Feeling anxiety, Cambridge exemplifies the budget squeeze

It's hard enough coming up with a budget for the next year. The city of Cambridge in east central Minnesota goes the extra distance by looking a decade into the future.

And what the city's finance staff sees is the likelihood of property tax levies that increase anywhere from 2 to 7 percent a year, depending on the scenario the city council chooses. If the levy averages out to less than 4 percent a year, the council almost has to make cuts in the budget that are not one-time savings. And those cuts generally translate into either fewer city employees or cuts in pay across the board. The council members also weighed refinancing debt on the city hall and industrial park.

Thursday night's session of the Cambridge City Council provided a fascinating snapshot of the angst that communities all over Minnesota are feeling, both about the budgets they have to set in coming months and about longer term choices they have to make about what defines their cities. As money from the state shrinks, will residents stand for property tax increases? Are there other ways to raise money? What services absolutely can't be cut in hard times and where can cities make trims?

Ground Level is exploring how cities are addressing these questions and more, looking for places local leaders are trying to take action for the long haul.

Four of Cambridge's five council members heard the bottom line scenario from city finance director Caroline Moe. She told them they should plan on Cambridge receiving only about half the $753,092 in local government aid (LGA) it could receive by law next year. Why anticipate such a hit? History has taught Cambridge that cuts in LGA happen: about half of its LGA was cut in the 2010 budget. In 2009, the state of Minnesota held back 26 percent of the city's LGA.

In 2010, Cambridge raised $4.6 million in property tax levies. Together LGA and property taxes make up 83% of the city's total revenue.

Cambridge, population 7,734 may be envied for its commercial strip with a number of new, big stores: Lowe's, Target, Menards and a Kohl's opening this fall. The city's population has grown 40 percent in the past 10 years.

But budget deficits in the '90s meant the roads needed more work. An industrial park that was supposed to support itself with land sales has required the support of property taxes since 2009.

Finance director Moe asked the council members to consider a 4 percent increase in levy each year from 2011 to 2020 to maintain the current level of services and keep on schedule with capital improvements. Council members Mayor Marlys Palmer, Lisa Iverson, Dave Schornstein and Chris Caulk approved levy increases capped at 3 percent, with the understanding that the finance staff look for more cuts to bring the levy down even more.

But when a budget is drawn 10 years into the future, you might see the impact of your actions in one budget year played out over several. A lower levy in 2011 may make sense now, especially when the recession and higher unemployment levels persist in an election year. But levies may have to rise later unless even deeper cuts are made. That assumes the economy doesn't improve quickly and government aid isn't what cities might expect.

At the end of the two and a half hour work session, the council got another glimpse of economic reality. Caroline Moe told them there were $37 million worth of capital improvements the city wants to do which will be left out of the budget entirely. That's above the $50.2 million total in necessary capital improvements over the next 10 years.

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