Guest Commentary: Advice for new state leadersWhen the new governor and legislature take office next month, their collective energy and attention will be directed to how to solve yet another state budget deficit, most likely several times larger than the $1 billion deficit that proved so difficult to resolve in the last session.
By: Jim Miller, Executive director, League of Minnesota Cities, Lake County News Chronicle
When the new governor and legislature take office next month, their collective energy and attention will be directed to how to solve yet another state budget deficit, most likely several times larger than the $1 billion deficit that proved so difficult to resolve in the last session. The task will be even more difficult because most, if not all, of the relatively easier options have already been implemented; stark choices between deep service cuts and higher taxes will be the reality.
For cities across the state as well, budgets are at the top of the list of concerns today and when looking ahead. The economic downturn afflicting the state and the nation has hit greater Minnesota cities directly in the form of foreclosures, unpaid utility bills, rising unemployment, business closures, and indirectly as the state, buffeted by the economy, cuts local government aid and credit reimbursement payments. City officials are burdened with balancing their budgets in light of these financial stressors. They struggle to do so in the face of rising expectations from residents and business owners that they will deliver quality local services with little or no property tax increases.
Over the past few months, the League of Minnesota Cities has administered two research projects and also conducted anecdotal tracking of city budget actions in an effort to better understand the depth of fiscal challenges facing our state’s communities.
Pessimistic about future
Recent survey data from the League’s 2010 State of the Cities report shows that most city officials are very pessimistic about their cities’ financial circumstances. Greater Minnesota city officials were slightly more likely to express optimism about their fiscal conditions in 2009 and 2010 than were officials in cities within the seven-county metro area. While 92 percent of metro cities indicated they were less able to meet their financial needs in 2009, 76 percent of greater Minnesota cities offered that response. While the same holds true for looking ahead to 2010, the gap does narrow a bit (87 percent metro vs. 76 percent greater Minnesota).
Many greater Minnesota cities that responded to the survey were spared the cuts to Local Government Aid in 2008, 2009 and 2010, but did experience significant reductions to credit reimbursements for 2010 as a result of the supplemental budget passed by the State Legislature and signed into law by the Governor. Given the magnitude of the state’s projected deficit for the upcoming biennium, there is serious concern within the city community that future cuts will certainly occur and will likely impact all cities.
Other State of the Cities report data shows that city officials in greater Minnesota are more likely to expect recovery from the recent economic recession to take a significant amount of time. While four out of five metro officials predict that their cities will recover in the next two to five years, only half of the officials in greater Minnesota share that view. The portion of greater Minnesota city officials who consider recovery to be more than five years away is more than twice as large as the portion of metro officials that do so. Cities in the metro area and in greater Minnesota report many symptoms of the economic downturn at similar rates, including unpaid utility bills, unpaid property taxes and requests for tax and utility bill payment deferrals. In the seven-county metro area, almost two-thirds of cities have witnessed business closures while slightly more than 40 percent of greater Minnesota cities have done so.
Some budget decisions made at the state level will, of course, affect Minnesotans regardless of where they reside.
An increase in the state income tax rate would impact people with similar incomes the same whether they live in Afton or Warroad. Yet, most certainly, some decisions will affect residents differently because of where they live. Those cities that are heavily dependent on local government aid, for example, may see significant erosion in their budgets if that program is cut again, as it most assuredly will be considered. For residents in those cities, which disproportionately are in greater Minnesota, the impact will be higher property taxes, fewer services, or both.
City budget-balancing strategies include service cuts and capital reductions.
Since December 2008, the League has been informally tracking – through compiling news clips and collecting member city anecdotes – budget-balancing strategies undertaken by cities throughout the state. Administrative cuts, capital cuts, and park cuts are most common among greater Minnesota cities. Administrative cuts can mean a reduction in staff hours, which may limit the time that staff is available to serve the public or may lead to longer processing times for licenses or permits. Other administrative cuts taken by communities include decreasing training and travel budgets, hiring fewer part-time seasonal staff, and reducing or eliminating overtime.
Capital cuts have come in the form of delayed or cancelled building or infrastructure projects and equipment purchases. Several cities have put off purchasing new squad cars for the foreseeable future. City residents may see fewer lifeguards, have fewer options for summer recreation programs, and encounter longer grass in city parks due to cutbacks in parks and recreation services. Other difficult budget-balancing choices include closing community centers, reducing hours at senior centers, or scaling back funding for playground equipment.
An individual city’s options, of course, are limited by the menu of services it provides, its local ordinances and policies, citizen demands, and opportunities for raising revenue. Regional centers have taken a greater number of actions, likely because more options are available to larger cities. Regional centers tend to serve residents of surrounding communities and offer more services than smaller rural localities. Of the cities included in the LMC tracking list, regional centers have taken an average of 15 actions while the average non-regional center city in Minnesota has employed just five strategies.
Cities can only make cuts in areas they control. In interviews conducted as part of another study completed for the League by the Hubert H. Humphrey Institute at the University of Minnesota, several officials from small rural communities expressed the difficulty in making cuts when there are few services from which to make cuts. City officials were also asked about service cutbacks or elimination on the League’s survey. Greater Minnesota cities were more likely than metro cities to maintain the level of service cuts and less likely to increase the level of cuts.
This is the first of two pieces from Jim Miller on the hazards facing cities in Minnesota in the form of deficits and drastic budget cuts and how the state can help these struggling communities.