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| In a blink, $3.4 million in state aid to cities will vanish |
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| Wednesday, 24 June 2009 | |
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Cliff Buchan News Editor How fast can $3.4 million in state aid once promised to area cities vanish? With the simple swipe of two pen strokes from Gov. Tim Pawlenty. It wasn’t unexpected, but the governor’s decision to balance the state budget with a series of cuts through the “unallotment” process will mean a significant cut in state aid that was once promised cities. While most area cities no longer receive Local Government Aid (LGA), the next target for a state cut is Market Value Homestead Credit. By 2010, no area cities will receive MVHC aid. If those cuts take place as outlined by the governor last week, some $3.4 million in revenue will be wiped off the books of 11 cities in the Forest Lake area. MVHC is the aid paid cities by the state to compensate for property tax relief allowed homeowners. The funding for LGA and MVHC has been in place since 2001 when lawmakers eliminated Homestead and Agricultural Credit Aid. It was part of legislative action that same year that eliminated the general education property tax levy, thus creating tax relief for all property owners. The general education property tax levy was replaced with a new state property tax on businesses. Last week, Gov. Pawlenty announced a series of unallotment steps that will balance the remaining $2.7 billion state budget deficit. Some $193 million will be found in unalloting MVHC to cities this year and next. The cuts of MVHC are backloaded to 2010 as a means of giving cities more time to make budget plans for 2010. That process is now taking place in most cities. The state will remove $64.2 million in MVHC payments in 2009 and an estimated $128.3 million in 2010, according to figures from the League of Minnesota Cities. “Our choices are two,” said Forest Lake City Administrator Chip Robinson. “We can raise taxes or reduce services.” When Pawlenty takes the formal action in July to unallot state payments, Forest Lake will lose an estimated $235,672 of the $272,688 that it expected to receive. For 2010, Forest Lake expects to lose all of its proposed MVHC: $299,820. That’s a budget hole of more than $500,000 over two years that the city must plug, Robinson said. Making plans City officials were not caught off guard by the cuts to come. Gov. Pawlenty used the unallotment power last December to help correct a much smaller deficit in the state’s fiscal year books. In Forest Lake’s case, some $130,000 was taken away. Communities throughout the area have made plans to deal with additional cuts this year and next. “We knew we were going to get cut,” Mayor Sheldon Anderson said. “We had built in a contingency fund.” Wyoming adjusted its 2009 budget to take into account the potential loss of $82,776, the full amount of the MVHC that it anticipated. Wyoming’s proposed cut came in at $62,647, meaning that its budget won’t be hurt as much as once thought, Anderson said. Forest Lake has also made contingency plans. Robinson says the city has frozen all hiring plans, meaning one new police officer and a replacement street department employee won’t be hired. The city has slashed capital expenditure purchases, eliminating 90 percent of proposed purchases. No outstate travel will be authorized, as well, he said. “It’s going to be a real challenge,” Robinson said, looking ahead to the 2010 budget. Staffing and capital expenditure needs will again see careful review, he said. Robinson said the Pawlenty decision is much like the state move to eliminate LGA to cities of Forest Lake’s size in 2003. The loss of aid and limits on the local property tax continue to make budgeting difficult, he says. He wonders: If the state wants to shift the burden to the local units of government, why not give those units more ability to cover the services they need? “It should be the choice of the local government,” Robinson said. The Scandia City Council has not taken formal action of budget modifications, but like Forest Lake and Wyoming, has a list of tentative cuts based on the early estimates of MVHC unallotments. City Administrator Anne Hurlburt said some of the major reductions could come in road maintenance and planning services cuts that could save $20,000 each. The city is also making routine budget cuts and banking on a $5000 donation from the Scandia Lions Club to purchase new skatepark equipment and thus save general fund dollars. Scandia expects to lose $61,647 this year and its maximum amount of MVHC in 2010 of $76,146. Area impact According to LMC figures, here is the impact of the unallotment on area cities. The cuts impact cities with populations of greater than 1000. For the 11 area cities that were examined by the LMC, the loss of aid is $1.45 million in 2009 and an estimated $2.03 million in 2010. Of the 11 cities surveyed, 10 will lose all of the MVHC they were once projected to receive in 2010. (The results for the city of Stacy reflect LGA cuts, not MVHC.) The figures will reflect the proposed cuts in the 2009 and 2010 fiscal years, respectively. •Chisago City: $62,819 and $80,868 •Columbus: $60,818 and $59,138. •East Bethel: $154,921 and $228,932. •Forest Lake: $235,672 and $299,820. •Ham Lake: $156,043 and $169,413. •Hugo: $176,540 and $263,023. •Lino Lakes: $244,425 and $241,251. •Scandia: $61,647 and $76,146. •Stacy: $23,416 and $54,030 (LGA cuts). •Wyoming: $62,487 and $87,721. •White Bear Lake: $218,372 and $503,867. Levy option Although it is not widely known, cities do have the option to approve special tax levies in 2010 to replace all or part of the losses for the unallotment last December and the 2009 unallotment. The authority was approved by the legislature in 2008. Depending on the time for the governor’s action on the 2010 unallotment, cities can also enact a special levy to cover the loss of aid and credits over the three years of unallotment. Robinson questions the political reality of moving forward with any kind of special levies in light of the economy and the decline in housing market value. Under the latter, any special levy would mean a greater impact on property taxes. The Wyoming mayor said cities of the size of Wyoming would find it difficult to justify a property tax increase at such a time, too. Anderson says Wyoming is already at a disadvantage with other Chisago County cities where LGA is received and Wyoming gets nothing. Anderson said “the system is broken” and local council have little choice but to learn to live within their means and make tough choices on where tax dollars are spent. Social Bookmarking ...       |
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