Angst-filled cities look for budget cuts, new ways to do things

The days of easy answers are over.

If you're trying to balance a budget in a rural Minnesota city, chances are you have run through all the options. Lay off personnel, check. Increase fees, check. Raise property taxes, check and perhaps re-think.

Where that leaves you is at the threshold of redefining how your community governs itself and redesigning how you deliver services. The issue is being driven this fall by turmoil surrounding financial aid from the state, but structural economic and political forces are also making officials and residents alike do a lot of re-examination.

"Cities are at a critical point and city officials and the public need to take a broad look at what public services should be provided and by which level of government and what those services look like," Rachel Walker, manager of policy analysis at the League of Minnesota Cities, said in a recent online conversation on the topic.

Whether it's mowing the park grass less often or joining forces with neighbors, it's time to stop governing "just like we did in the 1950s," said Sen. Terri Bonoff, DFL-Plymouth. She pushed for a commission that is scheduled to report in January on how local governments can redesign themselves with an eye to operating more efficiently.

CASE IN POINT: RED WING

There's no better place to look at the situation than the city of Red Wing. Established as a city on the Mississippi River in 1857, Red Wing has some benefits other cities don't enjoy. Xcel Energy pays about a third of its property taxes. Tourism and an industrial base seem to be surviving the recession. Some restaurants have closed, but others have opened in the picturesque town.

But the times have forced hard choices. This year council administrator Kay Kuhlmann estimated a $1.2 million shortfall and called it a "fiscal crisis not seen in the history of Red Wing."

Already, residents see day-time police patrols less often, and city swimming pool hours have diminished. Streets aren't swept as often, and gravel roads are graded less frequently. In winter, city workers don't shovel as many sidewalks and no longer haul snow from residential cul de sacs. In summer, they mow the grass less often.

Residents don't get the city hall newsletter in the mail anymore, and community access television has been reduced. The city's diversity festival gets less government help; the library purchases fewer materials. Some streetlights have been turned off, and the summer recreation program has shrunk. Ice skating rinks aren't maintained as well.

If a loved one dies in the winter, a Red Wing resident must choose between waiting for summer for burial or paying the extra cost of digging a grave in winter.

Meantime, city taxes are rising and fees seem likely to be added to utility bills.

The answer this year to Red Wing's deficit will come from a combination of service cuts and revenue increases, such as a monthly electric franchise fee of $1. The city might make money on the sale of the Mississippi National Golf Links, at least save the operating costs. Closing the city swimming pool was on the list -- a $225,000-a-year savings -- but the city council decided against it.

The biggest potential cost saver is to close the incinerator. But to do that the city's public works department has to spend months negotiating a place for the city's waste before the council can follow through with a final OK.

Red Wing is among the many cities that have formally asked residents what services they valued and whether they would support tax increases to keep them. Residents said police, fire and streets were all considered important enough services to be maintained or expanded, but of the 409 people surveyed, a majority felt taxes should not be raised to pay for each.

ARE CITIES TOO FAT?

All over Minnesota, leaders and residents are wrestling with their own versions of what Red Wing is going through and coming up with their own responses. Brainerd turned some of its streetlights off, Wabasha residents could see their city property tax levy rise 39 percent next year. Mora folded its police department.

But the conversations have coalesced around some common points of debate. And one of the first to come up is often whether city hall can squeeze down the number of employees and the hours they work.

In Cambridge, city finance staff said levy increases of 4 percent each year over the next 10 years would maintain services as is with no layoffs. But that was at least twice as high as the city council wanted. One option: a four-day week.

"People will understand," said Mayor Marlys Palmer, if, say, they can't get a building permit on a Friday. "They will get used to it."

Cities have been in a constant state of reorganization for several years, Morris city manager Blaine Hill says. In addition to his city managing duties, he takes care of planning and zoning.

All the foremen in public works were laid off, leaving the director and laborers to do the work.

When a council member wonders why the trees aren't being trimmed, Hill reminds him that the workers who would do that job have to fit it in with the street sweeping and mowing, which aren't being done as often as before either. Even with the downsizing, Morris' personnel problems are not solved. "We downsized and still health insurance and labor costs are killing us," Hill lamented.

In a blog post last July, Hill lamented that residents sometimes fail to take responsibility for themselves for such things as pulling curbside weeds or picking up garbage in the park.

"The time is coming when the CITY probably won't be able to do as many things, so WE as the CITY will need to start doing things for ourselves," he wrote.

Not all are continuing to lay off and furlough city workers. North Mankato city council voted for a 3.41 percent levy increase after finding they could not afford to reduce staff any more.

In all, the number of non-elected city employees in Minnesota is down almost 32 percent from what it was five years ago, according to the Public Employees Retirement Association of Minnesota,.

WHERE'S THE REVENUE?

If spending less is one side of the equation, finding money to spend is the other. Growing uncertainty over how much comes from the state is the main driver in municipal angst.

"We used to treat the (state) revenue figure sent out in July as gold. Now it's a guessing game," said Caroline Moe, the Cambridge city finance director.

The Minnesota Department of Revenue has given each city that receives aid an estimate of what it will receive next year. Perhaps city officials will see every penny, but it's tough to find a city finance director recommending budgets that rely on what the Department of Revenue has told them. Most expect to lose some and perhaps all of the local government aid and the home market value credit reimbursement in 2011.

