DL, other cities are feeling the bite of proposed LGA cuts
Detroit Lakes is feeling the crunch of possible local government aid cuts. But there are other cities with worse cuts and some that won't feel the cuts much at all.
With Detroit Lakes, a total of $187,493 is proposed to be cut from the $1 million 2009 LGA allotment. In 2010, there's a proposed $391,518 cut in LGA.
The way LGA cuts are determined, "they take what you levy and what your state aid is, find a total and the deduct 5.1 percent," City Finance Officer Lou Guzek explained. "What's unfair is that some cities don't get LGA."
Every city in the state receives market value homestead credit (MVHC) though. So, cities like Bloomington that just receive market value credit and no LGA will only lose 2.6 percent, compared to Detroit Lakes' 5.1 percent.
The good news is that Detroit Lakes doesn't rely heavily on LGA, unlike some smaller cities.
"Some rely on LGA -- those cities must really be scrambling," Guzek said.
Some Minnesota cities that will find the struggle a little tougher are not surprisingly located out-state. Many of the metro cities do not receive LGA, so the cut they saw came from MVHC. Cities like Eagan will only lose 3.3 percent, and Golden Valley, 2 percent. Minnetonka Beach is only losing .5 percent, and Minnetrista (located on the banks of Lake Minnetonka) is at .6 percent in cuts.
Cities in Greater Minnesota ranging from Breckenridge to Duluth, Roseau to St. Cloud, and most if not all cities in between, received the 5.1 percent cut. Skipping over the metro area, cuts continued for cities from Hastings to Mankato.
Without making budget cuts in those cities, they will have to increase taxes.
If the council would levy half the taxes back for 2010, that increase to Detroit Lakes would be 7.2 percent because of the bigger tax levy required by not relying so heavily on LGA. If Detroit Lakes was to levy to entire amount back, it would be a 17.5 percent hike.
Crookston is the opposite of Detroit Lakes though. Total levy and aid for 2009 is $5 million, but their LGA is $3.4 million and their levy is $1.6 million. While the 10.5 percent cut for 2010 is the same as Detroit Lakes, the number works out to $531,567. If they are unable to make cuts and instead levy their taxes back it would result in a tax increase of 33.9 percent.
Fergus Falls and Moorhead are two other examples. Both are about 50-50 on LGA and levied taxes.
Fergus Falls will have to cut about $868,000 in 2010. If the city would choose to levy that back, it would be a 21.27 percent tax increase.
Moorhead receives $7.8 million in LGA and levies $7.2 million. If Moorhead levied back the 10.5 percent, or $1.6 million, it would be a tax levy increase of 21.7 percent.
Moorhead City Manager Michael Redlinger said Moorhead is preparing for some obviously difficult cuts.
"We have been a community that has focused on growing and becoming less dependent on state revenues since 2002-03, and while we've done a good job growing, we are in the midst of paying for quite a bit of the debt service that has been required through other communities," he said.
"This comes at a challenging time and we expect that there will be a mixture of cuts as well as opportunities to look at other revenues, but no doubt this is already a pretty lean place. We've cut over $2 million in the last three years already."
He added that there are not many more places to look for cuts other than personnel.
"It's a very serious situation," he said.
A balanced approach is what the city of Moorhead is looking at -- cuts, new revenue and tax levies.
Moorhead staff and council have been seeking public input. They have a Web site allowing people to post comments and suggestions. They have also hosted neighborhood meetings, which are popular, he said. "We're hearing some great validation for preserving park and recreation opportunities for young families, as well as public safety of course," he said.
"Obviously in the case of Moorhead, we also are a competitive environment. We are on the border with a neighboring state that has a budget surplus, so we're really emphasizing a positive message to still encourage people to build new homes and enroll their children in the Moorhead school district."
"That's what I've been telling our city council. We're not fortunate of course, but if we do chose to levy some of it back, our tax increase, on a percent base, is going to be less than some of those other cities," Guzek said.
Fergus Falls Finance Director Bill Sonmor said Fergus Falls is also in the planning stages of what can be reduced and other ways to make up for the possible LGA cuts.
"We're going through a process. We called our tax levy committee back together," he said. "We are working with all the department heads to come up with a budget reduction plan."
Department heads have turned in their reduction suggestions and this week the tax levy committee will review them, he added. From there, suggestions will be brought to the council for approval.
"Basically, we're running pretty bare bones," Sonmor said.
Scaling back on supplies, training and travel and implementing a hiring freeze are some of the cost reductions the city has already established.
Fergus Falls is taking public input as well. The request for suggestions has gone out to employees, also.
"We'll be implementing our cuts sooner rather than later," he said, "because as the year goes, it always gets a little tougher to make any reductions."
"You could maybe live with these cuts for 2009, but then you have to double them in 2010, and I don't think too many cities are going to be able to do that," Guzek added. "Myself, I'm looking forward, and if there is a tax increase, it really won't be that bad. The way this is working, the less LGA you get, the better off you are because that's the program he (Gov. Tim Pawlenty) hit the hardest."
LGA cuts won't be determined for sure until May, when the legislative session ends. If there is no agreement though, it can always go into special session.
"Hopefully it's not even going to be as drastic as the governor has proposed," he said. "You can look at it both ways. They took your LGA, but they actually took your tax levy. That's the way I approach it. If you can't cut it, how much will your taxes go up?"
Another interesting example is the Brainerd-Baxter area. LGA is determined based on the amount commercial and industrial base in a city. Baxter, the up and coming city, has enough commercial base, the city doesn't not receive any LGA. Therefore, the city only got cut 3.5 percent and would only have to levy that 3.5 percent back.
Its sister city Brainerd, though, is mainly the older residential section of the two towns. Brainerd receives $4.2 million in LGA, and stands to lose about $863,000 in 2010. If the city would have to levy that back, 21.5 percent.
"That's an example of two border cities, how it's really unfair," Guzek said.