Friday, May 29, 2009

Unallotment update -- cities prepare for worst
Over the past several days, there has been significant media coverage of how projected state aid cuts (local government aid and market value homestead credits) are affecting city budgets, and how cities are responding. The City of New Brighton, for example, is considering offering early retirement packages among other options while the City of St. Paul is placing a number of ideas on the table. The City of Crystal is putting parks and rec as well as community centers on the chopping block. And, some cities in Cottonwood County have analyzed their general funds for target areas. There are many more stories of layoffs that will impact quality and volume of city services delivered unfolding metrowide and statewide, as well.

Friday, May 22, 2009

League of MN Cities issues response to Governor Pawlenty's comments
Moments ago, League of Minnesota Cities Executive Director Jim Miller released this statement in response to comments made by Governor Tim Pawlenty during a Thursday press conference:

City officials from across the State of Minnesota understand the severity of the state's budget crisis. They also understand that the solution will affect all portions of the state budget including the aid and credit programs that help fund city services.

We are disappointed that Governor Pawlenty chooses to dismiss the concerns of city officials as nothing more than "whining." Just five months ago, cities lost $66 million in state aids when the Governor used his unallotment authority to address the state's deficit. Now we face the uncertainty of the timing and magnitude of additional cuts to balance the remaining $2.7 billion deficit. We don't know if the cuts will be 5 percent or 75 percent of the local government aid (LGA) and market value homestead credit (MVHC) appropriations--or a cut of $30 million or $460 million.

Cities do not have the ability to shift fiscal difficulties to any other level of government. Since the 2003 budget crisis, city officials have been streamlining and identifying efficiencies in city operations. They will continue to seek further streamlining but the only other solutions are the difficult choices of raising taxpayer's burdens or cutting important city services.

Even if cities choose the difficult option of raising taxes, the structure of the property tax system means that replacement revenues will not be available until after property taxpayers make payments a year from now, in May of 2010. Additionally, the Governor insisted last year that the state impose levy limits on cities and counties. These limits were imposed when the LGA appropriation was increased. Now, we expect the actual LGA and MVHC payments to cities will decline substantially-a circumstance not anticipated last year when the levy limits were imposed.

If cities choose to cut services and employees, they need to make those difficult decisions as soon as possible. But again, we do not yet know the magnitude or the structure of the unallotment reductions that we assume will be imposed.

To be clear, cities have already made many difficult choices. In the wake of very deep cuts in state aids imposed in 2003 and 2004, city employment dropped. From 2003 to 2005, city employment was reduced by 16 percent statewide. Even today, city employment remains nearly 6 percent lower that it was prior to the 2003/2004 budget crisis.

City reserves have also been depleted. The cuts imposed last December were administered after cities had set their 2009 budgets and property tax levies, and this timing forced many cities to immediately reduce their budget reserves and cash flow accounts.

We appreciate the Governor's offer to consult with cities about the magnitude and structure of aid and credit cuts. But let's not diminish the magnitude of the state's budget problem or the implications for cities as LGA and MVHC are cut.
No city services sacred in unallotment scenario
As Governor Pawlenty continues to again ponder unallotment, cuts to city aid of up to $282 million in the next 18 months means cities will likely be faced with making significant service reductions that are highly visible to residents. After Governor Pawlenty chose to unallot December LGA and MVHC payments for the end of calendar year 2008, the League of Minnesota Cities undertook an informal tally of city budget-balancing actions and strategies in response to that unallotment, and in anticipation of further cuts in the next biennium.

Cities have reported since December 2008 that no service is sacred, and are looking to make additional budget cuts to public safety, park and recreation services, public works, and city library services among others. These cuts will result in significant job losses, as well. The numbers tallied by the League reveal that such reductions are already underway.

Please note that the list below was assembled through analysis of newspaper clips and collection of anecdotes provided by city members (only 201 cities are currently represented on the list)—it is not meant to be a formal survey and doesn't take into account cities throughout the state whose efforts may have not been recently featured in a news clip. Additionally, the list shown below is partical and reflects only a few of the top mentions. The actual list is much, much longer. Nevertheless, it provides insight regarding how cities are already coping, and plan to cope moving forward.

Action/strategy followed by No. of actions cities that have done, or are considering:
Reductions in service-- 94
Delay or cancel projects/major services-- 90
Cuts to public safety/reductions in hours & personnel/disband dept.-- 82
Spending reductions/reduction of contributions & transfers to other funds-- 80
Cut employees/layoffs/reduce FTEs/combine departments-- 69
Decrease salary/lower increases/furloughs-- 69
Leave positions open/don’t fill planned positions-- 48

From all of the personnel-related actions and strategies listed we can see that if LGA/MVHC is unallotted or cut at the maximum levels expected, then it’s a sure bet that Minnesota’s unemployment rate of 8.1 percent could be upticking in the very near future.

Wednesday, May 20, 2009

At session's end, city aid cuts remain unresolved
(analysis by Gary Carlson, Intergovernmental Relations Director for the League of Minnesota Cities)
The 2009 State Legislative session ended at midnight Monday without Governor Pawlenty and legislators reaching agreement on how to balance the remaining $2.7 billion state budget deficit. The Legislature approved and sent a package of budget-balancing tax items to the Governor but immediately after the session adjourned, the Governor’s staff indicated that the bill would be vetoed, which will presumably trigger the unallotment scenario threatened by the Governor last Thursday.

