City leaders plead for state checks

Disaster. Crisis. Insane. Unfair. All are words Minnesota's city leaders used to describe the prospect of the state chopping payments later this month.

Officials of more than 70 cities, including Park Rapids Mayor Nancy Carroll and City Administrator Bill Smith, filled two legislative committee meetings Wednesday, warning that proposed Local Government Aid and other state payment reductions would have a long-lasting impact. And, they said, their budget year ends this month, so there is no time to make up for the cuts.

The discussion came as state policymakers decide how to plug a hole in the current state budget, before tackling a $4.8 billion deficit for the next two-year cycle.

Smith said that while no decisions were made Wednesday at the committee meetings, he got the impression that cities would lose their last LGA payment of 2008.

Park Rapids was supposed to receive $250,448.50 for its last payment in 2008, Smith said. If the payment doesn't come through, the city will be in a deficit for 2008 and money will have to come from reserves.

The city also recently passed its 2009 budget and included $520,376 in LGA. If that money doesn't come to Park Rapids, the council will have some difficult decisions to make.

"What do we do?" Smith asked. "We can't change the levy, we can't raise taxes."

The council will need to look at capital improvement projects first, he said.

First is the Main Avenue project, which the council already decided to table until later this spring.

The second project is the Heartland Trail extension, which is scheduled for this year, Smith said. That project has federal matching funds that could be lost if the project is delayed.

Another aspect of the budget is salaries. The largest part of the city's budget is salaries, Smith said.

"We might have to look at a hiring freeze or a salary freeze," he said.

The city can survive for about a year on reserves but at the end, there won't be a cushion, Smith said.

As the discussion started Wednesday in St. Paul, State Economist Tom Stinson told senators that the $426 million deficit he predicted just last week could balloon closer to $500 million in light of bad economic news the last few days.

The problem state officials face is that most money in the current budget has been spent, so local aid is one of the few pots of state money still available for cutting.

Cities and counties are counting on $340 million from the state later this month. Some of that money is being eyed to help plug the budget deficit.

While Gov. Tim Pawlenty has the final say in balancing the current budget, he says he wants to reach an agreement with legislative leaders. A decision is expected by Christmas, although on Tuesday Pawlenty said he could delay local payments due to be distributed at Christmastime if he has not decided how to balance the budget.

City leaders met with Pawlenty Wednesday, as well as House and Senate committees that deal with local government aids.

Those at the Pawlenty meeting said no decisions were made, but Apple Valley Mayor Mary Hamann-Roland said the governor appeared to consider what city leaders had to say.

House Speaker Margaret Anderson Kelliher, DFL-Minneapolis, said one of the key points mentioned to Pawlenty was that cuts this late in a city's fiscal year are bound to hurt public safety services such as police and fire - "services very critical."

Many local government leaders and most lawmakers say city and county aid payments will be reduced, but Kelliher said state policymakers still are looking for "better ways to do this."

City leaders told Pawlenty, among other things, that since half of many cities' budgets come from state aid of various types there is a lot at stake and little time left to deal with reductions.

"Cities are 21 days from the end of their annual budget," Wadena Mayor Wayne Wolden told lawmakers.

"These cuts at this time are going to be very, very difficult," said former mayor and Rep. Paul Marquart, DFL-Dilworth.

Wolden, president of the 81-member Coalition of Greater Minnesota Cities, said most money already is spent, "making it almost impossible for us to deal with a reduction."

The mayor said he fears Pawlenty will chop local payments like he did to solve a similar 2003 budget problem.

"We don't want to be the low-hanging fruit like we were in 2003," Wolden said.

Wadena is lucky, he said, because it can borrow from a utilities fund to cover state cuts. However, many cities do not have that luxury.

In a House committee meeting, some Twin Cities lawmakers suggested that ethanol producer subsidies be cut as part of the budget-balancing process. However, that fund is a fraction of that planned for cities and counties.

Much of the talk around the Capitol is that about 25 percent of local aid payments could be cut, although Pawlenty himself has not publicly discussed any particular reduction level.

A complete elimination of the December payments - one of two a year - is not likely.

"It makes no sense to take that level," Senate Majority Leader Larry Pogemiller, DFL-Minneapolis, said.

Sen. Rod Skoe, DFL-Clearbrook, joined small-town mayors to remind urban legislators that city services such as fire departments also help rural areas.

An official of Arco, near the South Dakota border, said his city could have to drop its small fire department if aid is cut.

"Our Main Street is non-existent," councilman Tom Meneely said of his 100-population town. "This could cost us our fire department."

"It seems to me that we are tightening the noose on these cities," Sen. Julianne Ortman, R-Chanhassen, said.