By Tim Krohn

Free Press Staff Writer

Following Gov. Tim Pawlenty’s veto of a tax bill that contained increased aid to cities, area officials are taking out the pencils and erasers to rejigger numbers as they start on their budgets for next year.

“The (proposed) increase in LGA would have helped quite a bit. It will certainly impact our budget discussions,” said North Mankato City Administrator Wendell Sande.

LGA is Local Government Aid, state funds distributed to communities to help them pay for basic city services so they don’t have to rely as heavily on local property taxes.

LGA was cut deeply beginning in 2003, during the state budget crisis, and cities have been calling for restoration of the funds, saying they have been forced to both reduce services and increase property taxes.

The League of Minnesota Cities said the state would need to restore $140 million in LGA to get even. The tax bill passed by the Legislature included $65 million more for LGA. With the governor’s veto of the bill this week, LGA will be based on the current formula.

Lake Crystal was slated to get an increase of $112,000 in LGA under the bill.

“We’re disappointed it

didn’t get passed. I hope there’s some reconsideration,” said City Administrator Bob Hauge.

The governor, who is the only one who can call a special session, said he does not see a reason to call legislators back to St. Paul, but he did not entirely close the door on a special session.

Hague said that without the aid increase and with normal cost increases in the budget, it will be difficult to protect local property owners.

“If we need to increase the budget, we’ll have to take a look at increasing the property-tax levy.”

New Ulm took one of the biggest hits when the bill was vetoed. The city was slated to get an LGA increase of $572,000, second in the area only to Mankato, which was set to get an increase of $880,000.

“Since 2003, we’ve dropped about $1 million (in LGA),” said City Manager Brian Gramentz.

Still, New Ulm is in a slightly better position than many communities because under the current formula it will get a small increase in LGA next year. Statewide, about one-third of cities will get a modest increase in LGA and two-thirds will see a decrease.

The complex formula used to distribute LGA includes factors such as the age of housing (more pre-1940s homes gets you more LGA) and how many accidents there are in the city that emergency workers need to respond to.

Gramentz said he believes New Ulm may be able to hold the line on property taxes because it doesn’t have any big budget additions planned.

“We had to increase our taxes when we were cut (in LGA). If we’d have seen an increase in LGA, we could have reduced property taxes next year,” he said.

Sande said that besides losing the $189,000 LGA increase, North Mankato will lose another $10,000 in aid next year because of the current formula.

In 2003, North Mankato received $2.3 million in LGA. This year it got $1.6 million. “Our hope is to someday just get back to the status quo of 2003.”

Sande said the city has held off doing much budget planning for next year until the LGA level was decided.

“Now that we know the numbers, we can start dealing with the 2008 budget process. In prior budgets we’ve looked at both (reducing services and increased taxes),” Sande said.

North Mankato not only lost the LGA increase in the vetoed bill, but also lost its ability to levy a half percent local sales tax. Approval for the sales tax was also in the vetoed tax bill. The money would have been used for a variety of local projects, including parks and an expansion of the library.