Local government aid is useless

Anthony Sanders

Amid the shrieks and cries of Minnesota special interests this year, perhaps the loudest moans hail from our beloved municipalities. With a $4.5 billion state deficit, local government aid looks likely to take a major hit. It’s about time, and it’s to the chagrin of central planners everywhere.

Our new, bold and iconoclastic state auditor, Pat Awada, recently recommended cutting local government aid by 42 percent this year. That would effectively cut many cities’ budgets by almost a quarter because local government aid makes up approximately half of most municipal spending. Cities will either have to cut spending or raise local taxes.

For those unfamiliar with the program, local government aid is basically a method of redistributing resources from some cities and giving them to others. I hesitate to say taking from “richer” and giving to “poorer” cities because some rather prosperous Minnesota towns, such as Rochester – home of the Mayo Clinic and IBM – get a nice slice. Local government aid is better described as a method of redistributing resources to cities with well-connected special interests and away from cities with either inept or principled politicians.

Without local government aid, cities would have to compete for residents and businesses by balancing property taxes and services. There would be an incentive to “hold the line” on spending because taxpayers can threaten to move if cities raise property taxes. Local government aid masks this by pumping general state funds into city budgets. Instead of using local government aid money to cut property taxes, cities simply spend more, building new convention centers or filling libraries with a few more books. Cities end up playing more to the Legislature’s interests and less to their own residents’. There is less competition for taxpayers and thus less incentive for cities to spend wisely. Like other forms of welfare, local government aid is redistribution that spurs perverse incentives.

Many of the reactions against cuts in local government aid center around the possibility that cities will raise property taxes. Let them. A city should have to weigh the amount of money its residents are willing to proffer with the amount of services it wants to provide. If residents are poor and therefore do not want to raise their taxes, they can choose less in city services, or alternatively, they can move to a city with a larger tax base.

Readers might find this cold-hearted and picture images from Census adds – firemen’s hoses snapping, police cars breaking down, grandmas crawling through the snow. Those readers need to remember something, however: Not all municipal spending is essential and necessary for a healthy civil society. Cities spend money on all manner of discretionary projects, such as convention centers, parking lots, adult education classes (is evening Spanish a necessary expenditure?), and public radio stations.

Why should the state pour money into a community so it doesn’t have to make the decision over whether to tax itself to pay for a convention center? Nonessential “fluff,” like such corporate welfare projects, should be the decision of the local residents who better understand their town’s needs, not the decision of a group of state legislators cutting deals in St. Paul. Chances are the voters of a Minnesota community would choose to forgo many – arguably wasteful – projects if the funds were to come directly out of their own pockets, instead of out of the pockets of taxpayers all over the state, and in the case of federal aid, all over the country. With local government aid, the Minnesota cities become a swarm of lobbyists, jumping at every opportunity to fatten the municipal budget, even if that means a higher tax burden on the state as a whole and no improvement in the services their residents actually need.

Cities can do just fine without local government aid. In Minnesota, there was no such thing before 1971. I don’t know if older folks have told you, but back then people were not dying in the streets with no one willing to cart the bodies away. No, Minnesota was a thriving state with healthy cities and adequate local services. Cities no more need local government aid now than they did back then.

What has changed is that the criterion of success for local officeholders now amounts to how much money they can hoist out of the hands of other Minnesota communities. At least with other insidious programs of the welfare state, such as Medicaid, some money ends up in the hands of truly needy individuals. With local government aid the needy individuals either get a slice of pork they don’t need or have to pay for pork in another town. Now there’s a call for a real pig farm moratorium.

Anthony Sanders’ biweekly column appears alternate Thursdays. He welcomes comments at a [email protected] Send letters to the editor to [email protected]