One approach is to not count on the state money for current operations, budgeting only for capital. Chisago City is going that route, as is Hanover. In Northfield and Red Wing, city leaders believe they will have to plan for zero state aid in the next five years. But there are cities that may have trouble planning for zero state aid in the next few years, even if they wanted to.

Brainerd depends on local government aid to the tune of 40 percent of its budget. Mankato has local government aid accounting for 25 percent of its general fund.

Of course, the traditional source of city revenue is local property taxes. Many cities have raised them in recent years, but elected officials are reluctant to keep pushing in that direction.

Wanamingo, near Rochester, is looking at a 39 percent property tax levy increase next year to deal with budget shortfalls.

As tough as that increase is for residents, city administrator Michael Boulton says people he talks with seem to understand it needs to be done. "There have been quite a few residents stopping and asking questions about how the city got to the financial situation that we are in."

A big part of the problem is a senior living center that has lost between $70,000 and $90,000 a year. Boulton says the city is trying to work out a deal for a county consortium, the Southeastern Minnesota Multi-County Housing and Redevelopment Authority, to run the senior center.

"Once the situation was explained to them, the common answer is 'We have to do what we have to do to keep the city running', said Boulton in an email message. "They know that the tax increase will only be for two years and we will be able to dramatically reduce the levy size after that."

"We are certainly hearing from our members that they are very concerned about the declines in the local tax base." says Rachel Walker, manager of policy analysis at the League of Minnesota Cities "Clearly they are concerned about going to the property tax payers for huge increases. But I think there are also long-term concerns about the viability of the property tax as the major revenue source for funding local services. We don't have any numbers on it but we are hearing that concern."

Like Red Wing, some cities are turning to new or increased fees on utility bills and even creating new utilities for, say, streetlights, that relieve pressure on taxes. But so far, those are relatively minor streams of money.

The risk of delaying long term improvements

Faced with short-term pressure, many cities are opting to reduce spending on long-term projects like streets and water and sewer line repair.

"The irony is that a lot of cities can't afford to raise their levy, because people don't want them to. But now is the best time to do construction work," said Hill, Morris' city manager.

City engineers in Morris found bids coming back nearly 30 percent under what they estimated. The savings helped pay for new projects, but still the city has had to borrow and levy a special infrastructure tax to pay for projects. "Our water, sewer and roads were failing," Hill said. Morris has spent $4 million over the past few years to replace cast iron water and sewer pipes. The city's overall levy for infrastructure will be responsible for the increase in property taxes overall.

NEW OPTIONS FOR CUTTING BUDGETS

Some cities are looking to technology to make old services more efficient.

In Virginia, police officers use a digital pen that reads information from parking tickets and transmits that information directly to a data base. The technology also allows people to pay the tickets online. As a result fewer of these tickets are argued in court. The Virginia police department saw revenue from tickets jump 30 percent.

There's a chip on everyone's water meters in Cambridge. The information is downloaded to a laptop, streamlining the job so that it can be done by one clerk even though Cambridge was growing at the time. A downside: The time savings evaporates in the bad economy. "Now a huge part of her time is trying to collect money from people who are not able to pay their bills," Moe said.

Cities are looking at their streetlights more critically than before. Could they be more energy efficient? Do all of them need to be on? Brainerd answered the second question with a no and discovered how valued fully lit streets were. City manager Daniel Vogt estimates Brainerd saves $70,000 to $80,000 a year by cutting 30 percent of its lights. Vogt heard dozens of complaints, which were addressed by re-lighting around 60 of the original 450 lights that were shut off.

REDESIGN GOVERNMENT

Consolidation of local government has gone on for many years, not always in tight budget years. Chisago City and Lindstrom combined their police departments at a flush time because they could see inefficiency in the way the two departments policed communities that already shared schools and water and sewer services.

If county and city governments were to cut the overlap of services they might save money and not affect taxpayers.

Last spring, the Minnesota Legislature created the Commission on Service Innovation. It's a group that includes union representatives, business, city and county leaders. All have a stake in how local government operates. State Sen. Terri Bonoff, DFL-Plymouth, co-sponsored the legislation with Edina Republican Rep. Keith Downey. She said a key charge of the commission is find ways to save money.

"Government operations were fashioned around the corporate model originally," said Gopal Khanna, Minnesota's chief information officer and co-chair of the Commission on Service Innovation. "Hands on, assembly line processing, very labor intensive. Brick and mortar.

"People loved going to their banks and city government windows for service and they were served exceedingly well for 50 years."

But that face-to-face presence of city government in people's lives may be going by the wayside.

"I think the miracle part of the Minnesota Miracle is that this did not implode a long time ago," said Mark Haveman, executive director of the Minnesota Taxpayers Association. "We are creating levels of spending and cost structures that are largely unsustainable. We are seeing the results of this as we unwind the spending and find that it is really tough to do."

Then there's the question of whether people feel they are getting what they are paying for.

"I call it the Katrina effect." Khanna said. "Citizens really do not care who has not done a good job, whether FEMA failed, or city government or a county government. When you are not served well people do not trust government. They see government as one continuum, as one entity."

Ground Level: Cities in Crisis
This article is part of MPR News' Ground Level project, aimed at covering community issues prompting Minnesota residents to take action. You can find more on our Ground Level blog and on our Ground Level: Cities in Crisis page.

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