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City budget outlook not very bright

By Tom Larson

Sun Tribune

If you think the economic pain is strong now, you ain't felt anything yet.

That's the prediction of Morris City Manager Blaine Hill and Gary Carlson, the League of Minnesota Cities' Intergovernmental Relations Director.

Carlson was part of an LMC presentation Thursday detailing how state budget cuts -- particularly Gov. Tim Pawlenty's unallotment of state aids -- will affect city governments.

Hill and city staff are formulating budget recommendations for 2009 and 2010 that are expected to be presented to the Morris City Council later this month.

The bottom line: Cities should be able to cope with budget reductions for 2009, but 2010, in Hill's words, could be "a whole different ballgame."

And 2011?

"If you think this is bad, wait until the 2011-2012 biennium," Hill said. "They're predicting a $6.5 billion deficit and they won't be able to shift school money and there won't be any stimulus money. 2011 is when all hell's going to break loose."

The Minnesota Legislature and Pawlenty were unable to dislodge obstacles to a budget solution before lawmakers adjourned this spring. The governor vetoed legislative budget propsals and vowed to use his power of unallotment -- unilaterally calling back or cutting various aids -- to balance a remaining $2.7 billion budget shortfall.

The scale of the governor's plan raised eyebrows. First, unallotment has been used just four times since the law was enacted in 1939, and Pawlenty has done it twice since December 2008, when Pawlenty withheld $66 million in state aids to help erase a $426 million shortfall. Second, this is the first time a governor had used unallotment at the beginning of a biennium, instead of at the end as an emergency budget stop-gap, Carlson said.

After washing his hands of the budget stalemate, Pawlenty approved using unallotment again. A February forecast showed the state was facing a $6.4 billion shortfall for the 2010-2011 biennium, but one-time stimulus money cut the deficit to $4.6 billion. But with the $2.7 billion hole not filled and neither side budging on solving it, Pawlenty proposed shifting school payments to the next biennium and aid cuts to balance the state's books.

That meant a $300 million cut in state aid to local governments. Morris will have to cut about $107,000 from its 2009 budget, which can be achieved by using $50,000 from the city's capital outlay fund and other reductions, Hill said.

But two-thirds of the aid reductions were backloaded to 2010, and Carlson said it was possible Pawlenty could unallot more funds in December 2009. Under the current plan, the city will face cuts estimated at $260,000, said Hill, who added that he likely will make a formal request to unions that it accept a two-year wage freeze.

"The biggest part is that you can't say you won't buy things like equipment because you just can't do that," Hill said. "Every dime we're not spending for the essentials will have to go (to budget reductions)."

While the state allows just a fractional increase in levy limits, cities will be able to roll over unused levy authority from 2009 to 2010, and there are about 20 special levies available to cities that are exempted from levy limits, Carlson said.

The problem in either case is that local governments, politically, won't have much of a stomach to raise local taxes during hard economic times, he said.

"The economic circumstances are such that it will be very, very difficult to ask taxpayers to ante up any more in their tax bills," Carlson said.

And it doesn't appear there will be any break in the dark clouds soon: League sources are predicting the state will be facing a shortfall of between $4 billion and $7 billion for the 2012-2013 biennium.

"That is a very significant problem that looms in the future," Carlson said.