Minnesota Needs More Ghost Towns

Cargill may be headquartered in Minnesota now, but it got its start 150 years ago in a small Iowa town. Conover was one of many prairie communities that sprang up as the railroads ventured westward. It was sketched out in 1864 as the McGregor Western Railroad moved into the area and incorporated in 1866. The town soon swelled to as many as 1,500 people. There were “three hotels, a dozen stores, some 32 saloons – and ‘a whole street of warehouses,’” according to a Cargill history. Cargill’s founder bought a warehouse where he and a partner made money buying grain from farmers and selling it to railroads.

But the good times didn’t last. A new rail line was built, and McGregor Western moved its facilities out of Conover. Businesses started failing the same year the town incorporated. Cargill (where I work) followed the railroad out of town and went on to flourish. But by 1870, most of Conover had become cropland again. Today, there is no Conover.

Conover’s story would have ended differently had it happened in modern-day Minnesota. Our state spends millions providing life support to dying towns on the wrong side of changing economics – most visibly in the form of Local Government Aid.

“Our communities would look very, very different without LGA,” an Alexandria Echo Pres article quoted State Rep. Paul Marquart (DFL-Dilworth). “Rural Minnesota would be a wasteland.”

Maybe that’s not an entirely bad thing, though. Maybe Minnesota actually needs a few more ghost towns like Conover.

 

Should we help people or places?

There’s a central tension in government between acting strategically and acting fairly. Governments can rarely do both.

Strategy is about making choices. It’s about directing resources to the places where they’re most productive. In warfare, there’s the principle of concentration of force: Generals don’t divvy up their forces evenly; they weaken some areas and strengthen others in order to overwhelm the enemy at a point where they have the greatest chance for success. In cities, tax increment financing is the very definition of a strategic approach. Cities designate a specific area where they think extra resources will have a disproportionately positive effect.

Fairness, on the other hand, is what social programs aim for. Food stamps, affordable housing vouchers and the like don’t try to maximize return on investment by helping those who will put the benefits to the best use. They fairly distribute the benefits to people who face disadvantages that others don’t. Governments still aim to spend this money strategically so that it helps as many people as possible – by directing money to one program and not another, for example. But return on investment isn’t the end goal. Fairness is.

LGA explicitly aims for fairness. It uses a formula that compares a city’s “need” to its ability to pay. Cities receiving LGA also appeal to the state’s sense of fairness when they make the case for it.

“Take away the $3.5 million or so that Crookston, one of the least prosperous cities in the state when it comes to property wealth, is receiving this year in LGA, and there isn’t a property tax increase big enough to help keep the city from essentially going belly-up,” a Crookston Times editorial opined (accurately since the Coalition of Greater Minnesota Cities estimates that the city tax bill for a median home in Crookston would more than triple without LGA).

That can be a seductive argument. After all, what could be nobler than for a wealthier city to help a poorer one? We do that with people right?

But cities aren’t beings in their own right; they’re just institutions created to serve people. Spending money on struggling cities gives us less money to help struggling people. Is our goal to help people or places?

 

Data shows LGA props up declining cities

Let’s start by looking at the role that LGA plays in city budgets. Using data from the League of Minnesota Cities, I compared the amount of each city’s 2015 LGA allotment to its property tax levy (city only). The purpose is to determine how much the state is contributing compared to local taxpayers. A ratio of 0.5 means the LGA contribution is 50 percent of the city’s levy, while a ratio of 2.0 means it’s twice the city’s levy.¹

 

Levy-LGA histogram

As you can see, there are a lot of cities that don’t receive any LGA. But the median LGA share is 0.59 – meaning half of all cities have an LGA total worth at least 59 percent of their property tax levy. That’s a lot!

Meanwhile, the cities with the highest LGA shares aren’t spread randomly across the state; they’re concentrated in Greater Minnesota.

Click photo to view interactive map.

Click here to view interactive map. (Legend: Blue=0 LGA/levy; green=0-0.25; yellow=0.25-0.5; small red=0.5-1.0; large red=more than 1.0)

There is every indication economies are moving away from many Greater Minnesota communities as surely as the railroad did from Conover. Huge swathes of the state still have fewer jobs than they did before the Great Recession, according to a University of Minnesota Extension report.

As a result, LGA money winds up going disproportionately to communities on the decline. Of the 490 cities with LGA totals worth at least 50 percent of their levy, 242 had 10-year population declines even as Minnesota overall grew 7.3 percent. All but 18 of the remaining 248 had fewer than 5,000 people. It’s not just that we’re failing to support growth; we’re not even staving off decay.

 

So what’s the problem?

LGA’s biggest supporters argue that state aid is an investment that pays dividends when industries in recipient communities create jobs and pay taxes. There are a couple problems with this line of thinking.

First, it ignores the likelihood that businesses will just move to more financially sustainable communities. Perhaps eliminating LGA in Maple Lake (LGA/levy: 0.54) would simply encourage businesses to move eight miles down Highway 55 to Buffalo (LGA/levy: 0.12), where taxes would be much lower. That, in turn, would boost Buffalo’s tax base and make it even more financially resilient.

Second, LGA critics ignore the tendency toward “subsidy cascades” – a phenomena in which subsidies beget more subsidies. For example, artificially low tax bills may encourage people to live in communities they wouldn’t otherwise choose. That increases the funding needs for an already struggling community and the state. They then try to grow their tax base through economic development incentives, drawing businesses away from parts of the state where there would have been economic growth without incentives.

