Minnesota cities bracing for more bad economic news

If you want a good example of how the slumping economy and the downturn in the housing market are hurting cities, look to Brainerd. There, the overall decline in the housing market has stalled a handful of housing projects, which should be generating property taxes for the city, but they aren't.

Even though these projects are private developments, city administrator Dan Vogt says the city still has to pay for the infrastructure it put in place, like the water and sewer systems. With a decline in overall revenues, making those payments means the city has to cut expenses elsewhere, Vogt says.

"We've had a recent full-time firefighter that has retired. We're not going to be replacing that person. We've had our street foreman that is going to be retiring next year that we're not planning to replace," said Vogt. "We've also had to cut back on our capital purchases -- we haven't done any substantial purchases in areas outside of public safety in a few years."

Those capital purchases include equipment like trucks, plows, and lawn mowers.

Brainerd is trying to keep employee wages at their current freeze level or as low as they can negotiate, Vogt says. If wage settlements on behalf of union employees are higher than the city can afford, Vogt says the city may have to cut back on some jobs to accommodate those increases.

Brainerd is not alone. Across the state, cities like Apple Valley, Red Wing, and Wadena are also facing a decline in overall tax revenues and rising costs. Officials in Minneapolis recently proposed a hiring freeze.

Minneapolis is also concerned about a potential steep cut in local government aid from the state, known as LGA, said City Council President Barbara Johnson.

"Depending on the depth of the cut, hopefully we can avoid some layoffs by keeping current unfilled positions unfilled, and not making any new hires unless they're of a critical nature," Johnson said.

The state revenue forecast this week is expected to show a deficit in the current budget year, and a multi-billion dollar deficit in the next two-year budget cycle.

The uncertainty around the next fiscal year seems to be the most common concern among cities, according to Jim Miller, executive director of the League of Minnesota Cities.

During the budget shortfall in 2003, the state cut LGA to cities by about 20 percent, and the total number of city jobs dropped considerably -- from about 37,000 statewide to 31,000, Miller says.

"Those numbers haven't completely recovered. But I would suspect if we're looking at the $4 billion [state budget] deficit or greater, as people are now suggesting, and if local government aid is cut dramatically as it was in 2003, then we'll see a similar decline in the number of city employees," said Miller.

The League of Minnesota Cities and its national counterpart in Washington D.C. are working hard to make sure that at least some federal money for infrastructure construction and replacement goes directly to cities, Miller says.

This is federal money that the city of Brainerd hopes to tap into for its wastewater treatment expansion project.

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