The exact amount of the cut hasn't been decided, but city and county officials are preparing for the worst.
They told members of the House and Senate tax committees today that any reduction in the state aid payments they're scheduled to receive later this month would have dire consequences.
Mary Hamann-Roland, mayor of Apple Valley and president of the League of Minnesota Cities, says most local budgets have just started to recover from the deep cuts of 2003.
"In this economy, and following these very frugal years, cities simply don't have the flexibility they once had to roll with the punches," said Hamann-Roland. "They'll have no choice but to cut core services. And it's not hyperbole. It's reality."
State officials need a budget fix at the halfway point of their current fiscal year. But city officials operate their budgets on the calendar year.
Wadena Mayor Wayne Wolden, who also serves as president of the Coalition of Greater Minnesota Cities, says full December payments of Local Government Aid, or LGA, are needed to keep city budgets balanced.
"Cuts in December LGA will put many cities into fiscal crisis. The December LGA payment is for the 2008 budget year, which ends in 21 days," said Wolden. "Cities have already spent this money, and cannot adjust their 2008 budgets to make up for the loss in aid."
“[Cities will] have no choice but to cut core services. And it's not hyperbole. It's reality.”Mary Hamann-Roland, mayor of Apple Valley
Wolden says cities won't see any more revenue until May 2009, when they receive the first of two property tax payments. He says some cities could tap budget reserves if needed, but many others have little or nothing in the bank.
Glencoe Mayor Randy Wilson says cities can't help solve the short-term deficit with money they've already spent.
"I don't think there's anybody in the room that doesn't want to work with the Legislature to make sure we do our share in the next year. But to do it this year, that seems a little irresponsible," said Wilson. Gov. Tim Pawlenty will likely use his emergency authority later this month, with advice from the Legislature, to solve the short-term deficit.
Until now, state officials had estimated the current problem to be $426 million. But State economist Tom Stinson told members of the Senate tax committee that the deficit for the rest of this fiscal year will grow by as much as $70 million, after factoring in new federal employment data.
After Pawlenty depletes the current budget reserve of $155 million, he'll have to cut the rest from unspent, available funds. Pawlenty says the magnitude of the cuts to cities and counties, when compared to the total aid payments and local tax levies, will be modest.
Pawlenty says everybody has to sacrifice, and city and county officials should not be alarmists.
"If they try to say, 'The first thing we're going to do is lay off cops and firefighters,' I would say that's ridiculous," said Pawlenty. "Any city manager or city official who would say that's the first place they're going to turn, I would severely question their priorities."
The chairman of the Senate tax committee is also looking for a shared sacrifice. Sen. Tom Bakk, DFL-Cook says the remaining $271 million gap could be closed by cutting 1.6 percent from every spending area of the budget.
That would mean $25.3 million in cuts from programs under his committee, including LGA. Bakk says it's a good place to start.
"Nobody is going to be held harmless here. This problem is just too big. Everybody is going to have to participate in balancing this budget," said Bakk. "When you start taking things off the table this early, when we've got just a small piece to resolve, I think it sets up a real food fight among all the spending committees going forward, as you start talking about the budget for the next biennium."
Minnesota's long-term budget problem is a projected deficit of $4.85 billion for the next two-year budget cycle. State finance officials have warned that number could also grow by the time they release their next economic forecast in February.