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Local aid could fall victim to the Grinch

Dec. 22, 2008

by Ivan Raconteur

When it comes to getting things done, there is a right way, a wrong way, and the government way, and that last option is just plain silly.

To illustrate this, we need look no further than the state’s recent threat to play Grinchikins with Local Government Aid (LGA) and Market Value Homestead Credit (MVHC) reimbursements.

The state’s estimated $426 million budget deficit is a grave and urgent problem, but cutting LGA payments at this point in the process is an example of governmental logic (an oxymoron) at its finest.

It is a well-known fact that offensive organic matter rolls downhill, and counties and cities are accustomed to getting the shaft from their big brother in St. Paul, just as the state is used to getting the same treatment from Washington.

Things like unfunded mandates are a constant source of fun at the local level.

The timing of the threatened cuts is what makes them especially awkward.

The payments, due at the end of December, come at the end of the fiscal year. Cities and counties have already spent most of their 2008 budgets, so it may be problematic to go back and try to cut their current budgets at this point.

Furthermore, they won’t see the first of two property tax payments for 2009 until May, so if the LGA payments they were counting on fail to materialize, it could be a very lean winter and spring.

This brings us to another salient point.

Cities and counties are required to approve their final budgets for the coming year and certify their final tax levies in December. Most have already done so.

This puts the cities in a difficult position. To find out at this point that payments they were counting on may be cut or eliminated leaves the entities in a tight spot. They can no longer increase their levies to make up the difference (they have been unable to do so since September when preliminary levy numbers were due), so the only option is to make more spending cuts.

Assuming that the elected officials have been good girls and boys and have already trimmed budgets to the bone, they will have to make some extremely difficult decisions about what to cut next from the budgets they just approved this month.

These cuts could be substantial. Nothing has yet been decided, but some of the folks over at the League of Minnesota Cities have consulted their crystal ball and predicted that the state will cut between $25 million and $100 million from LGA and MVHC payments.

Based on that line of thinking, the League speculates payments to some local cites could be as little as $2,200 (on the low end) in the city of New Germany to as much as $106,500 (on the high end) in Delano. The cuts in most area cities could range from about $10,000 on the low end to about $80,000 on the high end, according to the League’s estimates.

Cuts of this size could (and should be) difficult for cities and counties to absorb at this stage in the process.

Ordinarily, I would say it is wonderful news that more budget cuts are imminent. As a taxpayer, I applaud most spending cuts the government plucks up the courage to make.

There is no question though, that the timing of the threatened cuts is just more bad news for local government.

The housing crisis, with taxable market values shrinking and foreclosure rates skyrocketing, has reduced cities’ tax revenue.

Some cities that have experienced rapid development in the past will be especially hard-hit. Cities that have tied the cash flow for the debt service on infrastructure improvements to SAC and WAC (Sewer Access Charge and Water Access Charge) fees for new residential hookups are already in a world of hurt, since these revenue streams have dried up quicker than a keg of beer at a frat party.

The smaller a governmental entity is, the fewer options it has available for raising income or cutting expenses.

The federal government, with its bloated budget and myriad of agencies tripping over one another can scarcely figure out what it has or what it is spending, and when it runs short, it simply increases its debt limit.

Generally speaking, states have to operate more responsibly, and cities and counties must be even more efficient.

When local governments make cuts, the impact on taxpayers is likely to be both direct and immediate.

If the state were to announce that it was going to reduce or eliminate LGA or MVHC payments in the future, cities and counties wouldn’t like it, but at least they would have time to adjust their budgets and spending accordingly.

To threaten to reduce or delay payments that have already been committed is much worse.

It is a bit like going to one’s mortgage company or other creditor and announcing that you are going to reduce your next payment or delay it until some point in the future because you have spent more money than you have earned and you need to balance your budget. They aren’t likely to take it well.

The state budget deficit is a big problem and we are all going to feel the pain before it is over. Cutting LGA payments in the middle of the game, though, seems unsportsmanlike and a little bit irresponsible.

Local governments, even those who have done their best to be fiscally responsible, could end up holding the bag, and, as usual, it is the taxpayers at the bottom of the heap who will suffer the most.

Looking for the right way, rather than the government way, to solve the problem might offer better solutions.

Converting a state budget deficit into deficits for cities and counties doesn’t seem like much of a solution.