We’ve seen this with Thief River Falls. The city has an LGA/levy of 1.89 – meaning it received nearly twice as much LGA as its residents paid out in taxes. Local government approved $2.2 million in tax abatement for an Arctic Cat expansion in May, and Minnesota’s Department of Employment and Economic Development awarded Arctic Cat $1.8 million. Yet even as the state is subsidizing job growth in a city that can’t sustain itself, city officials have been seeking the state’s help with a housing shortage. They initially asked for the creation of a new type of TIF district for market-rate housing. Legislators wound up creating a program that provides grants that encourage developers to build market-rate rental housing. Thief River Falls housing projects have also received TIF and Minnesota Housing Finance Agency money.

To recap:

  1. The state subsidized Thief River Falls’ budget, which encouraged more people to live in the city than otherwise would have and, thus, created more demand for city services;
  2. In order to provide the tax base to support that additional demand, both the city and state subsidized business investments in a community that a) lacked sufficient housing for the new workers and b) lacked a construction industry that could build housing units at market prices;
  3. So the state and city then subsidized the construction of new housing for these new workers.

Is this really a healthy way to help Minnesotans?

 

Politically rational, economically insane

Redistributing resources to help struggling communities isn’t necessarily a bad idea in its own right. There may be limited cases where redistribution makes the whole greater than the sum of its parts. Perhaps it could create stronger regions by allowing communities to specialize. As one example, it might be worth helping bedroom communities if industry finds some competitive advantage to concentrate in a single city and squeeze out the housing market there.

LGA may also be worthwhile for communities that could prosper if only state law allowed them to use a different type of tax. The outdoor-recreation industry, for example, may not create huge amount of property values, but it may create a large amount of sales tax revenues. Perhaps LGA is necessary for some cities as long as state law forces them to rely almost exclusively on property taxes.

But by and large, this is not what is happening in Minnesota. We have a formula that determines how much cities get regardless of the wisdom of that allocation. This is politically rational but economically insane.

 

Alternatives

Here’s what should happen instead:

Target LGA at regional centers as much as possible: Many of the state’s regions have cities that are larger and financially stronger than surrounding communities. They also tend to have better LGA/levy ratios than surrounding communities. These places benefit the most from state support. Below you can see Mankato and Owatonna in yellow surrounded by a sea of red. Maintaining LGA levels in Mankato and Owatonna and reducing LGA to the surrounding, financially weak communities would better reflect the true cost of providing services and encourage people and businesses to settle in places they can afford, likely increasing concentration in the two regional centers.

LGA-LEVY Region

Cut LGA for the smallest cities: There are 339 communities with fewer than 500 people that receive LGA, including 84 with 100 or fewer people. These cities do not have sufficient economic benefit to justify state subsidies. Cutting LGA for these cities would put many of them at high risk for disincorporation, but it’s important that we keep some perspective on this. Thousands of people already live in unincorporated areas, and there are numerous stores and businesses in unincorporated areas. Many people don’t need or want the services that cities provide. For these people, life will go on as normal. Those who want more services should move to a place that better matches their ability to pay for those services.

Cap LGA at 50 percent of the levy: I don’t buy the argument that communities are living large on LGA money, but high LGA ratios are a sign that a community is fundamentally insolvent. When a city can survive only with a massive injection of state aid, that’s a price signal saying people have a greater chance of thriving somewhere else. Instead of fighting to keep people in failing communities, the state should focus its efforts on helping families where they have the most opportunity. Once again, perspective is in order. Even with a 50 percent cap, the state would be paying $1 for every $2 residents pay in property taxes. That’s a heck of a deal. Capping LGA also incentivizes communities to put the most skin in the game because a bigger levy on their part means more state money.

Allow more variation in local taxes: Cities aren’t all the same. Some industries generate more property taxes; others generate more sales taxes. Residents should be able to pick the tax system that works best for their local economy. While we’re at it, let’s also give cities more freedom to try out multijurisdictional tax districts. For example, a county and several cities may want to set-up an area-wide sales tax district so businesses can’t move just outside city limits to skirt a tax. There are lots of options out there if we just loosen the restrictions. Thriving communities require less from the state, so it’s in the state’s best interest to give them the best shot at success.

Don’t use LGA cuts to balance the budget: Cutting LGA to balance the budget lacks strategy every bit as much as pouring more money into LGA. Money saved from LGA reductions shouldn’t be mindlessly put back on the state’s books. Legislators should instead judge other programs and services on their own merits. If the benefits of a program don’t exceed their cost, it doesn’t matter how much money they have to work with — it’s still not a worthwhile expenditure.

Of course, cities would fight these proposals every step of the way. The Crookston Times editorial referenced earlier argued that elimination of LGA “would lead to a day of reckoning like you wouldn’t believe, which would be felt in Crookston and hundreds of other cities.”

“Reckoning,” though, is just a synonym for a settling of accounts. Perhaps it’s time we had a few more ghost towns on Minnesota’s books.


Footnote:

¹Admittedly, there are a couple caveats that come with this method of analysis:

  1. Communities differ in their willingness to tax themselves and the services they consider essential. This is a frequent bone of contention in any state aid debate. 
  2. This only compares LGA to the amount levied, not the overall city budget. Unfortunately, I’m not aware of any statewide budget dataset. I think this is still a good proxy for examining LGA – not least because one of the program’s purposes (and arguably the most visible one) is to keep property taxes low. Just keep in mind that the comparison is a ratio of LGA to city property taxes, not LGA’s share of the overall city budget. 

 


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51 Responses to Minnesota Needs More Ghost Towns

  1. Adam Miller
    Adam Miller December 29, 2015 at 9:57 am #

    That second to last point is key. If localities had more flexibility to tax, there would be less “need” for LGA.