At this point, we do not yet know how deep the unallotment reductions might be. In the last hours of the session, Governor Pawlenty offered budget proposals that would have severely reduced “tax aids and credits” by roughly $450 million. This total is similar to the budget cuts proposed by the Governor in his January budget, which included a 2009 LGA/MVHC reduction of $100 million and a 2010 reduction of roughly $182 million. Estimates of the Governor’s January proposal and the original House and Senate proposals are available on the League of Minnesota Cities website at: http://www.lmc.org/media/document/1/house_lgacuts_march31.pdf [see columns titled “Governor LGA Cut” and “Governor MVHC Cut” for 2009 and 2010 estimates].

Please keep in mind that these are not final unallotment estimates. The final amounts will almost certainly change and will be dependent upon the allocation of the necessary budget-balancing cuts and the ability to shift school revenues.

Monday, May 18, 2009

Countdown to midnight
With only a few hours remaining in the State Legislative session, Minnesota cities are bracing for the damage that will be caused by a possible $450 million cut in local goverment aid. On Saturday, mayors from five cities held a press conference to voice their concerns. Officials from the City of Austin weighed-in, in print.

Wednesday, May 13, 2009

Could “lights-on” bill mean “lights-off” for Minnesota city governments?
A piece of legislation introduced this week (Senate File 2141)—a so-called “lights-on” bill-- would keep state government operational beyond July 1 even if an appropriations agreement is not reached among Governor Pawlenty and Legislative leaders prior to that date. SF 2141 is being debated by the House-side this afternoon.

Under the proposed bill, it is not entirely clear, though, how city programs including local government aid (LGA) and market value homestead credit (MVHC) would be treated. If the legislative session ends without resolution to the state budget, LGA payments and MVHC reimbursements,--and the services they fund-- could be at risk. Unlike budget solutions enacted by the legislature, the Governor has far fewer tools to address a budget imbalance and he would most likely have to rely on the use of his power to unallot appropriations, just as he did with LGA and MVHC in December of 2008. Under the State’s unallotment statute, the Governor can either reduce appropriations or defer payments in order to address a budget shortfall.

In a worst case scenario, the “lights-on” bill could force the Governor to balance the remaining $3.1 billion deficit through cuts and shifts. If he uses his power to delay the payment of $1.8 billion in school aids as proposed by the House, the remaining deficit would still be $1.3 billion, which might have to be made up through program cuts— likely including cuts to LGA and MVHC.

Tuesday, May 12, 2009

City drinking water quality again receives high marks
From a news release issued today by the Minnesota Department of Health:
"Tests on 957 community water supply systems during the past year have again shown little evidence of contamination problems in Minnesota, according to the Minnesota Department of Health (MDH) ...The drinking water annual report includes test results for 726 city water systems throughout the state. Also included were 231 non-municipal systems that provide drinking water to people in their place of residence—in locations such as manufactured home parks, apartment buildings, housing subdivisions, colleges, hospitals, prisons, and child care facilities."

Friday, May 8, 2009

Brainerd city adminstrator receives MCMA honor
Congratulations to Dan Vogt, City Administrator for the City of Brainerd, who received the Dr. Robert A. Barrett Award for Management Excellence for outstanding service to local government from the Minnesota City/County Management Association (MCMA) last night. Vogt was cited for his leadership in helping the Brainerd City Council and staff work through tough budget decisions, leading the way on economic development projects that resulted in several new business expansions in the community, and fostering positive and mutually-beneficial relationships among other local government entities in the region. Vogt has served as Brainerd City Administrator since 1989. He has also served as President of MCMA and as a board member for the Coalition of Greater Minnesota Cities. Additionally, Vogt has served as a board member of the national Joint Powers Alliance, and has been heavily involved in League of Minnesota Cities activities.

Wednesday, May 6, 2009

Sign of the times -- more on Minnesota city finances
Some additional data from the recently-released League of Minnesota Cities 2009 State of the Cities Report.

-- The current economic struggles of individuals, families, and businesses in Minnesota are translating into financial challenges for city governments. About 34 percent of cities have reported an increase in requests for deferred payment of property taxes and/or bills over the last year.

-- More than 80 percent of cities anticipate having trouble meeting debt service payments; late payment or non-payment of taxes and/or utility bills are common reasons for this trend.

-- About 41 percent of cities indicated that they have seen development projects delayed or canceled. Cities are often left struggling to pay for the new infrastructure in which they invested in anticipation of development that never came, or was not completed.

-- Cities continue to see declines in building permit revenues and other revenue streams associated with new development. In Minnesota, the number of single-familybuilding permits issued fell 58 percent between January 2008 and 2009.

Given these fiscal circumstances, it follows that anticipated cuts in local government aid (LGA) and market value homestead credit reimbursements (MVHC) will be the straws-that-break-the-camel's-back, and will likely result in significant service cuts in a number of Minnesota communities. Other communities are looking at fee-for-service options to generate revenue.

Monday, May 4, 2009

On potholes and public policy
The State of Minnesota has nearly 290,000 lane-miles of highways, roads, and streets, and about 16 percent of those streets are owned and maintained by cities. According to the League of Minnesota Cities' recent State of the Cities Report, about 80 percent of Minnesota cities have streets in need of repair, reconstruction, and/or other maintenance--such as seal coating. Declining revenues, including major cuts in state aid to cities, have made securing basic funding for repair and maintenance quite challenging. The League has proposed a legislative solution that still has a chance for passage in this session--a street improvement district provision that exists in the House version of the tax bill. Without ongoing maintenance, the average life expectancy of local streets is approximately 25 to 30 years. With appropriate maintenance, this infrastructure can last 50 to 60 years. Timely maintenance is essential to preserving streets and thereby protecting taxpayer investments.