$1.2B budget deficit may cause cuts in Minn. city services

Officials representing Minnesota cities are a little uneasy now that they know the state is facing a $1.2 billion projected budget deficit.

Gov. Pawlenty said he may withhold state aid payments as a result of deficit and city officials say state aid to cities have been bearing the brunt of recent budget cuts and cities can't handle any more.

The budget forecast shows that state government is deep in red ink and the situation is only projected to get worse over the long-term. In the current budget cycle, Minnesota faces a projected $1.2 billion budget deficit. The deficit rises to $5.4 billion in the two-year budget cycle that starts in July of 2011.

State Economist Tom Stinson said the recession is over, but the recovery will be one of the slowest on record. Stinson said a major part of the problem is that income tax collections have dropped significantly.

"The total wages paid in the economy are expected to shrink by 4.5 percent," Stinson said. " Why? Because of fewer jobs, lower hours worked and lower average wage per hour worked."

Gov. Tim Pawlenty
Republican Gov. Tim Pawlenty, seen here at a press conference following the release of the state budget forecast, will face a $1.2 billion deficit in his final year in office.
MPR Photo/Tom Scheck

After seeing the forecast, Gov. Pawlenty repeated his long-standing opposition to tax increases of any kind. He said the budget should be balanced by spending cuts alone. Pawlenty also said he may be forced to unilaterally cut state aid payments to cities and counties known as LGA.

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"For the most part, we are going to wait and invite the Legislature to join us in trying to find a collaborative solution to this challenge, but we may not be able to do that entirely as it relates to some payment schedules," Pawlenty said. "One of them could be the LGA payment schedule at the end of December."

Pawlenty didn't specify how much money he would withhold and said he'll make a decision in the coming weeks. Over the past year, Pawlenty has unilaterally cut $410 million in aid to cities and counties. He cut $300 million in July and $110 million last December.

"The December LGA payment is low hanging fruit and here we are again," said Wadena Mayor Wayne Wolden. Wolden said additional cuts in aid to local governments will mean higher property taxes and more inconveniences for taxpayers.

"They're going to see cuts in services," Wolden said. "They're going to see snow plows roll less often. They're going to see delays in police response time. Fire response time. Those are realities."

This isn't the first time city officials and Gov. Pawlenty have been at odds over the level of cuts to local government aid and its impact on cities. City officials have repeatedly said that services would be sacrificed and property taxes would increase if LGA is cut. Pawlenty has said that cities should be forced to make the same tough budget choices that state government is making.

Jim Miller, executive director of the League of Minnesota Cities said it's unlikely that cities will raise property taxes if the the governor cuts aid. He said cities have been reluctant to increase property taxes to pay for past LGA cuts and would likely make up the difference elsewhere.

"Cities haven't been able to levy back the entire amount of cuts. It's not because they're flush with money," Miller said. "It's because they realize that the property tax base can't sustain those kinds of increases. So any further cuts are really not going to be, I think, are going to be made up in property tax increases dollar for dollar. We're going to see service cuts really statewide. There's just no alternative."

Democrats who control the Legislature say they don't think Pawlenty should cut state funding for cities and counties. DFL House Speaker Margaret Anderson Kelliher, who is also a candidate for governor, said Pawlenty should look within his own administration before he looks to cut local government aid.

"This is not the time to choose a political appointee over the nurse or the teacher or the firefighter of who is going to lose their job out of the next round of budget cuts," Kelliher said.

Kelliher didn't offer specifics, but DFL Senate Majority Leader Larry Pogemiller suggested that Department of Employment and Economic Development Commissioner Dan McElroy should be the first to go.

Pogemiller said there should be new leadership on the jobs front but stopped short of saying the Senate would effectively fire him.

Lawmakers are scheduled to return to the Capitol on February 4.