    • Alex Cecchini
      Alex Cecchini December 29, 2015 at 10:11 am #

      For small towns across the state, is this really true? Maybe some areas with a heavy influx of summer travelers could implement hospitality & local sales taxes. I’ve certainly talked about a sales tax to fund transit for the core cities/counties in the metro. But what about the vast majority of other communities on the decline centered around farming & some industry that lost much of the income-capacity as the need for farm labor declined & manufacturing left the country (or at least, the local area). I can’t imagine there are many tax schemes that can help these places. James spoke of a sales tax for places with manufacturing (like Arctic Cat), but the vast majority of product sales for those items produced happen outside the municipality, even outside the state.

      I’m also always a bit surprised to hear a strong push for a tax scheme that doesn’t tie mostly back to land use. A high sales/hotel tax is a nice way to pass the buck along to visitors to pay for your infrastructure. But it does nothing to provide a feedback mechanism on developing (or abandoning) land. At the end of the day, especially in a fairly small city (<5,000 people) without tourism, the things a city provides are almost *entirely* local in nature – streets, pipes, sewers, parks, sidewalks, community centers, etc. There's a lot less confusion about who is using what services (for example, how many people commute into Minneapolis for work, visit our parks, attend a ball game, drive on a freeway through city land, etc). Charging a sales tax in lieu of a property or income tax doesn't change much in the end.

      • James Warden
        James Warden December 29, 2015 at 10:52 am #

        Alex,

        The sales tax example I used was for recreation. Manufacturing should actually generate a good amount of property taxes.

        I’d also caution against overstating the impact of ag. It’s only one of the top three industries in half of the 12 Greater Minnesota regions, according to an Extension study (http://www.extension.umn.edu/community/news/getting-to-know-greater-Minnesota/). By contrast, manufacturing and professional & business services are among the top three in every region. So we’re already well on the way toward a transition from ag to other industries and these communities are still struggling. That’s more troubling to me than just the changing ag industry.

        It’s also worth looking at what “ag” really means. About 57 percent of Minnesota farms have less than $10,000 in sales annually, according to the USDA (http://www.ers.usda.gov/data-products/state-fact-sheets/state-data.aspx). Only 48 percent of farm operators consider farming their “principle occupation.” A lot of the ag “industry” is made up of hobby farmers and other part-timers.

        I haven’t looked into this much, but my guess is that the economic forces at play go well beyond ag. Good jobs are concentrated in regions now, and regional competitiveness is hugely important. Skeptical as I am of Greater MSP’s initiatives, I think that’s one of the things they’ve nailed. I don’t necessarily think this means people are flocking to cities to the extent that some claim. But they are heading to metropolitan areas. That’s a strong current for isolated communities to swim against, whatever the state of ag.

        • Alex Cecchini
          Alex Cecchini December 29, 2015 at 11:59 am #

          We’re in agreement about ag. Its importance from an economic and jobs perspective across the state is way overstated. My broader point was that this decline in significance over the past 60 years contributed to the decline in economic capacity of many small towns (if not almost the entire cause of it).

          I suspect that many towns exist now mostly as bedroom communities to somewhat larger regional cities like Mankato, Marshall, Owatonna, New Ulm, Alexandria, Duluth, etc. As you say, cities with zero to around 2,000 people simply may not exist anymore if not for LGA, with residents picking up and simply living *in* the city they commute 15-30 miles (and likely travel to for shopping on a regular basis) to today, or instead having chosen to move to somewhere in the MSP area.

          My favorite example is Tracy, MN. Tracy is a town of just over 2,000 people about a 23 mile drive SE of Marshall, MN. Tracy received $900k in LGA for 2015, with a city levy of just over a million. Of the ~1,100 workers living in Tracy, 30% work in town, while 27% commute to Marshall. The rest commute to various regional centers or other small towns (via OnTheMap).

          Of the ~330 people working AND living in town, only 20% (70) of the jobs are categorized as “Goods Producing” or “Trade, Transportation, & Utilities.” The rest are categorized as “All other services.” I suspect this includes a lot of: fire, city employees, police, teachers, community pool workers, hospital workers, and local retail/restaurants. Put another way, jobs that would simply move with the residents if they lived somewhere else. Tracy may not be exactly like every small town, but it’s probably close.

  2. Matt Steele December 29, 2015 at 9:59 am #

    Wow, epic post. Thank you for writing. I agree, we prop up far too many cities in rural MN.

    Regarding your first prescription: I’ve wondered if it would make sense to redirect some of this money into direct subsidies to help families and businesses relocate to more viable places, whether regional centers or metro areas. I’ve long thought about that as a more viable solution than IRRRB black hole of money up on the Iron Range, but maybe it’s an opportunity here. Sort of how businesses write off one-time expenses associated with long-term cost avoidances.

    I’m glad you call for more variability in local taxes. We need to undo parts of the “Minnesota Miracle” that has had unintended, regressive consequences: We need local governments to be freer to levy their own sales taxes, possibly within some sort of state-governed constraints of reasonability. On the flip side, I’d also like to see the state get back to having some “skin in the game” in terms of building financially solvent land uses rather than subsidizing financially insolvent ones – get the state back in the loop for property tax revenues. I’m not sure if Crookston is a regional center or not – they have a Walmart, but they’re 30 minutes from Grand Forks. (Crookston, if you’re listening, please remove your downtown 3 lane one-way couplets – they kill Downtown Minneapolis so they’re certainly bad news for your downtown.)

