Twin Cities' budgets built on house of cards

About $150 million that pays for everything from cops and firefighters to parks and streets in Minnesota's two largest cities hangs in the balance as political winds change at the State Capitol.

Minneapolis and St. Paul will face major budget deficits if the state reneges on its local government aid (LGA), a program that helps pay for services in hundreds of Minnesota cities.

Cities have to lock next year's budgets into place in less than a month. Yet the governor's race remains undecided, while Republicans have wrestled control of the Legislature from DFLers, and an estimated $6 billion state budget shortfall clouds the picture.

Mayors of both cities were hoping for a DFL governor and a DFL-controlled Legislature to preserve the money, which took a hit in recent years as Gov. Tim Pawlenty cut millions of dollars in local government aid to help solve the state's fiscal crisis.

LGA supporters say reductions would mean painful service cuts or higher property taxes. Anyone looking to pare or eliminate the program counters that cities should dip into reserves or do a better job of living within their means. The new GOP majority wants reform but hasn't worked out a strategy.

'Core services'

"We need to make sure the money we give goes to things it's supposed to: public safety and core services," said Kevin Watterson, spokesman for Rep. Kurt Zellers, R-Maple Grove. Zellers will be House speaker when the new session starts.

Across the river, St. Paul Mayor Chris Coleman built his budget assuming the city would receive $62.5 million in LGA and didn't raise the property tax levy for the first time since he took office in 2006. Coleman offered no alternative, saying the city won't have to burden taxpayers if the state upholds its commitment.

LGA cash has been trimmed

But the cities haven't received their full promised LGA for a few years now.

"We've always fought like hell to preserve it, but I'm prepared to deal with whatever changes that come," Coleman said. "There are some pretty core services I'm committed to, and it starts with cops and firefighters."

The new Republican majorities will look carefully at the local aid program, said Jay Kiedrowski, a former state finance commissioner and Minneapolis budget director. "To the extent that they cut local government aids, the cities are going to have to cut essential services, or raise property taxes," he said.

Dayton is the leading gubernatorial vote-getter in unofficial returns, but a recount with Republican Tom Emmer looms. Senate DFLers, who have presided over the body for 40 years, saw their 46-21 majority evaporate, leaving a 37-30 Republican advantage. The House changed hands from 87-47 DFL to 72-62 GOP, pending potential recounts in three races.

Rybak, an unsuccessful candidate for DFL endorsement for governor, argues that the partisan flip in control of the Legislature and the governor's chair leaves Minneapolis no worse off.

"We had divided government before and we will have divided government for at least two more years," Rybak said, adding: "We no longer have a governor who goes out of his way to take potshots at us."

Both mayors note that Minneapolis and St. Paul don't stand alone. They have spent the past few years working to build coalitions through the League of Minnesota Cities with mayors across the state, including some Republicans. That effort might influence some legislators.

Watterson said changes could be made to the formula or to the overall dollar amount, or a combination. "Bottom line, it's too soon to tell," he said.

"I would predict that local government aid as we know it, as it has been practiced, is likely to change dramatically going forward," said Mark Haveman, executive director of the Minnesota Taxpayers Association. He's hoping that LGA will be distributed in a way that encourages cities to change how they cooperate with counties and other governmental units to deliver services. For example, a city could rent law enforcement from a county rather than maintaining its own police force.

The 2008 Legislature authorized a group to study local government aid, but it has met only once. It isn't scheduled to deliver a report until 2012.