Slow homebuilding has Scott County scrambling

The free fall in new construction of homes in once-soaring Scott County is forcing some unpleasant choices on city officials:

• Shakopee is undertaking a top-to-bottom rethink of everything it does at City Hall in the face of what could be a $1.5 million gap between what's coming in and what's going out.

• Prior Lake has ordered nearly $500,000 in cuts in this year's budget, ranging from lifeguards to staff in building and inspections.

• Savage, the county's other major city, while it isn't facing anything quite so dire, is throttling back on staffing as attrition occurs.

On the county level, meanwhile, commissioners will hold an informal workshop on Tuesday to discuss its own budgeting challenges.

Shakopee Mayor John Schmitt said that city faces a much chillier budget climate than it's been accustomed to, as growth slows and the value of property levels out.

"We've had enough growth in our tax base in the past to help weather a lot of storms," he said. "But this year we don't have the residential growth. We're going to have to put things to the test. What do we have to have, and what's just nice to have? And the 'nice to haves' may have to wait for better times."

The city's finance director, Gregg Voxland, has been playing with various scenarios, including a tax increase, to bridge the budget gap.

He went over them with City Council members last week.

The main issue, he said in an interview later in the week: The era of double-digit annual increases in tax base -- a 12 percent jump, for instance, from 2007 to 2008 -- is over for now. This year's increase is likely to be less than 3 percent.

"We are still growing slightly because we still have industrial, commercial and retail growth taking place," Schmitt said Friday. "A new Slumberland, for instance, is breaking ground. And sale prices are remaining fairly stable; we're blessed that way. But there's not a lot of new money."

Prior Lake's budget woes are hitting sooner, as the forecast number of new homes is proving overly optimistic, according to a memo to the City Council from finance chief Ralph Teschner. The city budgeted for 200 new housing units this year but now expects as few as 50, which results in a drop in revenue for the city.

Cuts approved late in April include seasonal parks personnel, street maintenance and delays in technology upgrades such as fiber optics.

Shakopee's building permit forecasts are running closer to expectations, Voxland said. And Savage has "been pretty conservative in the past several years, which I think has helped us to be prepared for the current economic conditions," said Amy Barnett, the city's communications director.

Budgeting without tax hikes all across the southern metro will be tougher this year than ever, with the value of property in worse shape than longtime officials can ever remember seeing before.

As long as prices were soaring, cities and counties could rake in tax revenue without ever raising tax rates -- or even cut the rates but still get more money.

And the woes are apt to be greater in Scott County, which was growing so much faster than the much bigger, and more tax-base-rich, Dakota County.

Housing starts continue to plummet even from the depressed levels of the past couple of years. The Builders Association of the Twin Cities reported last week that only 811 new housing units have been permitted so far this year in the metro area.

That's less than half of the 1,988 in the same period last year -- and only about a quarter of the 3,070 in 2006. Contrary to what was often true in the past, no Scott County cities were listed as leaders among those cities that are seeing residential growth.

"A month ago I said, 'Guys, we need to do some work today to prepare for what we face in the 2009 budget,'" Schmitt said. "Otherwise we're looking at a big tax increase and that just can't fly."

David Peterson • 952-882-9023