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Counties fear permanent loss of state aid

With an even bleaker state budget outlook in two years, Minnesota counties are being told to prepare for the permanent loss of state aid.

"What we're facing, from a budget perspective, is a permanent new zero," Jim Mulder, executive director of the Association of Minnesota Counties, told Beltrami County commissioners Tuesday in a video conference.

"As counties are budgeting, you're going to need to find ways," Mulder said. "This is not a temporary problem, these are permanent, ongoing reductions in funds."

Gov. Tim Pawlenty unilaterally solved a $2.7 billion budget gap with delayed payments to school districts and unallotment of appropriations approved by the 2009 Legislature for the current biennium.

Pawlenty unallotted $33 million this year in County Program Aid and $67 million in 2010. Beltrami County's County Program Aid loss is $253,451 this year and $514,582 in 2010.

"We should not have any expectation that we will get our County Program Aid back," Mulder said. "What we're facing after the unallotment is for the next state budget a $4.2 billion problem if you accept the administration's number or a $7 billion problem if you accept the legislative estimate."

What that means, he says, is that even if the Legislature raises taxes, taxes can't be raised enough to buy back the unallotments that have already occurred or to replace those in the future.

State expenditures are growing at a 4 to 5 percent clip while estimated revenues are growing only 3 to 3.5 percent, Mulder said. Raising taxes $1.5 billion would put revenue growth and expenditure growth at about the same level.

"But that still doesn't make up the gap itself," he said. "That just solves the growth problem. Solving the gap problem, you'd have to raise taxes another $2.5 billion to $3 billion, or make that much more in cuts."

The news comes a day after a lobbyist for the city of Bemidji with the Coalition of Greater Minnesota Cities told the City Council the same story, that Local Government Aid could be targeted again with a potential $7 billion deficit in the next biennium.

LGA and County Program Aid are similar state aids, in that they are given on a formula to property poor cities and counties. County Program Aid also factors in poverty levels and crime rates.

Pawlenty unallotted $147 million in LGA, which means the loss of $210,493 in 2009 and $485,688 in 2010 to Bemidji.

As the city was informed Monday, Mulder told commissioners that cities and counties can use a special levy to levy back what is lost in LGA or County Program Aid, but that becomes more difficult in 2010.

The county could increase its levy in 2010 for CPA losses from last December and this July and that next December, but 2010 losses would have to be special levied in 2011 and will create cash flow problems.

On average statewide, property taxes would increase 8 percent to buy back the loss in CPA, he said.

Counties are looking at combing city police and county sheriff's departments, the use of part-time highway department workers year-round, privatizing home health aid programs, or reducing county contributions to regional libraries by the percentage cut in state aid.

Local governments had a levy limit of 3.9 percent last year, but Mulder expects that to be 0.8 percent for taxes levied in 2010.

"The challenge that you face is that as you look at your budget, you're going to need to think about what kinds of things can we do permanently," Mulder told Beltrami County commissioners.

He said Beltrami County was "ahead of the game" in considering performance-based criteria for county programs. "It's a whole new kind of game."

He cautioned counties to use reserves only to cushion the county from now to 2011. "We also encourage counties to look at two-year budgeting. ... 2010 is really going to be the transition year from where we are now to where you will have to be in 2011."

Commissioners at their regular meeting unanimously approved a resolution that the county will not raise property taxes for activities and programs which have been created and mandated by the state without adequate state funding.

Commissioner Jim Heltzer, however, said he was leery because he didn't want to put the county into the same "no new taxes" position that has plagued Pawlenty.

"I don't want to raise property taxes," he said, "but I can't predict what is in the future."

Commissioner also spent considerable time talking with Mulder and AMC staff about legislative human services changes.

Pawlenty in his budget had recommended counties forming 15 regional human services agencies, but the Legislature allowed for a more flexible combining of human services, Mulder said.

One to several counties could form a human services authority and be eligible for special program waivers and pilot program allowances, Mulder said. Or counties could contract with others to sell one or more services.

"We don't have a good sense yet where that all is going to develop," he said.

But counties that don't join could by the state be forced to run human services for a neighboring underperforming county, he said.

County Administrator Tony Murphy worried about the time and money put into such an effort only to have the state Human Services Department turn down any arrangement proposed by a county.

"We can get 30 counties in northern Minnesota under a joint powers agreement just to write and prepare waiver proposals for the state without merged departments or merged services," Murphy said.

A human services authority could do that, Mulder said. "But you'd have to be designated as an authority, and you don't have to merge."

Heltzer suggested just waiting it out, since there will be a new governor in 2011 as well as elections for both the House and Senate.

"One of my concerns is that we're basically following the direction and the policy direction of a lame duck governor and a lame duck Department of Human Services," Heltzer said. "Whatever happens after 3010, we may not any longer have leadership at the state who don't like government. These guys have made it very clear that they don't trust large government.

"That doesn't mean we shouldn't have a smaller government, but we approach that with government still having a role to play and that we think that government is useful in the lives of people and not just another hurdle for people to overcome," he added. "I'm very reluctant spending lots of time and money following a policy that basically is the legacy of the dead."