Budget Reform

Our national deficit is expected to hit an unparalleled $1.2 trillion for the 2009 Budget Year. Our State has budget shortfall issues for the 2009-2011 budget of a project $4.8 Billion. Then to make matters worse, this current biennium has a shortfall of almost half a billion dollars.

Happy New Year!

David Olson, the president of the Minnesota Chamber of Commerce, recently wrote, “…nearly everyone expects the projected shortfall to widen in the February budget forecast.” Stress is on the word – “widen” – which does not mean shrink, it means that the shortfall will get bigger – that’s bad.

David Olson goes on to say, “The statewide business community, more than ever, is insisting that state government run more efficiently. That can be accomplished only if government focuses on major restructuring and reducing spending. Structural reforms are critical, and they will be accomplished only by sorting those programs and services that truly should be a responsibility of state government – and then exploring and implementing innovating approaches to their delivery.”

This wisdom is not limited to just the state government as it can have a lateral conversion to our local government as well.

On Dec. 19th 2008, Governor Tim Pawlenty announced that he was reducing the Dec. 26th payment of 2008 Local Government Aid (LGA) and Market Value Homestead Credit (MVHC) reimbursements. International Falls saw a cut to their payment in the sum of $222,672 – a 4% cut to the payment they were suppose to receive. I don’t agree with the Governor waiting until the end of the budget year to make the unallotment, as he knew many months ago that the state was looking at a shortfall. Then to top it all off, slapped everyone with a Levy Cap – that’s just wrong and the Governor should be somewhat ashamed, there were better ways to do this. But at the same time, the local governments also were aware of that shortfall, and that LGA and MVHC were obviously on the proverbial chopping block.

International Falls receives over 30% of its operating budget courtesy of the State LGA. LGA in its “politically correct” definition is provided by the state to help the city pay for key services to its citizens, while bringing tax relief to that tax base. But if you look at the calculations on how the state determines how much LGA a city should receive, one would see that the better and much shorter “politically incorrect” definition for LGA would be that it is a state welfare program for city governments.

Let me explain:

- The better the city does, the more prosperous, the higher the growth of population and tax base, the lower your state welfare (LGA) check is.

- The worse a city does, declining population, continued loss of tax base, etc…. the higher your state welfare (LGA) check is, because the city ultimately needs more assistance.

We continue to get more and more LGA over the years, and now are in the top 3% for dollars received out of all cities within the state. We are “certified” to receive $3.9 Million in LGA for the 2009 fiscal year, which is a 16% increase from last year, and makes us the 8th highest per capita change from 2008-2009 in the state out of over 850 cities. One of our councilors was quoted this summer after being notified of this increase of being happy to sit back and receive the free money. I guess we should all be, “Happy to be on State Welfare.” YEEHAW!!

So considering all this…. brings us to the conclusion and simple fact that LGA and our city government’s reliance on it have become serious and extremely problematic.

Yes - there is no denying that the 2009 budget as approved by the city council gave a historic tax relief to its constituents – but that is only after raising the city budget by over one million dollars from last year, and seeing a “promised” increase in LGA of over $600,000 in order to accomplish such historic relief.

But what happens if in July the Governor decides that in order to wrestle control of that nearly $5 billion deficit – he needs to flex his legal authority – and unallot all of the 2009 payments for city LGA altogether?

It’s within the Governor’s power. He just utilized that power less than a month ago. If doing away with LGA for the next two years helps the Governor lead Minnesota to fiscal responsibility and a budget surplus at the end of the next budget biennium, it’s not complete political suicide.

But at the same time – that unallotment would mean a single year budget shortfall for the city of $3.9 Million. Sitting back and doing nothing to prepare for that is essentially throwing away the reserves the city currently does have, for no other reason other than a reluctance to get down to the basics and start cutting the budget, in relation to operating this city.

With the state of the national economy, the national and state deficits, added onto the uncertainty in regards to the future of LGA, now is the time for our city government to go back to the drawing board when it comes to their budget. Not 6 months from now, but now – starting in January. Like the rest of the country we need to realize that we can no longer drive around the Rolls Royce – but that we have to trade it in for a slightly used domestic. 2009 is going to be a year where EVERYONE needs to make sacrifices if we as a nation, state, and community are going to pull through and raise up out of the ashes.

To once again quote Mr. Olson, he writes, “Attention to restructuring state government and reducing spending is at a critical juncture as the oldest baby boomers become eligible for early retirement. As a result, fewer people will be paying taxes and more people will be demanding state services, especially in health care. Growth in tax revenues in the next 20 years will not keep pace with the previous two decades, regardless of the economy. The resulting trends bear attention and action.”

Now…

After just writing a ton of gloom and doom – I will finish my writing by saying this.

Does our Mayor and current city council even have the tools and ability to go back to the drawing board and make cuts?

The short answer is yes. They do have the ability to go back to their department heads, and go line by line and make cuts. Not saying it will be easy, just that it can be done.

So here is my suggestion – for what it’s worth. The City Council and the Mayor this month should tell their Department Heads that the city needs to make a 20% cut to its budget, and be serious when they say it. By trimming over $2 Million from the 2009 budget, it would prepare the city for any loss in LGA that comes, without necessarily affecting the proposed tax levy, and without making serious gouges to our city reserves.

The city would need to make sure that the unions are onboard and understand that they are most likely going to have to make concessions as well. To make a cut to the budget that is as drastic as 20% is going to have some effect upon staffing. But by communicating with the unions, and vice versa, and working through these tough changes in the beginning of the year, it would allow the departments to make any necessary changes without most likely resulting in any terminations in employment. Unpaid vacations, shorter work weeks, and reduced hours are things that we would need to prepare for.

Being fiscally responsible during an economic downturn, after living “high on the hog” for the last couple years is never going to be politically popular. But, being proactive with fiscal management so the city is prepared for those downturns is the right thing to do.

Remember: "Attention and Action"

Mayor Mason and the rest of the council can do this.

They can get it done. We as a community just need to let them know that it is something that we as constituents feel is necessary, and then support them in those next steps.