very different ifit accounted for the expenditures made by metropolitan counties for libraries and parks, and by the metropolitan transit agency for transit- services that are paid for by cities in many other areas of the state. This distinction is important since the report's proposed cut is based on city spending above the median in these "non-essential" categories. County or regional government expenditures for these same "non-essential" categories are not included in the analysis. The report also found cities that receive more LGA have higher spending per capita. This should not be surprising. As noted above, cities that receive more LGA perform many functions that are generally done by other levels of government in most low- LGA cities. In addition, LGA is distributed not just based on local ability to raise property taxes; it also recognizes higher spending need. Cities with older infrastructure, higher crime, and more overburden from nonresidents receive more LGA. These cities should be expected to have higher per capita expenses for things like public safety, streets, housing, and parks. In addition, the data used in the analysis is from the state auditor's annual report. The reporting of expenditures by category is subject to local accounting practices. For example, some communities may allocate general administrative costs to functional categories while other cities may report all of the general administrative costs as general government. Given that the general government category is considered "essential" in the auditor's report, those cities that do not allocate administrative costs to functional areas would be penalized. The report criticizes LGA because cities above the median in LGA per capita have 28 percent lower per capita taxes than cities below median. But the same cities have 41 percent lower median income. This seems to indicate the relative property tax burden is not significantly lower in high-LGA cities. The report measures the appropriateness of expenditure levels by using per capita expenditures. This http://www .lmnc. org/main/lmcstory 1.din 2/18/2003