    Giving local entities control of their own destiny with collecting revenue on sales would have an effect that favors a comprehensive view of financial viability of place. But we also need to be careful with this, as the ST podcast with the city manager of Hays, Kansas pointed out… It can be alluring for a “significant” regional center to end up growing a financially unsustainable land use when they’re rewarded by the “fruits” of sprawl. Though that’s more of an indictment of the value arc of sprawl, that it is never as good again as the first day it is open, whereas a real valuable place will mature and get more valuable over time.

    • Justin December 29, 2015 at 10:41 am #

      It’s funny then when people in rural areas talk about “welfare” and “subsidized transit” in the cities.

      • J N December 29, 2015 at 1:34 pm #

        Yep, It drives me nuts. Most of my family are rural folk, and every holiday there’s always some loud ranting from one or two of them about how the twin cities drain all the money out of the country side….

        It blows my mind every time how far off from reality they often are…

        • Rosa January 4, 2016 at 12:15 am #

          Hah. I’m from Iowa. Half my graduating class ended up in or around Minneapolis/St Paul. I meet a lot of former South Dakotans around here too. The difference between those states and this one is…the cities!

  3. Matt Steele December 29, 2015 at 11:12 am #

    I wonder how municipalities would be financially if they had less sprawl, either within their municipal boundaries or away from it. In generations past, we had a significantly larger agricultural workforce. But as that has declined, rural areas have seen agricultural populations supplanted by people living “on acreage” (because they like it) (and because we’ve made it so darn easy by converting our places to automobility, and paving even the lowest-volume rural roads).

    • Alex Cecchini
      Alex Cecchini December 29, 2015 at 12:08 pm #

      How many towns with <5,000 residents really have much sprawl? Most I've been to retain a small grid of streets. Perhaps the commercial center shifted from the main street to the nearby state highway or major county road (if they weren't the same thing), but most towns don't have their own big boxes or sprawling developments. People living on acreage as hobby farms a few miles from town aren't usually served by city sewer/water, and the cost of pavement to serve them (including maintenance) is likely not much more than if those (few) houses didn't exist.

      • Peter Bajurny December 29, 2015 at 12:32 pm #

        I don’t know how common it is, but Zumbrota kind of has all of this. There’s a new subdivision served by city utilities that surrounds a farm on 3 sides. Also, there’s been big box-ish development across 52.

        Looking at the munincipal boundary you can see both areas:
        https://goo.gl/maps/BF9LtTUMvJs

        The spot across 52 on 460th street is somewhat big box, and the weird spot around Jefferson Ave surrounds a field. The spot across 52 on 445th has been Industrial for quite a while (it was when I lived there 20 years ago). But the disjoint section north by the golf course is new, and definitely sprawl, and by the lack of septic drain fields in satellite images, probably served by city water as well.

  4. Matt Brillhart December 29, 2015 at 11:36 am #

    Great post, James. There’s a lot to agree with here. Among your suggested changes are “Target LGA at regional centers as much as possible”, “Cut LGA for the smallest cities” and “Cap LGA at 50 percent of the levy”, all of which are solid suggestions, I think (though I’m nowhere near well-versed enough to know for sure). The last one is perhaps the most feasible politically, since the rules would apply equally to every town.

    I’m curious why you did not suggest scrapping the LGA program entirely. Exurban/rural (read: Republican) legislators are constantly trying to cut or eliminate LGA for Minneapolis, St. Paul and Duluth, so why not rip the band-aid off faster and just get rid of the whole program?

    How to reallocate the $519 Million (FY2016) of tax revenue is an entirely separate question. Options could include education (pre-K or free community college), healthcare, or simply reducing state taxes accordingly. According to this document, FY2014 sales tax collections totaled $5.4 Billion. Cutting LGA entirely would allow for a statewide sales tax reduction of 0.5 percent. Cities/counties could be given the freedom to add local sales taxes as they see fit.

  5. Sean Hayford Oleary
    Sean Hayford Oleary December 29, 2015 at 11:48 am #

    I appreciate the thoughtful detail of this post, but disagree with most of the conclusions. The underlying assumption is that cities should, rightfully, be run like free-market corporations — and thus the successful should flourish and the weak should be left to die.

    While cities often need to act like corporations to remain viable with unstable state funding, I’m not sure this is the only way it should be done.

    I think there is a vast cultural value in maintaining small towns, even if doing so is not as efficient as possible. I also think it is rather unsympathetic to the needs of the rural poor to suggest they should just pick up and move some place that is more thriving — and likely, more expensive, possibly not with the opportunities for work or affordable housing they have now.

    I do, however, agree that local governments should have some freedom to determine alternative methods of taxation, like sales tax.

    • Ben December 29, 2015 at 3:18 pm #

      I can’t speak for the StrongTowns folks because they do seem very firmly wedded to the logic of the market, but another way of phrasing the question is, should we be using the government to subsidize inefficient and wasteful outcomes? I don’t mean that strictly in a market sense but a broader sense, where for example, living in cities is far less carbon intensive than living a rural area.

      As to your point about the value of preserving small town culture, I found myself instinctively agreeing with you, only to be confounded by the question of “why?” and finding the only answer to be the romance and supposed virtuousness of of small town life.

      • J N December 29, 2015 at 5:06 pm #

        I was born, raised, and educated in small towns in Minnesota all of which have population under 6K and are deep red in the (very well done) interactive map.

        I often get frustrated with the idealism associated with small town life. The people living in small towns are not more virtuous and kind, or more unethical and mean than people living in larger cities, people are people. And small town culture isn’t romantic or innocent, its just people being people. At best small town life is a very mixed bag of pros and cons just like city & suburban life are. For my self after 24 years I realized it was more con than pro for me personally, but I know that for others the balance might be different.

