City prepares for $35M shortfall in 2010

Facing the recession and a $17 million cut in local government aid, the city of Minneapolis had to revise its 2009 budget twice, cutting 33 filled positions, eliminating two city services and using federal stimulus dollars to make up the difference — but this is only the beginning.
With an expected $35 million in local government aid to be cut from the state in 2010 — down almost 40 percent — Minneapolis officials are discussing where to cut back or charge more to make up the difference without compromising the quality of public safety programs.
Not only are the cuts larger for next year, but they will be felt more without the federal stimulus dollars softening the blow. More cash will have to come directly out of the city’s funds, a move that will impact services such as public safety, Barbara Johnson, Minneapolis City Council president, said.
“There’s no way to cut $35 million, or 10 percent of the general fund, without taking from the major drawers on the fund, which are police and fire,” Johnson said. “Public safety is a huge cost, but it’s a huge cost because it’s important.”
A similar situation took place in 2003, when a $35 million cut in state and federal aid took 100 police officers off of Minneapolis streets. And cuts in local government aid in 2010 could once again mean more than 100 police officers would be out of work, Minneapolis Mayor R.T. Rybak said in February.
Between 2006 and 2008, Minneapolis invested about $210 million in police, adding more officers to the force. During that same time period, violent crime dropped in the city by 24 percent .
“It has worked, and we want to at least maintain this level of success,” Johnson said.
In a recent news conference, Gov. Tim Pawlenty, who has proposed cutting all local aid by about $99 million in 2009 and $193 million in 2010, said that instead of cutting from public safety, cities could freeze employee salaries and use rainy day funds.
But Johnson said there is almost no way to avoid cutting from public safety for some smaller cities.
“I challenge you to look at the newspaper in any small town that gets LGA in this state, and you’ll see that [public safety] is the only place that they can find to cut,” she said.
While the governor has proposed his cuts, the House has proposed smaller reductions to local government aid, and the final amount will compromised.
Many Minneapolis officials are upset with Pawlenty, who they say has not been “financially responsible.”
“We contribute millions and millions in sales taxes to the state every year,” Johnson said. “We want to say, ‘What the hell are you doing with all that money?’ ”
But Brian McClung, Pawlenty spokesman, said Minneapolis has hardly been a beacon of financial responsibility.
“Their green roofs and expensive water fountains are hardly the mark of a city watching the bottom line closely,” he said in an e-mail. “All governments need to tighten their belts in these economy conditions; Minneapolis is no exception.”
Minneapolis’ ideas to combat the cuts include retaining some of the $390 million the city collects in sales taxes each year, and charging more for city services used primarily by non-residents.
Johnson said the city is lobbying to reinstate the federal program COPS, which awards grants to state and local law enforcement agencies to hire community policing professionals — additional local police officers paid with federal dollars.
“But the problem with this is you hire the COPS, and then the federal money goes away and you have to decide what will happen then,” she said.
But most of the city’s suggestions require obtaining state or legislative approval, raising worries about how quickly they can be put in place.

Taxes vs. local government aid

Cuts to local government aid will hit Minnesota harder than most states.
While many states have high sales and income taxes in cities to produce local revenue, only about 23 cities in Minnesota have a sales tax. Minnesota cities rely mostly on property taxes and local government aid for revenue, Rachel Walker, manager of policy analysis for the League of Minnesota Cities, said.
In order to keep property taxes down, Minnesota cities have depended heavily on local government aid.
“This has been a deliberate choice made in the past several decades, because we don't like property taxes,” Zhriong Zhao a Humphrey Institute of Public Affairs professor and expert on state and local public finance said.
But local government aid payments to greater Minnesota cities have fallen by 47 percent since 2002 according to a report from a nonpartisan think tank, Minnesota 2020.
In response, Minnesota cities have seen their property tax levies increase by about 38 percent since 2002, according to the Minnesota Department of Revenue.
“The state can easily cut LGA when it has budget difficulties, and then the pain will be shouldered by local governments with limited fiscal capacity and revenue options,” Zhao said.
He added that once the federal stimulus aid runs out, residents can expect even higher property taxes and service fees.
Eighth ward councilwoman Elizabeth Glidden said the financial relationship between cities and the state is simply not working.
“It’s not just important to Minneapolis,” Glidden said. “I have talked to cities from across the state that would say the funding relationship is broken, and we need to fix that.”