Cities, counties get first taste of budget cuts

Of the $110 million in aid cuts, $66 million will come from funds for cities and $44 million from counties. Cities with populations under 1,000 are exempt from the cuts and counties with fewer than 5,000 residents are also exempt. The governor said that means 60 percent of Minnesota cities will not experience reductions. Pawlenty characterized the cuts as moderate.

"You may hear from some that these cuts in local aid are less than they expected and we've heard from people already they were thinking of a worse case scenario in terms of impact on cities and counties," Pawlenty said. "But you also might hear some voices expressing concerns and we understand that and want to be respectful of those concerns."

The city taking the largest total cut in state aid is the state's largest city, Minneapolis. City officials were counting on a $41 million payment to arrive next week. Instead, that check will be about $13 million less.

Mayor R.T. Rybak says the cut is deeper than he expected.

"Just about two weeks before the end of the year when you get hit with a cut of this scale, the one thing that we're going to do is use our contingency as a bridge to January when we'll make cuts and restructuring," Rybak said.

The city's contingency fund has a balance of just more than $50 million. The city is required to keep a reserve that is 15 percent of its general fund. So early next year, Rybak said city officials will have to reopen the 2009 budget and find where they can take that $13 million to restore the budget reserve.

Across the river, St. Paul will come up more than $5.5 million short. The city has already instituted a hiring freeze, and Mayor Chris Coleman has asked department directors to trim their budgets by 20 percent. Coleman said those measures were taken, not only to prepare for this round of state cuts, but for a predicted shortfall of nearly $5 billion for the fiscal year that begins July 1.

"We're prepared to respond to it," Coleman said. "It's not easy. It's going to mean significant reduction in the services in the city of St. Paul potentially. But we have to deal with the hand we're dealt."

Asked whether public safety would be cut, Coleman said: "It would be hard to imagine a scenario where anything isn't on the table."

Smaller cities, like Bemidji, are feeling the pinch too. It doesn't receive as much state aid as Minneapolis and St. Paul, but aid makes up more than 40 percent of Bemidji's total budget. As a result of the governor's cuts, Bemidji's next aid payment will be nearly $250,000 less than they budgeted for.

Ron Eischens is the city's finance director.

"Is it going to be a problem for the city? Absolutely," Eischens said. "It will be a problem for every city and every county. It certainly means a change in how we deliver services and what services we deliver."

Eishchens said he didn't want to talk specifics until the city council got a chance to go through the numbers. But he said staff cuts are possible.

Duluth's next aid payment will be $1.7 million less than it planned on. Duluth mayor Don Ness said the city already trimmed the 2008 budget by $18 million, overcoming a $6.5 million budget deficit. Ness said the shortfall will have to be carried over into next year's budget.

"We don't have the money in our general fund reserve to cover this severe of a reduction in revenue," Ness said. "With two weeks left to go in the year, we're going to have to check with our legal staff and to see what is necessary. We may not have any choice but to find a way to carry this into 2009."

Ness said he worries that with the real possibility of more aid cuts in the coming year that the city will be faced with making cuts to services that Duluth residents depend on.

County governments will also have to make do with decreased state aid. Hennepin County officials said the county will miss out on nearly $11 million in aids and credits. And they said the county may lose additional aid due to cuts in human services spending.

City and county officials around the state will have to keep their scalpels sharp, because they will likely have to make more budget cuts very soon. The state is still facing a $5 billion deficit for the next biennium. And that number could go up after the next budget forecast presented early next year.