        I’m conflicted, I have a deep level of fondness for many of these towns that take large LGA payments since they are where I have spent the majority of my life. But I know from experience that many (most?) people living in these towns are not aware of the level of aid the state provides, and/or don’t respect it.

      • Nathanael January 16, 2016 at 5:56 pm #

        “Small town culture” as people mean the phrase is often preserved better in Brooklyn or the Bronx or South Central LA than it is in actual small towns.

        The people I knew who came from really small towns (<5000 population) said that pretty much all anyone did when they weren't working was drink alcohol. This is not a lifestyle which we should encourage.

    • jeffk December 29, 2015 at 6:36 pm #

      I share this same feeling of conflict. I get the Strong Towns argument being made here. But the reason the “Miracle” was instituted in the first place is that increasingly, rich people were concentrating their wealth by moving near each other. LGA is a form of redistribution to combat that.

      On the other hand, since vast geographic swaths seems to be economically unsustainable, perhaps it’s too strong a signal to ignore.

      I’m fine, though, with taking money from the Minnetonkas and Edinas to subsidize LGA for MSP and poorer inner ring suburbs, since those places are just hideouts for wealthy city people anyway.

    • James Warden
      James Warden December 29, 2015 at 6:45 pm #

      Sean,

      There’s no assumption that cities should be run like corporations. I disagree with that idea quite a bit. There is a big difference between saying a government should be financially solvent and saying it should bend to the free market. For example, Minnesota is required to be financially solvent in that it has a balanced budget provision in its constitution. Yet no one would say we’re running it like a corporation (nor should we). My post above is ultimately a discussion about which level of government should be responsible for funding cities. Regardless of which level we choose, the uppermost tier will still have to be financially solvent — there’s just no getting around that.

      I do agree with you that there is a “vast cultural value in maintaining small towns” but I don’t think it’s healthy for either the state or other small towns to plow millions into propping up *every* small town. Is it good for for the state to subsidize three struggling small towns in the same area, which then each become weaker because none of them have a critical mass to thrive? Or would it be better to subsidize just one of the small towns and allow its natural gravity to grow it into a healthy regional center? Again, it’s not about the free market or running cities like a corporation. It’s about making strategic choices that help the most people.

      I’m not against helping the rural poor either. I just think aid should flow to people, not places. Individuals have the best information about where they have the greatest chance to succeed and will make their choices accordingly — so long as we don’t muck with their calculus by subsidizing less prosperous areas. Where there are large concentrations of rural poor, a proportional amount of assistance should go to families there.

      Once again, it’s about helping people, not places. It’s easy to brush off efficiency, but there’s a human cost to inefficiency. If you help 90 families when you could’ve helped 100, that’s 10 families that didn’t get help.

    • Paul Strebe December 30, 2015 at 11:40 pm #

      I grew up in a small town, but large cities have always been the drivers of economic and cultural development throughout history. If you look at where so many small towns are located today, you’d be hard-pressed to see why they still exist. They lack a competitive advantage. Perhaps they were on a river or a rail line, but that industry has moved on.

      I like the author’s suggestion of encouraging regional centers. We need some tough love here. Things change. Housing stocks don’t last forever. Tourists can only support so many quaint little burgs — the ones with unique restaurants, bars, antique shops, etc. And frankly, most don’t fit this bill, and are chock full of the same fast food chains, etc. you’d find anywhere else. But politically, it’ll be tough to change LGA. In our current climate, “Real Americans” live in small towns.

      • Nathanael January 16, 2016 at 5:59 pm #

        If we’re going to actually support rural life, we have to have a serious discussion about appropriate farm policy. Perhaps major government incentives for sustainable farming practices, which could revive rural agricultural economy in a permanent way.

        Just throwing extra money at “small towns” is not the way to support rural life.

  6. Chris December 29, 2015 at 11:57 am #

    Interesting and thoughtful post, James.

    It seems your larger philosophical argument is that LGA is preventing consolidation, density, and stronger regional economies — however, perhaps there’s a more tailored way to encourage that than cutting a program that’s already been cut substantially over the last 30 years? (Stronger annexation powers for cities, for example). We’ve already tested your hypothesis out, and I’m not sure those LGA reductions have resulted in the things your aiming for.

    LGA is a tiny part of the state’s budget, but — as you note — it makes up a large part of many city budgets. There’s an argument to be made that our city boundaries don’t currently match our local economies, forcing cities to pay for services to visitors and workers that don’t live there. In Thief River Falls, for example, there are 4,685 workers over 16 (US Census) but 8,841 jobs in the city (DEED QCEW) — which is tough for a city to handle. LGA adjusts for local property tax system that has inherent unfairness.

    And that’s what the larger enemy seems to be: the local property tax, which pays for services within a city’s borders that may not accrue directly to those local property taxpayers. Thankfully, Minnesota has been forward-thinking in regional coordination and property tax fairness with the Met Council and its fiscal disparities program — which shifts property tax dollars between cities as economies change. The same is true with LGA and its statewide “coordination” (meaning, its partial funding) of service provision in Greater MN. Both are good things and should be strengthened.

    • James Warden
      James Warden December 29, 2015 at 6:56 pm #

      Good summary of my argument. That’s exactly what I was getting at.

      I don’t know that LGA reductions are the same thing as cutting away a whole tier of cities, imposing a cap and targeting funding. LGA reductions seem more akin to the federal government’s sequestration: They both imposed cuts but did so across the board without any deliberation about where cuts are healthy and where they aren’t. Mindless cutting can be just as harmful as mindless spending.

      But I definitely see where you’re coming from. I’d love to see what you or anyone else thinks a more tailored approach might look like. I’m sure there are a lot of good ideas out there.

