Minnesota cities bracing for state cuts

Cities large enough to receive aid from the state get payments twice a year. The second payment is due Dec. 15th.

Tim Flaherty,with the Coalition of Greater Minnesota Cities says, city managers have budgeted that money to cover payments already made throughout the year.

"If they don't get that, and if they don't have - if it's a significant cut and they don't have enough in reserves, there's really nothing they can do about it," Flaherty said.

Cities with cash reserves can try to make up for the loss of revenue this year by budgeting for it next year. However, most cities' fiscal years end December 31st and they've already completed their budgets and set their tax levies.

Flaherty says cities spend state aid money on essential city departments like police and fire service.

"So if they have no ability to raise revenues because their levies have been set, all they can do is cut. Which means most of their budgets are public safety," he said.

The state operates on a fiscal year which starts in July and ends on June 30. So the Governor could still choose not to reduce the Dec. 15th aid payment. But city managers across the state are bracing for cuts in future budgets.

It's discouraging... that we're now faced with the prospect of taking on the burden of helping the state balance their own budget."

Like a lot of other cities, Bemidji is still trying to recover from the last major cuts in state aid five years ago.

City manager John Chattin says state money accounts for 37 percent of his city's budget. He worries that the governor and state legislators who want to cut state aid assume that city governments like his still have some fat to trim from their budgets.

"Ten years ago I think it probably was, but governments have certainly leaned up in the last 10 years and there just isn't much, well, there isn't anything available," Chattin said. "If you're going to cut now, you're going to be cutting services."

Chattin worries that another big cut could mean layoffs and early retirements for police officers and fire firefighters.

Duluth city officials say they've already taken a butcher's knife to the balance sheet.

This year, the city has cut jobs, privatized the zoo operations and shut down city government for five days in order to save money. Mayor Don Ness says the city depleted its reserves to balance its 2008 budget.

"It's discouraging," Ness said. "After putting in a full year of budget recovery, in which we actually will be recovering over $18 million between '08 and '09, that we're now faced with the prospect of taking on the burden of helping the state balance their own budget."

The state's largest cities, Minneapolis and St. Paul, also depend heavily on state aid.

Minneapolis is expecting a $41 million check from the state in a few weeks. City officials say it's possible the governor could reduce that amount, but they don't expect he will.

Finance director Pat Born says if it does happen, the city will have to tap into its $50 million cash reserve fund.

"But we would probably, in order to rebuild those cash reserves, we would probably need to cut spending next year by the amount of the reduction in local government aids," Born said.

Minneapolis began a series of cost-cutting measures following the big aid cuts of 2003. And Born says the city's budget is already pretty lean.

The other option for cities is to raise property taxes in order to make up for lost state aid revenue. This year, Mayor R.T. Rybak had proposed a smaller property tax increase than in past years.

However today, Rybak told city council members in a budget meeting, that he's now proposing an increase that hits the eight percent cap.

Rybak says it became necessary to do so after city leaders learned recently that employee pension benefits will cost $38 million more than budgeted in 2010.

The mayor is also proposing a hiring freeze and finance director Pat Born says layoffs may also be in the near future.

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