CHICAGO - Local governments in Minnesota are bracing for $110 million in cuts to the state aid payments being sent later this month, following Gov. Tim Pawlenty's announcement that he will reduce spending by $271 million and tap $155 million in reserves to erase $426 million of red ink in the current budget.
Local leaders are worried that the pot of local government aid will face further cuts next year as the state addresses a $4.8 billion deficit in its next budget for the biennium that runs from July 1 through June 30, 2011.
"St. Paul has absorbed more than $121 million in cuts since 2003, and we've responded by making tough choices," Mayor Chris Coleman said in a statement. "We've been able to do all of this while making new investments in critical public safety and foreclosure-prevention initiatives. Any further cuts in local aid will erase all of this progress and diminish the quality of services in a time when our residents need them the most." The mayor asked city departments to plan for a 20% cut in their budgets.
Minneapolis, which will receive about $13.1 million less in the Dec. 26 payment from the state, is better positioned financially to deal with the cut this year than in 2003 when the state cut its local aid by $35 million, but it still comes at a difficult time, Mayor R.T. Rybak said in a statement.
City officials urged the governor to avoid using one-time measures like aid cuts and adopt long-term structural reforms to balance the state budget.
"The cut ... amounts to about one-third of the payment Minneapolis was expecting to receive in less than a week," said Council President Barbara Johnson. "This represents the equivalent of paying for 130 police officers, or 150 firefighters."
Pawlenty's plan to eliminate the shortfall in the state's $34 billion budget will drain Minnesota's once-flush budget reserve. Under the spending cuts, cities will lose $66 million and counties another $44 million, while universities will lose $40 million and human services $73 million.
"Families and businesses across the country are tightening their belts and government needs to do the same thing," the governor said in a statement Friday. "These reductions in state spending reflect our priorities to protect funding for K-12 education, public safety, military, and veterans."
The state earlier this month announced revised revenue estimates that anticipate a revenue shortfall of $412 million in the current biennium. That number was boosted to $426 million because of increased expenses. Collections from income, sales, corporate, and motor vehicle taxes are all expected to slip.
Economic advisers also now anticipate that revenues in the fiscal 2010-11 biennium will fall 9.4% short of estimates released last February, leaving Minnesota with a $4.8 billion deficit to close in the next budget.
The governor will present his next two-year budget to lawmakers on Jan. 27. The state last May closed a nearly $1 billion deficit in the current budget through a mix of spending cuts and by taking $500 million from state reserves.
The revenue projections or budget deficit will not affect a stalled $443 million general obligation bond sale. Its timing remains dependent on market conditions. Officials put the deal on hold earlier this fall as they watched for other issuers to bring their large competitive transactions. The state hopes to bring the deal to market in January if other large competitive transactions are successful.
Minnesota's $4.1 billion of GOs are rated AAA by Fitch Ratings and Standard & Poor's, and Aa1 by Moody's Investors Service with a positive outlook.