      Also, I’m a big fan of the fiscal disparities program and regional planning. There are certainly things that can be frustrating, but they’re both vital in this day and age.

  7. Matt Brillhart December 29, 2015 at 12:54 pm #

    For those wanting more information about LGA, including 2015-16 amounts and the formula used to determine those amounts, see: http://www.revenue.state.mn.us/local_gov/prop_tax_admin/Pages/lga.aspx

    • Chris December 29, 2015 at 12:59 pm #

      Thanks, Matt. LGA has gone down significantly (on an inflation-adjusted basis) over time …

      One more thing: if the main concern is smaller cities, the LGA formula divvies out money to cities with under 2,500 *based on population alone*. If a city of that size is really “dying,” then LGA is sure not the thing that’ll save them.

  8. Nick Magrino
    Nick Magrino December 30, 2015 at 8:19 am #

    This is a very good post, and it’s hard to disagree with the ideas behind most of your conclusions. I suppose I would point out, though, that all across the Rust Belt and elsewhere in America, there are plenty of towns and cities that have been forsaken by the private sector and the government, and it hasn’t worked out so cleanly as “well people will just move to where the jobs are.”

    I’m annoyed by Greater Minnesotans who incorrectly insist that they’re financially propping up the metro and more annoyed how much time and money gets spent every once and while on propping up a couple hundred jobs somewhere outstate, but given that LGA isn’t a particularly enormous chunk of the budget, maybe it’s worth it to not turn the Iron Range into Appalachia and the rest of the state into a bunch of little Flint, Michigans. What’s the trade off there? Some people will move to Mankato, but I wonder if you’ll end up paying out more in social services long term than you’re saving on postmen, etc.

    • James Warden
      James Warden December 30, 2015 at 9:02 am #

      The Rust Belt is somewhat different because the large core cities in the region were taking hits every bit as much as small satellite communities. Rochester, Buffalo and Pittsburgh all had populations at their peak that made them bigger than all but two or three Minnesota cities. Cleveland at its peak was bigger than every Minnesota city. I’d also add that capping LGA to 50 percent of the levy is hardly leaving these towns “forsaken by the government” since they’d still be getting $1 for every $2 they put in.

      • Nick Magrino
        Nick Magrino December 30, 2015 at 9:36 am #

        I think the 50% cap is a good idea, I guess I was speaking more generally.

        And while we luckily avoided being part of the Rust Belt, the core cities’ economic trajectories have bounced around a lot in the past few decades. Would have been a bummer if the state had decided in 1995 that Minneapolis had been sliding for decades and that Bloomington was the future, so let’s cut support for Minneapolis. Not that Minneapolis and Sleepy Eye, MN are directly comparable, but, you know, who knows what’ll happen in 20 years.

        Anyway, like I said, your points are/were good, the post was great.

      • Nathanael January 16, 2016 at 6:02 pm #

        The Rust Belt is completely different. There are a couple of problems here which are not really present in most of Minnesota:
        (1) The BIG cities were hit very hard in the Rust Belt.
        (2) A lot of the Rust Belt land is highly contaminated. You can’t return it to agriculture or wilderness There’s a difference between letting a town disappear when it gets replaced by a farm or a forest — and letting it disappear to become a fenced-off toxic waste site.

        To be fair, the Iron Range probably has contaminated mining-related sites which need serious cleanup.

    • Alex Cecchini
      Alex Cecchini December 30, 2015 at 9:49 am #

      I’d like very much if this was the conversation we’re having about LGA. An evaluation of if we’d end up spending more by phasing out LGA over 15-20 years for many towns that don’t have much of an economic reason to be there (by helping the people move or get job training or pay for their houses no one will buy etc) vs. just continuing to spend the ~$350m a year on cities not named Minneapolis, St Paul, Duluth, and Rochester.

      Instead, we have a more fuzzy discussion about supporting the virtues of rural living and the outstate/metro rhetoric to deal with. If it were about helping low income people, we wouldn’t see leaders propose massive cuts to just Minneapolis, St Paul, and Duluth. And a formula based on some odd factors that don’t necessarily line up with municipal funding needs or even hooks to ensure the money goes to programs geared at helping low income people in need.

  9. Bystander December 30, 2015 at 8:59 am #

    Regarding your annoyance (and others on this board):

    The real political thing LGA does is make otherwise conservative areas of the state focus on investment in their communities, which forces their conservative legislators to get on board (obviously this isn’t true in places like the Range, where it’s generally lefty but it is true for the many swing districts in Greater MN).

    Because Republicans are controlled by Tea Partiers, it ensures they’ll be in the minority — on average and over the long term — because newspapers, mayors, and most of their citizens will throw them out of office for following their conservative (largely exurban) leadership, rather than their district. It’s good policy, and if you dislike Tea Partiers, good politics. In that way, LGA is an insurance policy to not have us turn into Mississippi … at least until Republicans moderate (which doesn’t seem to be happening any time soon).

    And, regarding your assumptions of who gets what:

    Since 2013, the metro area gets a little more than half of all new money. Minneapolis alone gets nearly $80M. That’s a lot, but shows how objective the formula is and how responsive it is to changing circumstances (since regional centers are growing like gangbusters and inner ring suburbs are aging and need assistance).

    • Adam Miller
      Adam Miller December 30, 2015 at 10:31 am #

      Minneapolis is the primary example of a city that would not “need” LGA if it could tax itself. $80 million is a tiny fraction of the sales taxes collected within its borders.

