By Claudia Hoffacker

When Trish Harren became the city administrator of Crosby (population 2,360), she thought it would be simple compared to her previous position as a county administrator. She quickly learned that many tasks — including budgeting — are often much more difficult in a small city.

With challenges like limited staff capacity, heavy reliance on property taxes, rising costs, and balancing cash flow with long-term planning, small cities need to be proactive in their budget planning.

When you’re a small city clerk or administrator, “you’re deep in the weeds of all the tasks, and you have to know the details of every line item of the budget,” Harren said. “In a small city, you’re on your own because you don’t have department heads and support staff helping you with it.”

Another challenge is the heavy reliance on property taxes, because small cities often don’t have many other revenue options, said Lisa Sova, assistant finance director at the League of Minnesota Cities.

At the same time, “the city wants to be respectful of property owners and their ability to pay,” Sova said. “If they feel a proposed tax increase is going to be burdensome to property owners, that’s where the tough decisions come in” to either cut costs or look for other ways to increase revenues.

And because money is tight, it’s also important for small cities to plan ahead, especially when it comes to capital expenditures, she added.

Importance of long-term planning

Long-term planning is critical to make sure cities are maintaining equipment and other assets like streets.

“It doesn’t matter what size the city, they should be doing capital planning looking out at least five years,” Sova said. “Further is better, but it doesn’t need to be an onerous task.”

A capital plan typically includes:

• A list of items the city will need to purchase or improve.
• The estimated cost of each item.
• The target date for making the purchase or improvement.
• How each item will be funded.

The capital plan “can be a simple list,” Sova said. “Just make sure you start tracking projects and revisit the list at least once a year during the budget process.”

In addition to long-term planning, cities need to look for ways to increase revenues and cut costs.

Strategies for increasing revenue

When working to balance the budget, cities often look first for opportunities to reduce costs, but there are also a few ways to increase revenue, Sova said. One option is to review city fee schedules and increase them if appropriate.

“For example, maybe the city has a dog license fee,” Sova said. “Make sure the fee covers all the administrative expenses that go along with tracking, monitoring, and enforcing. Sometimes cities forget to include the cost of enforcement.”

Another strategy is to look for grant opportunities to help pay for items on your capital plan. If a grant aligns with a project scheduled for a few years down the road, it might make sense to move that project higher on the list.

Issuing municipal bonds might be another option for cities to meet the financial demands of their capital plan. Crosby is doing that now to pay for $2.2 million in needed equipment, Harren said. “We haven’t spent as much on equipment as we should have in the past, so that’s why we’re going for a bond, so we can start replacing things every 10 to 15 years instead of every 25 years.”

Ways to cut costs

Cutting costs often requires difficult choices, but there are creative strategies that may be less painful, Sova said.

One approach is sharing services with neighboring cities, which can be done for a variety of services and jobs. Public safety is a prime example.

“Maybe one city provides police coverage, and the other city provides fire protection,” Sova said. These services — with required fleets and extensive training — are very expensive, so cities can realize significant savings by sharing them.

Other jobs and costs to consider sharing include clerk duties, software, payroll, and accounting. “The reporting requirements cities must meet have grown and become more complicated. Sharing those types of [duties] can help cut costs,” Sova said.

Outsourcing may be another way to save money, she added. This could apply to accounting and other finance-related duties, as well as services like snow removal.

Help is on the way

All the financial duties and reporting requirements can be overwhelming for small city clerks and administrators. To help, the League created the Finance Desk Manual for Small Cities. View the guide at lmc.org/FinanceManual.

“It gives you all the information you need to successfully do what you have to do,” said Harren, who had the opportunity to review a draft of the manual. “It’s a really valuable tool.”

Claudia Hoffacker is a freelance writer.