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City of Bemidji could face even larger LGA cuts in two years

Cuts in state aid promises to challenge Minnesota cities, but a future pending deficit of $7 billion could make the aids extinct, warns a lobbyist for Minnesota cities.

"The governor did not fix this problem," Tim Flaherty, lobbyist for the Coalition of Greater Minnesota Cities, told Bemidji City Council members Monday night.

While Gov. Tim Pawlenty line-item vetoed nearly $400 million and unilaterally used shifts and unallotment for $2.7 billion to balance the budget for the biennium which started July 1, the deficit for the 2011-12 biennium could span from $4.5 billion to $7 billion, Flaherty said.

That will be a problem for the 2011 Legislature, after a 2010 election that could change the mixture of the Legislature and will see new governor elected.

A lot of one-time money, including $2 billion in federal stimulus funding, was used to balance the budget that won't be there in 2011, said Sen. Rod Skoe, DFL-Clearbrook.

"The deficit is going to be at a minimum $4.427 billion," Skoe said. "If you add in the GAMC, property tax recognition, and any modest inflation at all, it goes to $7.244 billion that the next governor and the next Legislature is going to have to deal with in just over a year and a half."

In order to restore General Assistance Medical Care -- health care for the state's most destitute adults -- $888 million will need to be found in the next biennium.

And property tax recognition is part of the $1.8 billion Pawlenty shifted from school districts into the next biennium, and is state aid sent to school districts to supplement operating levies. Bemidji will be affected, as a percentage of its total operating levy is subsidized by state aid that must be restored by the 2011 Legislature.

A target then, as it is now, will be Local Government Aid, state aid paid to property-poor cities to help pay for basic services, Flaherty and Skoe said.

"It (the pending deficit) should be a real concern, and for you guys, it's the LGA issue," Skoe said. "That has always been one of the targets folks have gone after, and it's a concern to us."

The Legislature supports the LGA program, Pawlenty does not, Flaherty said. "It's really the governor who has been the biggest problem and we're going to have a new governor in 2011 and some new legislators, for sure. I think 2011 is going to be the big year and will be a reset year, having to redo the whole budget with this kind of deficit."

A question asked then will be whether to keep LGA, what amount to fund it if LGA is kept, and how to allocate the money, he said.

"But our goal right now is to try to survive until 2011," Flaherty said.

Pawlenty unallotted $147 million in LGA, down from the $246 million in cuts he sought in his initial January budget, but more than the funding bill the DFL-led Legislature sent to the Republican governor. That bill called for no changes in funding, keeping it flat without inflationary considerations.

To the city of Bemidji, the unallotment means $210,493 in lost LGA this year and $485,688 lost in 2010. The city receives between $3 million and $3.5 million a year in LGA.

"We have to try to prevent any more unallotments," Flaherty said, adding that Pawlenty could again cut LGA if the November revenue forecast sours. "We need the cities' help to really get the word out and hold legislators and the governor accountable for things that you do ... service reductions, tax increases of any amount."

Flaherty said the Senate had the best solution with its tax bill that looked ahead four years. It balanced spending cuts with $2.4 billion in new taxes, but neither the House nor the governor would accept it. The final bill sent to Pawlenty called for $1 billion in taxes, which he vetoed.

"They weren't just delaying this huge problem to the future," Flaherty said of the Senate and its chief tax authors, Skoe and Sen. Tom Bakk, DFL-Cook. "It leaves all of our lives uncertain and difficult on how you're going to pay for things and where the tax increases are going to come."

"You look at what the Senate bill raised in revenue, and we had a pretty robust tax bill, some $2.4 billion," Skoe said. It need to be more in the next biennium. "Even if you raise $3 billion in a tax bill, you're still left with $1.5 billion minimum of deficit. ... That's the problem with one-time money fixes, which is what ended up happening."

Pawlenty and critics of LGA say cities have plus reserves that can be spent down, and that cities need to share the burden of state revenue reductions.

"We're cautioning the cities to do what the state hasn't done, be fiscally responsible," he said. That includes keeping a reserve and levying back as much as the city lost in LGA, at least for 2009 losses in 2010. Losses in 2010 might be tougher to do for 2011, he said.

"When the governor criticizes cities, which he has been doing, the answer really is that the cities have really increased their revenues a lot less than the state has since 2003," Flaherty said. State revenues kept for state purposes have risen 7 percent while city revenues have gone down 11.5 percent for the period.

"You've been the conservative ones and made the changes," he told council members, with Councilor Jerry Downs and Barb Meuers absent. "When he talks about employment, it's the same thing."

State employment has gone up 10 percent while city employment declined 6 percent since 2003, he said.

"I don't think we should be apologizing," he said.

Flaherty also said there was no movement on land use issues that the Coalition of Greater Minnesota Cities was pushing, and said they would be reintroduced in 2010 and, if need be, in 2011.

- A bill to allow cities to create growth areas outside their boundaries, and then allowing very limited development outside the growth areas. The move is seen to have residential development more denser closer to cities, and keeping the rural character in outlying areas.

- An annexation bill designed to save taxpayers' money now spent with contested annexation hearings. The bill would streamline the annexation by ordinance process, define "urban or suburban in character," and a rule that prohibits excessive to townships which are unrelated to lost tax base.

The bill to create denser residential areas will reduce travel time for commuters, Skoe said, and is considered a measure to reduce greenhouse gases.

"A concern of the Taxes Committee is that some of these townships are incorporated within cities, and then they will expect to have LGA," Skoe said. "For me, part of this initiative is just to maintain the rural nature of these townships."