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Real pain for local governments could come later

By Tom Larson

Sun Tribune

Hits to the budgets of local governments following Gov. Tim Pawlenty's cuts Tuesday won't be quite as painful as expected this year. It's 2010 that could really pack a wallop for cities, counties and school districts.

"It isn't a pretty picture, moving forward," said Stevens County Coordinator Jim Thoreen.

Pawlenty used a budgeting tool known as unallotment to defer about $1.7 billion to school districts and cut about $433 million in aid to local governments, higher education and state government.

Health and human services cuts could total about $235 million.

Pawlenty chose unallotment after he and the Minnesota Legislature were unable to agree on a budget deal, and the governor refused to call a special legislative session in an attempt to settle the impasse.

Stevens County, the City of Morris and the Morris Area School District had been preparing for some time for possible reductions and planned their budgets accordingly.

Pawlenty unallotted aid to cities and counties in December 2008, which cost the City of Morris $128,000 and Stevens County $90,000 in aid they were expecting.

Cut for 2010, in some cases, weren't as deep as he originally proposed. But only one-third of the cuts Pawlenty made will surface in 2010. The remaining two-thirds will come in 2011. School district administrators and school board members also could be worried that the deferred payments might not ever show up if the state's budget problems continue.

Under the governor's plan, the Morris Area School District will receive 73 percent of its aid for 2010, with 27 percent shifted ahead, which will result in a decrease in aid of about $30 per pupil, Superintendent Scott Monson said.

Districts also will deal with a Property Tax Recognition Adjustment. Monson said the adjustment had not been used in many years and as of Wednesday he was researching how it might affect the district.

Maintaining cash flow could be a problem, he said.

"We've been talking about how it would impact cash flow and would we have to borrow," Monson said, "and the answer to that is yes."

The district also is in new territory regarding the aid shift. In the past, the Legislature initiated funding shifts with reassurances the deferred money eventually would reach the districts. This is the first time a governor has made the shift, Monson said.

"There is some concern, with a different mechanism, that maybe we'll never see that money," Monson said "I can't believe anyone would do that, but you never know what will happen dealing with the people in St. Paul."

The School Board is expected to pass its fiscal year budget next week showing a $55,000 deficit, he said.

Stevens County Coordinator Jim Thoreen also said the budget news wasn't as bad as he feared, with the county seeing cuts for 2010 totalling almost $68,000.

"We were bracing for more than that, in a way," Thoreen said, adding that he sent an update letter to department heads. "We've got some strategies in place that we can cope with this. It's manageable."

No county's levy and County Program Aid total can be reduced more than 1.19 percent in 2010 and 2.41 percent in 2011, but that still adds up to an aid reduction of $138,000 for Stevens County in 2011.

Plus, it's expected that levy limits will be increased by less than 1 percent for 2010, and Thoreen has heard word that the state already is expecting a $4 billion shortfall when the Legislature convenes early in 2011.

The unallotment reductions don't factor in expected cuts in health and human services, the programs of which are almost all state-mandated, he said.

"There will be some hits we'll have to absorb, too," Thoreen said. "That's going to be another struggle."

Morris City Manager Blaine Hill, too, said the governor's numbers released Tuesday are better than expected, but the entire process calls into question the issue of fairness.

Local Government Aid to cities accounts for about 3 percent of the state's budget, but the city aid cuts represent about 27 percent of the unallotment, Hill said, noting that health and human services reductions are about the same as that felt by cities but that its share of the budget is about three times larger.

"How in the world is that fair?" Hill said.

The city will lose about $113,000 in 2009 and will have to cut about $261,000 in 2010. Hill said the cuts are mitigated, in part, because under reconfigured LGA formulas, Morris was slated to receive an increase of $360,000 in 2009. The city also will be able to levy to recapture the $128,000 it lost in 2008's unallotment.

The city was able to reduce its tax rate by 5.5 percent last year and kept spending down in anticipation of state aid cuts. But now Morris could be looking at an increase of that percentage or possibly more. Hill said the target would not be higher than 8 percent. And he hoped that lawmakers would learn by observation.

"OK, make the cuts, but don't whine about," Hill said. "Learn how to spend less, like the rest of us do with our budgets."