Purpose

The bill would change how Minnesota calculates city aid by adding a sparsity (less-dense-population) adjustment to the city revenue need that determines local government aid. It aims to tailor aid more closely to the size and characteristics of a city, with inflation adjustments over time and transitional rules for certain mid-sized cities.

Main Provisions

• Adds a sparsity adjustment to the city revenue need in the city aid formula and creates a new subdivision to support this change.
• Alters the calculation of city revenue need for cities based on population:
  • For cities with 10,000 or more people: city revenue need is set as 1.15 times a sum of weighted factors, including the city’s pre-1940 housing percentage, city age index, commercial/industrial/utility percentage, peak population decline, plus the sparsity adjustment.
  • For cities with 2,500 to less than 10,000 people: city revenue need is 1.15 times a sum of factors (a base amount plus the same weighted factors listed above) plus the sparsity adjustment.
  • For cities with fewer than 2,500 people: city revenue need is the sum of a base value and a transformed population value, plus the sparsity adjustment.
• Adds transitional formulas for mid-size ranges:
  • Cities with 2,500 to 3,000 people: the revenue need uses a transition factor applied to the larger-formula result and the smaller-formula result, blended by the transition factor.
  • Cities with 10,000 to 11,000 people: a similar transition blends between the higher-population calculation and a lower-population calculation.
  • The transition factors are defined as 0.2 percent and 0.1 percent, multiplied by the amount by which the city’s population exceeds the minimum threshold.
• Requires the city revenue need to be at least zero (not negative).
• Applies an inflation adjustment starting in 2024 and future years: the city revenue need is multiplied by the ratio of the latest implicit price deflator for state and local government purchases (government consumption expenditures and gross investment) to the 2022 implicit price deflator for state and local government purchases, as published by the U.S. Department of Commerce.
• The bill intends to appropriate money to fund these changes.

Significant Changes to Existing Law

• Amends Minnesota Statutes 2024 section 477A.011, subdivision 34, to incorporate a sparsity adjustment into the city revenue need component of the city aid formula.
• Adds a new subdivision 477A.03, subdivision 2a (creating a sparsity-related provision) to support the sparsity adjustment and related calculations.

Relevant notes: The changes modify how local government aid is calculated rather than creating an entirely new aid program, and they tie aid levels to population size, density-related factors, and inflation adjustments.

Relevant Terms - city revenue need - sparsity adjustment / sparsity factor - city aid formula - transition factor - population thresholds (>=10,000; 2,500–9,999; <2,500; transitional ranges 2,500–3,000 and 10,000–11,000) - pre-1940 housing percentage - city age index - commercial/industrial/utility percentage - peak population decline - transformed population - implicit price deflator for government purchases (state and local) - U.S. Department of Commerce (deflator data) - Minnesota Statutes 2024, section 477A.011 subdivision 34 - Minnesota Statutes 2024, section 477A.03 subdivision 2a