H.3137 – Altering the Local Government Fund

UPDATE: The Senate Finance Committee amended this bill to require LGF appropriations to increase or decrease by the same percentage as the general fund, capped at a 5% change. The Senate’s version also does not rename the fund. 

H.3137 would lift the requirement that the Local Government Fund (LGF) receive 4.5% of last year’s general fund revenues. LGF funds are distributed to counties and municipalities based on a formula, and local governments depend on these funds for their own budgets. Lawmakers routinely ignore this law, suspending it every year by budget proviso and shortchanging local governments in favor of their own projects and spending priorities. This puts local governments in a place of uncertainty regarding how much they can safely budget for, and can even lead to higher local taxes.

This bill would rename the fund (the “Local Government Revenue Sharing Fund”) and require the previous year’s LGF funding to be increased by the same percentage the general fund is projected to increase, but capped at 5%. Note that any increase here is not tied to a budget surplus per se, but rather to growth in recurring dollars. If the general fund’s recurring base does not grow at all one year, the LGF appropriation amount would – at most – remain the same as that of the prior year. Nothing in this bill prevents the LGF appropriation from being cut, should revenue projections fail to increase or even drop; the only requirement is to appropriate something.

Whether this is the right amount of funding for local governments is unclear. A proper approach to revising the LGF funding formula would be to survey the state mandates for local governments and determine how much state money is necessary to cover them.

More importantly, there is nothing in this bill to prevent lawmakers from continuing to budget by proviso – in fact, the bill strikes an existing provision of state law requiring any repeal or revision of the LGF law to be in a separate bill.

In summary, this bill would appear to codify lawmakers’ existing practice without addressing the root issues at play – namely, uncertainty over how much local governments actually need to cover state mandates, and robbing the fund by proviso year after year.