Governor's hometown hits hard times

You don't need to go too far to realize how difficult times are in South St. Paul.

"I was laid off from Wells Fargo, so I am looking for work," said Beth Baumann, the city's mayor.

She found out in September she was losing her job. She's been unemployed since November, the same month that she was re-elected mayor.

On a recent afternoon, Baumann had plenty of time to give a tour around the six-square mile city. She pointed out the 12 ethnic churches, the schools and the site of the stockyards that gave South St. Paul the nickname "cow town."

"It boomed from the turn of the century to the mid-70s," Baumann said. "There were 10,000 jobs in the packing plants, stockyards, and contributing services to that industry."

South St. Paul is no longer that boom town. The last of the stockyards closed last fall, and city officials are looking for a new identity. Mayor Baumann is working to convince businesses to relocate here. She said there was heavy interest until the economy collapsed.

"We were going gangbusters and then the market went to hell," she said.

Attracting new businesses to South St. Paul isn't just meant to fill vacant space. It will also increase a city tax base that has become reliant on state funding.

City officials say residential property taxes can't pay the bills. The average market value home in South St. Paul ranks near the bottom of cities in the Twin Cities area.

One of the homes on Baumann's tour is the house where Gov. Pawlenty grew up. Back in school the mayor was in the same grade as Pawlenty's older sister and knew the governor "a little bit."

Talk to South St. Paul city leaders and they prefer to discuss the governor's budget policies rather than his childhood home. That's because the amount of state money coming to South St. Paul is shrinking. In 2003, the state provided $3.8 million in aid. It was $2.3 million this year.

"The amount of money has been taken out of the budget use here is amazingly large and there is no capacity to tax the dollars back. This is a relatively poor property tax city," said City Administrator Steve King.

He said about 20 percent of the city's budget comes from state aid. But he's worried that number will continue to shrink. City officials used a portion of their budget reserve to help offset a $354 thousand aid cut in December.

King said Pawlenty's budget plan for the next two years means the city could face another $400,000 cut this year and a $1 million cut next year.

King said it will be difficult to manage the proposed cuts.

"It can be done, but at tremendous change and damage to what has been the expected level of service in this town," he said. "We have been on a course of leaning since 2003. There isn't any fat left on the bones. We're talking about fundamental basic services that everyone expects their cities to provide."

King said the city has already laid off workers. They aren't filling open positions. Last year South St. Paul merged its fire department with West St. Paul. King said the merger hasn't saved the city a dime yet. To make matters worse, he said home foreclosures and a declining home market will reduce future property tax payments.

"We're not yet feeling the worst pain from the real estate drop in value. That will come in a couple of years," he said. "So not only are we struggling to deal with drastically reduced local government aid but we may have less internal resources from our value."

King said nearly every budget idea is on the table, including consolidating the police force and cutting park and recreation services. One thing off the table is using any portion of the city's budget reserve.

At 28 percent of current annual expenditure, South St. Paul's ranks among the lowest of cities in the state. King says cutting it any more will downgrade the city's bond rating.

Cities across Minnesota face difficult decisions to balance their budgets in light of the state's projected budget deficit of $4.6 billion. Nearly every city official has said that they can accept some cuts but want the governor and Legislature to eliminate a cap on property tax increases.

Gov. Pawlenty said cities have to make sacrifices in tough budget times and he's not willing to lift the cap.

"It is not written somewhere in stone that local units of government can never reduce spending or never slow down their increase in spending," Pawlenty said. "If you listen to some of the advocates on this issue, they suggest to you that if you reduce local government aid by simply a dime, they have no option, no option whatsover but to raise taxes. It is written in stone. It is a foregone conclusion and that is simply not true."

Pawlenty also said that if city officials think that his cuts are too deep, they should suggest a cut that they can support.

Mayor Baumann said she hopes her city won't need any state aid someday, but she said right now, with a slow economy and low property values, it does.

"We just haven't had enough time because without building up our economic base, we can't have a bigger tax base and the burden will continue to fall on existing businesses and the people that live here," she said.

Baumann said it could take 15 years for South St. Paul to become independent of local government aid.

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