Plan to cut local aid has officials worried

By Journal Staff

NEW ULM -- Local government officials weren't shocked by the news that the Ventura administration is looking at local government reserves as a means of stemming the state's mammoth budget deficit.

Still, there's the feeling that they're being singled out and are being punished for maintaining satisfactory cash reserves.

"It's disappointing that the state would take this approach in attempting to solve the problem," New Ulm City Council President Dan Beranek said. "Cities like ours are being hurt for being prudent."

The Ventura administration appears to be looking at cutting local government aid to force cities to go into their cash reserves, but Beranek said the timing is bad as far as having options in covering a state aid shortfall.

"We can't increase our property tax levy now because that had to be done back in July," Beranek explained, "and drawing down our cash reserves isn't the answer, either."

"The reaction will be equal to the effect," City Manager Brian Gramentz said. "My only hope is they apply this in a fair and equitable manner. I'm all for equitable blood-letting where everyone is asked to sacrifice."

Gramentz believes the debate may go on into March before the cities see a clear picture of what is expected of them.

"We need to see what direction the state is going in before we can move," he added, "but you would want to prioritize what you can tighten the belt on when it's needed."

Beranek pointed out reduced reserves result in lower bond ratings which, in turn, impacts the city's ability to borrow at a reasonable interest rate.

Equally troubling is Finance Commissioner Pam Wheelock's statement in a briefing for non-profit organizations receiving state money that "any grant agreement not fully executed is part of this."

The city is in the process of obtaining $400,000 in matching grant money allocated by the state legislature for Hermann Monument base restoration and installation of four lion statues.

While the lions are now in place, the city also must get approval from the Minnesota Historical Society and Office of Tourism for a plan to upgrade the monument's interpretive center and promote tourism before it will be cleared to receive the money.

LGA makes up half of Sleepy Eye budget

Sleepy Eye City Manager Mark Kober said he expects the State of Minnesota will cut LGA (Local Government Aid) money and cities will have to make up the difference.

The City of Sleepy Eye's $2.25 million 2002 budget includes more than half of its total budget or $1.17 million in LGA funds.

Kober said Sleepy Eye's LGA figure was a bit higher than normal due to the six-month-long Highway 4 south project that included new highway, curb, gutter, sewer and water work.

"I think everybody sympathizes with the situation," Kober said. "We'll all have to roll up our sleeves and do our fair share."

Kober expects Ventura to ask cities to use reserve funds and cut back on LGA.

"The financial strength of some cities and counties is due at least in part to LGA," Kober said. "Individual taxpayers will wind up paying for the state budget shortfall somehow. You'll probably see property taxes rise on the local level if LGA is trimmed. It's easy to pick on someone or something like rebate checks or something, but the difference will have to be made up some way."

Kober said higher local property taxes increases will be restricted by levy limits instituted by the State of Minnesota.

"If we're backed into a corner, higher local property taxes are about the only way out," Kober said.

He predicted an interesting 2002 Legislative session.

Brown County not

sweating possible

reduction

Despite Ventura's proposal to use the fund balances of counties and cities to help make up for a near-$2 billion budget deficit, Brown County Administrator Charles Enter remains calm.

Enter said the Brown County Board, which passed the most recent draft of its 2002 budget on Nov. 6, is not proposing any changes to its draft budget yet.

Enter said the issue is one commissioners will discuss with area state legislators during a regular board meeting on Dec. 18. In its current budget, Brown County has about $9.3 million in state and federal aid. It also has about $1.39 million in property tax aids certified by the Minnesota State Auditor.

In its draft 2002 budget, Brown County already has about $1.4 million in certified tax aids and another $10 million in state and federal aid.

Enter said most of the aid money the county spends is used to carry out state mandates in its various departments. He said that the news of possible reserve fund balances being used to cover the state's shortfall is "certainly early in the process with respect to the state forecast." He added that the Minnesota Department of Revenue will make another forecast in February.

"We're certainly concerned, but as stated by leadership (in Minnesota State Government), it's not at a crisis point," Enter said. "Everybody needs to work together to resolve this."

Brown County Human Services Director Tom Henderson added, "We don't know enough to be panicking yet."

Ventura has made note of healthy city and county reserves and said tough economic times meant dipping into them. A spokesman for Ventura said, however, the governor would only target communities with large reserves.

Both Ventura and Wheelock have relied on numbers from a report issued by the State Auditor's Office in July. The report showed that while many city and county reserve fund balances increased in 1999, spending increased even faster that year.

State Auditor Judy Dutcher replied to Ventura's comments in a statewide press release Wednesday. She said her reports were being misused and were not intended to represent local fund reserves. Cutting state aid to local governments, Dutcher said, will require cities to use reserves and raise local property taxes.

"Governor Ventura should not balance his budget on the backs of local property tax payers," Dutcher said. "If he raids these funds it will be similar to taxing these people twice."

Dutcher's report found that the average unreserved fund balances in counties and cities of 2,500 people or more grew from 1995 to 1999. In Brown County, the report found a total unreserved fund balance of about $8.1 million -- 47.8 percent of the 1999 budget. Figures for 2000 and 2001 are not yet available, but the Auditor's annual report for 2000 will be made in December of this year and filed in June.

A representative of Dutcher's office said Thursday that the cities and counties with the highest fund balances are all around the state, not just within the Twin Cities metro area. The representative went on to say that local governments need to have fund balances to get through the first five months of the new year.

This story was written by staff writers Ron Larsen, Fritz Busch and Kurt Nesbitt.