      • Chris December 30, 2015 at 2:13 pm #

        Apart from whether Mpls could fill that hole, LGA is the rare example of wonks triumphing at the MN legislature. The formula’s factors were created through regression analysis, which nonpartisan staff helps put together. Because the correlation’s tightness tends to weaken over time, the formula needs to be revamped once and a while — and somewhat surprisingly, both parties and city groups came together to do that in 2013.

        So my point: what it spits out in regards to a city’s “need” is driven by nothing except for factors that fit the regression line, which is compared to a city’s property tax wealth. Once folks start picking cities off the formula (as the House GOP tried to do last year), the objectivity of the entire thing goes away.

        … It’s honestly amazing this piece of wonkery has lasted this long.

  10. Jake Krohn December 30, 2015 at 11:12 am #

    Great post with some nice data visualization. Google Fusion tables are great! But do you think it would be possible to change the large red markers to the small purple one, perhaps? I think the statewide view might be better served by having the smaller darker markers indicating an LGA ratio > 1. As it is right now, the bigger red markers sometimes obscure other ones.

    • James Warden
      James Warden December 30, 2015 at 11:17 am #

      Unfortunately, I can’t change the map at this moment. If you click on the screenshot of the map, though, you’ll be able to access the interactive version of the map.

      • Jake Krohn December 30, 2015 at 8:57 pm #

        Here’s a link to the map with the markers for the LGA ratio > 1 changed to purple dots:

        http://bit.ly/1MHSHBK

        Either way, things look pretty rough out here on the prairie.

  11. Eric Anondson
    Eric Anondson December 30, 2015 at 2:03 pm #

    More evidence that streets.mn comments are as good as the article.

  12. Brian Smidt December 30, 2015 at 4:24 pm #

    I honestly didn’t know that StreetsMN was a fiscal policy blog. However, this is a great article that should start a conversation about LGA and the effectiveness of the program on greater Minnesota.

    The arguments used in this article are the reasons why LGA was created. Minnesotans should have access to the same basic services regardless of zip code. But, what is the right way to provide basic services to citizens of all Minnesota cities? Even those living outside the boundaries of greater Minnesota cities’ receive assistance to maintain roads, provide law enforcement and basic public health services through counties, hospital districts, sanitary districts, rural water systems, etc…. So is LGA to cities really that bad?
    We do have to figure out how to provide increasingly expensive basic services to all Minnesotans in a fiscally responsible way. I am not in favor of abandoning cities. I believe we tried population relocation once in our society’s lifetime and the results were not the most positive.

    Last, as a 218 native, I do not appreciate the sentiment that all greater Minnesotans hate the metro and are uneducated sloths that don’t understand fiscal responsibility. I exposed my bias, but I do not think our great state got this far by disenfranchising portions of our population. A conversation about the health of the state as a whole will go a lot further in securing Minnesota’s future.

    • Keith Morris January 1, 2016 at 8:58 pm #

      It was a generalization that’s true and applies to most, but not all Greater Minnesotans. Case in point, just look at the Republicans they themselves voted in to represent them. They play the “big bad Twin Cities” card and the “take back Minnesota” card. And it’s a kind generalization when you have batshit crazy people out there voting in people who’d be in lunatic asylums back when they existed (see Anoka County and Michelle Bachmann).

      The fact of the matter is that you can’t save them all. I do think we need to save as many as possible while also cutting our losses. We can’t change physics and despite temporarily low gas prices there’s less and less usable oil for transportation by the day. 23 mile commutes to work just because you don’t want to live in the town where you work is not something that we as a state should subsidize; either you make it work yourself with what that job pays or find one in town. Or move elsewhere.

      Personally, we should leverage LGA towards towns that value education enough to invest in it. In my scenario, we would keep Crookston since it has a U of M location. And, they even have a bike path from the edge of the built up part of town out to the outskirts where the university is located. I think that gives it some extra streets.mn points.

    • Nathanael January 16, 2016 at 6:07 pm #

      Minnesotans absolutely should not have access to the same basic services regardless of zip code! Similar services… not the same services!

      Classic example: water and sewer. It is completely unmanageable to supply a city water system and a city sewer system to rural areas. This is why people have wells and septic tanks. On the other hand, it is completely impossible to give everyone in the city private wells and septic tanks (there’s no space for them). This is why city water and sewer systems exist.

      Another example: Rural electric grid wiring is *astonishingly* expensive but benefits a pretty small number of people. Perhaps it would be better and cheaper to give each rural household a lot of solar panels and batteries — since it’s acreage, they have room for them. By contrast, lots of people in the city are on tiny lots and can’t supply all their electricity on-site — and building an electric grid in the city is much shorter distances, so less expensive, so it’s probably worthwhile.

      Another example: in a rural area, cars and roads (the classic one-lane-each-way) are a great method of transportation — highly effective. In a big city, they get congested really quickly and are quite ineffective: but rail, with its huge capacity, is a great method of transportation. Rail, with its huge capacity, is typically overkill for a rural area.

  13. Evan Roberts
    Evan December 30, 2015 at 5:45 pm #

    Let me just saunter through, put on my comparative scholar’s hat, and say that some of what LGA is going to support are services that are provided by state (or national/federal) governments in other countries.

    For example, we could just have a state-level police force and fire brigade that operated throughout the state paid for by state revenues, and with services adjusted to reflect changing population distribution by that state agency.

  14. Paul Strebe December 30, 2015 at 11:10 pm #

    Has anyone seen any analysis comparing services between towns receiving LGA and towns that aren’t? I recall years back hearing anecdotes where some towns receiving LGA used paid firefighters while some non-LGA metro suburbs got by with all-volunteer workers. Also, I’d be curious if there are any national studies comparing Minnesota towns to those in non-LGA states.

