Minnesota cities address funding cuts

The pride in Craig Clark’s voice is evident when he talks about his city of Worthington, MN. Clark is the city administrator in the southwestern Minnesota city of about 12,000, a diverse community with a number of amenities.

“We’re kind of the little engine that could, I guess,” Clark says.

Despite their strengths, smaller Minnesota cities such as Worthington are becoming increasingly pinched by reductions in state funding sources resulting from the economic downturn and state budget cuts.

Clark estimates that he spends about half the year dealing with budget issues, which involve the state program of Local Government Aid, or LGA. Minnesota launched the program in the 1970s as a way to ensure basic government services in Minnesota cities regardless of their location.

Minnesota’s state budget shortfall is expected to total roughly $6 billion for 2011, which will mean more LGA cuts for the state’s local governments.

LGA comprises 41 percent of Worthington’s city budget, but the city has become accustomed to continued decreases in LGA funding. In the last three years, aid has been cut by a total of $857,791.

“It presents some significant challenges,” Clark says. “We’ve retooled and eliminated the possibility of any fluff — not that there was a lot to begin with.”

The precarious state budget picture has made Minnesota communities be more frugal and forced officials to get creative to find ways to make do with less.

Worthington has relied on reserve funds, cuts and health insurance savings, while other communities have looked into short-term borrowing. Worthington has also seen growth in its tax base with new businesses opening up. The city also sold its hospital to Sanford Health, helping to fund a new fire station and support other long-term projects.

Clark says it’s difficult to budget for the unknown, which essentially creates a moving target.

“It’s not for the faint of heart,” he says.

BELT TIGHTENING

With an estimated population of more than 8,000, East Grand Forks, MN, has experienced tremendous growth since the flood of 1997.

The northwestern Minnesota border city has maintained a stable tax base despite housing hurdles and a challenging economy. But local leaders have had to juggle funding sources since the city’s LGA funding has been cut by a combined $1 million over the last three years.

City Administrator Scott Huizenga says East Grand Forks took a proactive approach to battle the cuts early on. The city eliminated four of its 100 staff positions through attrition, even before the LGA reductions. East Grand Forks has also imposed hiring freezes and capital purchase delays.

“It’s starting to catch up with us,” Huizenga says. “We did the cuts early so when the ax came it wasn’t probably as great of a shock to us compared to some cities because we had already made those cuts.”

Huizenga anticipates more cuts, but says the easy things are already out of the way. He expects reduced aid will eventually affect property taxes. Up to this point, tax base growth in the city has helped offset reduced state funding.

East Grand Forks has increased some fee-based services. The city instituted a Greenway maintenance fee that charges anyone who pays a city utility bill an additional $1 per month to keep trails in the city maintained.

Cities across the state will participate in what Huizenga calls a prioritization exercise.

He says residents aren’t always interested in helping the city balance its budget, but ultimately the people themselves will help decide what services are most important and whether or not they want to pay higher property taxes to support those services.

“Everybody’s at ‘Now what do we really value?’” Huizenga says. “My philosophy is I would rather do 50 things really well instead of 100 things poorly.”

SILVER LINING

The LGA program is based upon a strong fiscal partnership between state and local governments.

Michael Redlinger, the city manager of Moorhead, MN, says the silver lining is that the attention given to LGA cuts will lead to a conversation about the future of the partnership and how cities will raise revenue in the future. He’s interested to see what LGA version 2.0 will look like.

Moorhead, a city of about 37,000 across the Red River from Fargo, has enjoyed steady growth throughout the last decade.

Since 2001 the city has attempted to wean itself off from LGA and become more self-sufficient, though LGA funds currently make up more than a third of the city’s budget. Over the last decade the amount of LGA funding flowing into Moorhead has decreased by about $3 million.

“At the end of the day, LGA for us is parks, police, fire,” Redlinger says. “It funds services here. Without LGA, we would have to cut services.”

Moorhead has held unfilled positions open, frozen and reduced its operating budget and cut back on the frequency of mowing and snow removal. The city currently has fewer than 11 open positions, including two firefighters and one police officer.

Redlinger believes it will become increasingly important for cities to develop long-term strategies instead of relying on across-the-board reductions to balance budgets. He says the next two years will force some difficult conversations in Minnesota communities.

COMPETITIVE EDGE

As border communities, the cities of East Grand Forks and Moorhead face additional competitive challenges due to their location next to larger North Dakota cities.

Traditionally, property taxes have been lower in Minnesota, giving Minnesota border cities an edge.

But local government leaders in Minnesota fear losing that competitive edge as LGA funding cuts may lead to eventual property tax increases.

McCurdy is a Fargo-based freelance writer. She can be reached at sarah@sarahmccurdy.net.

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