Cities Feel Effects of Down Economy

Convergence of slumping economy, declining revenues, and rising costs leave Minnesota cities scrambling to make ends meet in 2009 and beyond

(December 2, 2008—St. Paul, MN) The League of Minnesota Cities recently conducted an informal survey of several member cities to determine what fiscal challenges cities anticipate for 2009 and beyond, based on the nation’s slumping economy and unpredictable housing markets, the volatile nature of state aids, the rising costs of providing services, the recent implementation of levy limits, and anticipation of a massive state budget deficit that could affect state aids among other factors. Below is a sampling of what we found. A number of other examples were submitted, as well.

  • The City of Apple Valley expects electricity costs to rise nearly 16 percent above 2008 levels, while natural gas and propane costs will increase more than 33 percent and gasoline and diesel fuel costs will increase 12 percent. Additionally, according to Finance Director George Bellanger, significant increases will be needed in asphalt and fertilizer purchases to maintain infrastructure preservation for streets, curb, gutter, sidewalk replacement, pedestrian ramp installation and park lands.
  • The City of Brainerd has enacted a hiring freeze, is attempting to negotiate a wage freeze with employees, and has minimized purchase of capital items, such as public works and park equipment, according to City Administrator Dan Vogt. He added that any cuts to local government aid may force more drastic actions.
  • In the City of Burnsville, economic development and redevelopment has “slowed down to a trickle” according to Deputy City Manager Tammy Omdal. Officials are particularly concerned about the impact this lack of development will have on the City’s tax base in upcoming years. Additionally, Burnsville’s “Heart of the City” redevelopment area is being directly impacted by the downturn in the housing market, with newly-constructed multi-family occupied housing units remaining for sale.
  • Over the past year the City of Lakeville had to decrease its workforce by about six percent due to a combination of reduced building permit and development fees, as well as increased costs in areas such as energy and fuel. Positions were eliminated not only in the areas directly related, such as planning, inspections and engineering, but also in other departments including street maintenance, communications, and environmental resources leading to fewer staff to service an increasing population base according to Councilmember Wendy Wulff. "We face significant future issues, as well,” Wulff said. “Potential state cuts to the Market Value Homestead Credit will require increased use of debt to pay for capital needs. Also, while the Local Government Aid formula cushions the blow for cities that are facing declining populations, levy limits that don't allow for full adjustment for growth will lead to operational cuts in growth cities, even if the city already had a lean budget."
  • For the City of Newport, a recent adjustment increase in LGA has been offset by the imposition of levy limits by the Governor and state Legislature during the 2008 legislative session. “Our revenues will remain virtually flat for 2009,” said Assistant Administrator Bart Fischer. “Meanwhile, the cost for everything including health insurance, street seal coating, a new 800-megahertz radio system and a host of other items will go up.” Furthermore, levy limits have taken away the City’s ability to levy for 2009 for a contingency in the event that local government aid is unallotted based on the upcoming state budget forecast.
  • The City of Red Wing has temporarily posed a hiring freeze, and has also frozen all capital acquisitions and projects that have not yet been contracted—including sidewalks, park improvement, and fire department repairs, among others—until the City is certain that no cuts will be made to the city’s local government aid allocation for 2009. “If we receive LGA cuts, we will likely be reducing personnel, capital acquisitions, and capital projects,” said City Finance Director Marshall Hallock. “The result will be reductions in services, aging infrastructure, delayed critical infrastructure projects and delayed safety enhancements.”
  • If its 2009 LGA increase is unalloted, the City of Wadena will need to cut their street overlay expense in full next year according to City Administrator Bradley Swenson. Additionally, plans to renovate a city-owned bandstand will be postponed. For 2009, the city is also proposing a reduction in part-time staff, cut-backs in overtime, and cuts in capital requests.

The League is currently conducting more in-depth research on city fiscal conditions that will be included in the 2009 State of the Cities Report. Preliminary data may be available as soon as January.