  15. Walker Angell
    Walker Angell December 31, 2015 at 10:55 am #

    James, great article (and comments).

  16. Betsey Buckheit
    Betsey Buckheit December 31, 2015 at 6:50 pm #

    Thanks for this post (and comments); I’d love to see this jump start some substantive conversation about LGA at the legislature and during the campaign season. A couple of other observations on a topic I’ve thought about for a long time –

    I wrote this post about on my blog in 2013 in the form of a letter to my state senator (District 20 – I live in Northfield) after he’d trumpeted that he’d been working with Elko New Market mayor to increase LGA without considering any of the longer term implications: http://www.betseybuckheit.com/posts/dear-senator-dahle/

    Included in that post is a link to the Citizen’s League report “Remaking the Minnesota Miracle” (1991) – the link in the post is bad, but here it is now: http://citizensleague.org/wp-content/uploads/2013/05/437.Summary.Remaking-the-Mn-Miracle-Facing-New-Fiscal-Realities1.pdf which does recommend eliminating LGA, but also has some other useful recommendations for this conversation.

    Also linked is a 2013 Minneapolis Fed report on unfunded mandates and “revenue handcuffs”: https://www.minneapolisfed.org/publications/fedgazette/please-do-this-good-luck

    Also linked is this Strong Towns report: http://d3n8a8pro7vhmx.cloudfront.net/strongtowns/legacy_url/2867/A_20Brief_20History_20of_20Minnesota's_20System_20of_20Local_20Government_20Finance_201960-2010.pdf?1395600305

    And my own LGA experience – I was elected to the Northfield City Council in November 2008. That December, Gov. Pawlenty unallotted LGA to Northfield and many other cities to balance the state budget. So, Northfield had been expecting a LGA payment of $1,445,500 on December 26; Gov. Pawlenty reduced this amount by $355,263 – this for the budget year already almost gone (add’l unallotments for 2009 followed). So, upon taking office in January 2009, the Council was faced with how to manage the sudden disappearance of funds which we had budgeted and/or spent. Northfield was further hampered by state levy limits so we could not levy back the unallotment. The Council cut the budget, laid off staff, froze wages and made a commitment to wean the city from LGA which we largely did. I left the Council in 2012, but Northfield is fiscally very sound and the Council members who remember the unallotment panic are suitably wary of relying on LGA in budgeting for the future (but I haven’t researched all the current numbers).

    LGA is fraught with difficulty and I’m grateful you’ve brought it up in this robust way.

  17. John Tanner January 1, 2016 at 11:36 am #

    It is an insufficient public policy premise to say it is more important to fund people rather than places. The State of MN funds school districts, universities, counties, state parks, nursing homes, cities, bridges, etc. These public entities and facilities serve people, and need people to serve people. Let’s start first by eliminating funding for our State Parks and see how that goes down with the metro mobs that like to escape the sprawling metro.

    While we’re at it If we really want to destroy MN and turn our State into a bunch of wind swept ghost towns, let’s cut state aid to places like school districts and let them jack up their levies, and places like universities, and let them raise tuition.

    • Eric Anondson
      Eric Anondson January 1, 2016 at 11:56 am #

      It is an insufficient public policy premise to say that once European humans settle an area we must eternally keep settlements on that land no matter the burden. It is an insufficient public policy premise to pick an arbitrary era of time as the ideal development stage to lock policy on to preserve it in amber unchanging (like some people in cities think zoning is meant to do). Nothing is destroyed if people move from one place to another, that is hyperbole that harms whatever you are arguing for.

    • Adam Miller
      Adam Miller January 1, 2016 at 3:06 pm #

      I think you’re vastly over estimating the percentage and frequency of metro residents “escaping” to state parks.

  18. Scott January 3, 2016 at 6:56 pm #

    I actually find this post and many of the comments to be somewhat upsetting as an urbanist and Minneapolis resident. I grew up in a tiny town (265 people) in a county with no town over 3,000 population. I am proud that MN supports places like this to provide services throughout the state- especially in these areas where people are often elderly and poorer. My little town, where my parents continue to live, is filled with homes that would sell for $10,000-$40,000- not enough to provide equity to purchase a house in a regional center or the metro area. I love cities, but value in having a basic standard of living in places of all sizes across the state. Finally, the MN towns I know of generaally retain a compact, walkabable/ bikable ‘urban’ form with sidewalks, little downtowns, and parks. The regional centers are the places where sprawl has taken hold.

  19. Michael Wojcik January 6, 2016 at 9:33 am #

    There are some meaningful points here, but also some things I disagree with. LGA could not be cut with out giving cities more freedom to tax. A local authorized income tax, or even street utility authorization could help.

    In the case of Rochester, everyone would agree that it is a vibrant growing city (granted, with a serious sprawl problem). Rochester is however in the bottom half of the state in property tax capacity per capita because of state tax policy. Namely, hospitals, hospitality houses, education do not pay property taxes. As such much of Rochester’s most productive land is not helping city finances.

    DMC, should we receive the maximum funding, would only represent a tiny fraction of the net around that the city loses on net to the state every single year.

    LGA is critical to what I would consider the 4 most important cities to the future of Minnesota. Minneapolis, St. Paul, Rochester, and maybe Duluth. I doubt LGA could be reformed politically without damaging these cities. Come 2022 however, after the next redistricting I suspect that Greater Minnesota will lose much of its remaining political clout so if they don’t start getting smarter now they face a train coming down the tracks…

    • Nathanael January 16, 2016 at 6:10 pm #

      If we are to have local self-government, the local governments *must* have control over their own tax policy.

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