Cities and counties in southeastern Minnesota are grappling with how to adjust their 2011 budgets to cover losses in state aid that the Legislature included in the tax bill passed on July 20.
The millions of dollars in cuts to local government aid and the state's market value credit program could result in local property tax increases and/or reductions in services and capital improvements.
"We're trying to look at different options that probably will be a little of both," said Stewartville City Administrator Bill Schimmel Jr.
Stewartville will receive approximately $282,000 less this year in state aid, at a time when the city was hoping to make some headway on street improvements and enhancements to its parks.
Now, Stewartville's city council will consider possible tax increases to pay for these kinds of projects, Schimmel said.
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"The council will have to see if we're going to take on that extra burden locally, and then explain to the citizens that 'Hey, this is exactly what happened. The state just shifted some of the burden on to the local level,'" Schimmel said.
St. Charles planned to use all of its LGA for repayment of a bond it issued for a commercial industrial park near Interstate 90. The city was supposed to get about $840,000 in LGA but instead will receive about $757,000.
"We were going to use those additional monies to help repay some of the land costs that we expended," said St. Charles City Administrator Nick Koverman. "We'll still have the funds to be able to pay that because we are doing a bond, but it just would have reduced the size of that bond."
St. Charles had a contingency plan in place last year, when it heard that LGA reductions were possible for 2011, Koverman said.
The city of Austin also planned for possible aid reductions and is now dealing with how to react to next year's cuts, said Jim Hurm, Austin's city administrator.
Austin is receiving approximately $1.1 million less this year in LGA and market value credit and will face a cut next year of about $1.3 million. Since the state aid represents half of the city's total revenues, the reduction is "devastating," Hurm said.
"We had already had a contingency plan and there were certain expenditures that we were not going to do until we knew the money was coming," he said. "So, for this year, it's pretty much taken care of. And now, the city council is going to be addressing next year, which is the $1.3 million reduction. So, how do we do that?"
Hurm said Austin has worked hard to keep its taxes and expenditures low, so not receiving all of its LGA is frustrating for him. He pointed out that of Minnesota's 225 cities with populations larger than 2,500 people, Austin is 223rd on the list of tax levy amounts.
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"We have done what the state wanted us to do, which is to keep our taxes low. That's what the Minnesota Miracle was supposed to be all about," he said, referring to the program launched 40 years ago to help core urban areas and rural towns afford good schools and public services.
