State, city officials learn just how bad it is

  • Article by: MARK BRUNSWICK , Star Tribune
  • Updated: December 10, 2008 - 11:36 PM

The state's economist said the deficit could grow by $30 million to $70 million by the end of June.

State economist Tom Stinson reported to the Senate Tax Committee that the state fiscal deficit is now projected to be higher than previously thought.

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Even as they descended on the State Capitol to plead their case for being spared from looming budget cuts, local government officials got some bad news Wednesday: Things are likely to get worse, and the targets on their back may get larger.

State economist Tom Stinson told legislators that the $426 million deficit projected through the end of the current fiscal year, concluding June 30, could increase by $30 million to $70 million in light of new, higher national unemployment numbers.

At a pair of hearings, mayors and other officials described the potential cuts they are facing as "an economic crisis," particularly as they may come with only weeks left in their own budget years, leaving them little time to adjust.

In dire scenarios, local leaders lined up to document the potential repercussions: Rochester would have to take down its police gang unit and use the six to eight officers to fill other duties. The 100 residents of Arco on the South Dakota border could lose their fire department. Maple Plain might be unable to make debt payments on a new water treatment plant. Without its expected $2.1 million state aid December payment, Brainerd will have $5,329 in such aid left in the bank. Williams, population 270 in northern Minnesota, might have to lock the doors on its City Hall if a $22,000 payment doesn't come through.

Gov. Tim Pawlenty has strongly suggested he will slice into aid programs to local government to wipe out the short-term $426 million deficit. Later this month, cities are scheduled to receive $280 million in state aid. Counties are expecting $165 million. Those revenues, which come twice a year, are used for everything from sewer improvements to putting cops on the street. They account for about one-half to two-thirds of most cities' total budgets, according to the Minnesota House Research Department. And for many cities and counties, the money has already been committed.

Future none too rosey

In addition to the immediate shortfall, the state faces an even more daunting $4.8 billion deficit projected for the two-year period from July 2009 to June 2011, and cities and counties are in the cross-hairs there as well.

Doing the math, local officials fear they will be forced to absorb all of the near-term cuts, which Pawlenty can make unilaterally in a process known as unallotment. The governor's office and legislative leaders met Wednesday to discuss how the process might work and when it might begin, possibly before Christmas.

At Wednesday's hearings, local officials made the pitch to be held harmless in the short run.

St. Paul Mayor Chris Coleman, whose city is expecting $29.8 million in state aid this month, said at a news conference: "If I shut down the entire city of St. Paul tomorrow, there is no way I can make up for the kind of cuts we are talking about here."

Mary Hamann-Roland, mayor of Apple Valley, told legislators that cities will have no choice but to cut core services because officials will have little time to react. She said cities were left reeling from local aid cuts in 2003 that resulted in a 6 percent statewide reduction in city employment since then. In addition, she said, new limits on what cities can levy in property taxes further reduce their ability to cope with the cuts.

"Cities simply don't have the flexibility they once had to roll with the punches," Hamann-Roland said.

In his committee appearance, state economist Stinson said that, given last Friday's national unemployment numbers, the recession could be worse than forecast in November and that the December baseline calls for a 1.8 percent decline in the gross domestic product for 2009. It has already been projected that Minnesota could stand to lose 58,000 jobs in 2009, and Stinson said the number could be higher, although his office has not yet done an estimate.

Pawlenty, legislators weigh in

Wednesday morning, Pawlenty said local officials should expect to be part of the short-term budget solution, saying the magnitude of the potential cuts is "quite modest" for most cities compared with what they levy. He also cautioned about presenting sky-is-falling scenarios.

"If they try to say the first thing they are going to do is lay off cops and firefighters, I would say that's ridiculous. The city manager or city official who says that's the first place they are going to turn to, I'd severely question their priorities," Pawlenty said.

Local leaders did appear to find some sympathetic ears. Sen. Tom Bakk, DFL-Cook, chairman of the Senate Tax Committee, called local leaders to his panel's hearing because he thought it was important to document what he said was their dependence on commitments the state has made to them.

Senate Majority Leader Larry Pogemiller, DFL-Minneapolis, and others have suggested an across-the-board 1.6 percent cut from state programs to help fix the short-term deficit. That would result in $271.3 million in cuts, according to Senate fiscal staff.

"I think it's reasonable that we spread this pain across the board; that everybody takes a proportionate share of it. The best message to the public is everybody is going to share in this. Nobody is going to be held harmless here. This problem is just too big," Bakk said.

Staff writer Pat Doyle contributed to this report.

Mark Brunswick • 651-222-1636

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