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Mid-sized cities holding off worst cuts as aid drops

Faribault City Council member Steve Underdahl, left, and City Administrator Tim Madigan discuss potential budget cuts as they meet Jan. 18 at Faribault City Hall.Underdahl said Faribault city officials have already delayed repair projects, cut 3 percent of city expenditures, left about a dozen positions unfilled and drawn down reserves due to budget cuts. They also raised the city's property tax levy by 6 percent for 2010. (AP Photo/Robb Long)

FARIBAULT -- The little things went first: a few children's library programs and ice for the outdoor skating rinks. But police officers and firefighters kept their jobs and plows still cleared Faribault's snowy streets.

Approaches like that illustrate why Minnesota lawmakers face a public-relations challenge as they fight another round of cuts proposed by Gov. Tim Pawlenty.

The Republican governor's plan for balancing a $1.2 billion budget would reduce aid to local governments, a place he has slashed before in hard times. Democrats in charge of the Legislature have tried to paint dire scenarios, such as fewer police and pothole-ridden streets.

But on the front lines, many local governments have managed to deal with the previous reductions well enough that some of their residents say they haven't felt the pullbacks -- at least not yet.

"I haven't noticed anything change," said Jim Munger, a 55-year-old mechanic at the Community Co-op in Faribault. "I don't think I will."

Others feel differently. Rep. Paul Marquart, a Democrat from Dilworth, said some cities and counties have stayed afloat on higher property taxes and short-term patches, but the newest proposed cuts -- $250 million, after $200 million last year -- will sink some of them.

"Local government aid is the great equalizer, it allows cities to compete statewide," he said. "But they have continued to take these hits one after another and it's getting to the breaking point."

Faribault is a freeway community along Interstate 35 about an hour south of the Twin Cities. While the city is home to more than 20,000 people, its historic downtown area has a small-town feel with family-owned shops lining the streets.

The city has soaked up most of the reductions so far, even though cuts hit about $1 million of the more than $5 million it usually gets in aid. The city relies on state aid for half of its overall budget. If Pawlenty's proposal passes the Legislature, the city will lose another $1 million.

City Councilman Steve Underdahl said officials have delayed repair projects, cut 3 percent of city expenditures, left about a dozen positions unfilled and drawn down reserves. They also raised the city's property tax levy by 6 percent for 2010.

In Owatonna, just south of Faribault, the city stands to lose about $2 million, or almost half of its state aid this year. State-supplied aid makes up 21 percent of Owatonna's total budget. City officials have made $500,000 in cuts by freezing city wages, limiting health coverage and laying off seven employees.

But Owatonna City Administrator Kris Busse said they have so far spared police and fire programs. "That's the last thing we will look to," she said.

Local government aid, or LGA as it's become known in Capitol corridors, was created almost 40 years ago as part of a massive property tax overhaul meant to even out disparities across the state. Before, local governments got by mostly on property taxes, but some cities didn't generate as much cash as others. As the state budget grew tight, lawmakers have chipped away at the program.

Cities alone were cut by more than $175 million between 2003 and 2009, according to state revenue officials. They could lose more than three times that amount -- $660 million -- over the next three years under Pawlenty's proposal.

Cities similar to Faribault -- removed from the metro area with low tax revenues -- stand to lose more as local aid can make up a major chunk of their budget. Madelia, a small city of about 2,250 in south central Minnesota, relies on state aid for 44 percent of its budget. Aid reductions last year drained almost $50,000 from the city. That meant canceling road repairs for 2010 and leaving two full-time positions open. The city could lose about $108,000 this year, according to a court filing in a lawsuit contesting previous budget cuts.

In Pawlenty's new plan, cities with fewer than 1,000 residents would feel the hit for the first time.

"This is a list of imperfect choices," state Budget Commissioner Tom Hanson said in a budget hearing. "We think local governments have to feel these hard times like everyone else and make the right decisions."

But Faribault officials said there are only hard decisions left. With the latest proposal, they said they fear the cuts will hit things everyone will miss, including the number of officers on the street and road maintenance. And then there's the falling balance of the city's reserve fund, which has been tapped for the first time this year for $650,000 to buffer cuts. The city has about $7 million in reserve.

"It's a rainy day fund, but it's been raining for the last few years and now it's starting to downpour," Faribault City Administrator Tim Madigan said.

Officials said they will also consider raising taxes in 2011 to make up the difference. This year's tax levy is already set.

Janna Viscomi, a 41-year-old local restaurant owner, said she hasn't noticed past fixes. But she is worried this time, especially about her local tax bill. It's enough to make her raise her voice during a quiet breakfast hour at her restaurant, Bernie's Grill.

"It all trickles down to property taxes, to us, the working people," she said angrily raising her arms while a few customers looked up from their eggs and hash browns. "Why should we be punished?"

The aid program's future doesn't look much better given deep budget deficits forecast for years to come and no clear consensus between the Legislature and Pawlenty on a long-term fix.

Craig Schuster, a 60-year-old barber from Faribault, is tiring of the constant battle and wants the sides to repair the budget in more lasting fashion, whatever that ultimately means.

"They need to stop putting up a barrier between them," Schuster said, sipping coffee in Anna Dee's restaurant. Other customers raised their glasses in agreement. "They need to remember who put them in office. It was blue-collar guys like us, and we need some solutions."