Some Minn. cities assuming state aid is long gone

  • Article by: MARIA ELENA BACA , Star Tribune
  • Updated: March 14, 2011 - 11:02 PM

Those with a strong tax base have been able to trim and grow their way to budget independence, but others aren't there yet.

Tired of riding the state aid roller coaster, some suburban cities are deciding to get off.

After several rounds of steep cuts in funding from St. Paul -- and the prospect of more to come -- the cities are working with budgets that assume aid will be less than projected or not coming at all.

"They're saying, 'Good riddance,'" Gary Carlson, director of intergovernmental relations for the League of Minnesota Cities, said of some cities' new attitude. The view seems to be, "'We have a more stable system now that we're not subject to the fluctuations or vagaries of the state budget situation.'"

The two programs most discussed are local government aid (LGA) and the Market Value Homestead Credit. LGA is direct state aid, intended to even out resources between property-wealthy and property-poor cities, while the Market Value Homestead Credit is a property tax aid, covered by cities until the state reimburses them. Both programs have been reduced in recent years, although residents continue to receive the credit.

Some growing cities and those with strong commercial property tax bases have been able to loosen their ties to state aid. For others, it's been more difficult.

Andover, a city of 31,000 in Anoka County, hasn't received LGA since 2003, and its $490,000 homestead-credit allocation was not funded last year. The city won't count on either revenue source anymore, said City Administrator Jim Dickinson.

"We know it's not coming," he said. "We don't put it into our budget."

Over about four years, Dickinson said, the city cut its staff by about 10 percent, used furloughs and made changes to mowing and other services. It hasn't been easy, he said.

"I understand and respect the idea of trying to do more with less," Dickinson said. "It's not only good in theory, it's good in practice to try to do the most you can with the least you can. But there is a breaking point. That's where you're now starting to see [city officials] raising their hands, saying 'I can't do any more.'"

Blaine, a rapidly growing suburb of 59,000, hasn't gotten LGA since formula changes in 2003. The city picked up the bill this year for $886,000 in homestead credits. It has cut about $2 million from its $24 million annual budget over two years to make up for lost aid. Its work force is down by about 5 1/2 percent over two years.

"We made a conscious decision to take our medicine and make our cuts," said City Manager Clark Arneson. "They're painful, but we can do it and we did do it."

Dickinson, Arneson and others said that any state aid that does come through will go to one-time purchases or expenses that don't require a sustainable funding source.

But Carlson and others say that not every city has the resources to treat state aid as gravy.

"There are a lot of fully developed suburban communities that don't have any ability to grow; they have older housing stock and probably don't have a lot of ability to generate other sources of money," he said. "So those communities tend to be still somewhat reliant on state aid, even with the cuts that have happened over the last decade. That's part of what the LGA program was assumed to help with."

Fridley is one of several fully developed north-metro cities that still counts on state aid to help fund daily operations. Staffing is down 6.5 percent over two years, and salaries have been frozen for two years, said City Manager Bill Burns.

"We've already cut to the bone," he said. "We're already doing things that are temporary, that at some point need to be reinstated. You cannot refuse to train your employees forever, you cannot depreciate your IT equipment forever. You have to charge something for depreciation because there comes a time to replace it."

Minneapolis, the state's biggest recipient of state aids and credits, received about $64 million in LGA this year, the equivalent of about half its public safety budget. Its entire Market Value Homestead Credit payment was cut. Mayor R.T. Rybak said it's difficult to think about a future without LGA, adding there's a reason for broader financial support of regional population and economic centers like Minneapolis, which he called "the cash cow for the state of Minnesota."

The silver lining is a new sense of kinship between cities, he said. "To me there are a limited number of things you can keep cutting and cutting," he said. "We'll do what we have to, whatever it takes, but the real thing we have to do is take the partnerships this crisis has formed between mayors around the state and use it to drive new innovative ways to deliver core services together."

Maria Elena Baca • 612-673-4409

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