Unallotment preview: LGA cuts expected to create near-impossible property tax bind for many cities

The unallotment cuts that Gov. Tim Pawlenty (pictured) will announce later today are likely to fall hardest on aid to local units of government, which are expected to absorb about half of the $1 billion or so in cuts Pawlenty will impose over and above his $1.8 billion schools shift.

Most observers think the local government aid (LGA) reductions will bear a close resemblance to the governor’s original January budget proposal. Those cuts were backloaded, with roughly one-third coming in fiscal year 2010, which begins July 1, and two-thirds in fiscal year 2011.

Back in January, the League of Minnesota Cities (LMC) released a table that listed the prospective cuts on a city-by-city basis. (Note: These numbers are on a calendar-year basis; 2009 = FY2010, and 2010 = FY2011.)

In recent weeks, lobbyists for Minnesota units of government have worried that Pawlenty’s use of the unallotment mechanism to cut budgets would leave cities with populations over 2,500 unable to compensate for the cuts through property tax increases. The terms of the levy limits in those cities–about 240 of them across Minnesota–are tied to levels of incoming statutory state aid. Typically, when state aid goes down, the local levy limits would go up to compensate. But local governments were afraid that cuts through unallotment wouldn’t be reflected in the levy-limit formula.

It now appears that Pawlenty will alleviate some of that headache by officially unalloting both FY2010 and FY2011 LGA next month, says Gary Carlson of LMC. That would mean higher levy limits for the affected cities in 2010 (FY2011), but Carlson says that’s going to be cold comfort in many cases.

"We lost money in 2008 [through unallotment]," notes Carlson. "We will lose money in ‘09. Couple those with the 2010 cuts and cities have three years worth of cuts to levy in one year.

"Practically speaking, a lot of cities have told us they can’t do that. With the economy in the shape it’s in, a lot of cities can’t raise taxes that much. They’re going to have to absorb the cuts through budget reserves in the cases where they’re able to do so, but also through program cuts and personnel cuts. There will be some huge [city budget] cuts coming."

Carlson says his organization will probably try to get the Legislature to lengthen that one-year window for property tax hikes during the 2010 session. "Some cities wanted a two-year phase-in," he says. "I would guess we’ll probably seek some levy limit changes next year to allow some of this levy authority to be carried over into 2011 as well."

According to LMC estimates, here’s how the January budget applied cuts to the state’s five biggest cities (excluding property-rich Bloomington, which doesn’t receive LGA).

And remember: 2009 = FY2010, 2010 = FY2011.

Minneapolis

2009 LGA reduction of $16,858.718; estimated LGA distribution $71,927,693 (-19%)

2010 LGA reduction of $35,203,936; estimated LGA distribution $53,582,475 (-39%)

St. Paul

2009 LGA reduction of $7,669,708; estimated LGA distribution $54,930,310 (-13%)

2010 LGA reduction of $16,015,684; estimated LGA distribution $46,584,334 (-25%)

Duluth

2009 LGA reduction of $2,331,821; estimated LGA distribution $28,398,622 (-7%)

2010 LGA reduction of $4,869,247; estimated LGA distribution $25,861,196 (-17%)

Rochester

2009 LGA reduction of $2,548,929; estimated LGA distribution $6,430,887 (-28%)

2010 LGA reduction of $5,322,607; estimated LGA distribution $3,657,209 (-59%)

One Response to “Unallotment preview: LGA cuts expected to create near-impossible property tax bind for many cities”

1. Anonymous Says:
   June 16th, 2009 at 1:17 pm

   Pawlenty likes to say that there’s broad support among the public for his unallotment plans… have there been any polls to show this? I find it hard to believe that people in Minnesota aren’t smart enough to realize that he’s padding his resume for a presidential run at our expense. Can’t anything be done to stop him? It reminds me of the run up to the Iraq war, when those opposing the war were unable to stop Bush. We shouldn’t have a government where one person can impact so many lives without being required to go through some checks and balances.