Another warning bell on cities and their money

Different set of numbers, same warning bell for Minnesota cities.

The League of Minneseota Cities on Thursday trotted out a Humphrey Institute analysis it commissioned, declaring that cities all over Minnesota will be broke in five years. The analysts took recent trends in city revenue and spending, extended them into the future and concluded that by 2015, cities of all sizes and locations will be in the red.

Since that can’t happen under statute, what it means, of course, is a round of tax-raising or expense-cutting between now and then.

The Strong Towns blog did a related analysis recently looking simply at what would happen to city budgets it the state’s local government aid goes away.

The league’s analysis leans heavily on the expected continuation of lower local government aid but also notes that regardless of what happens to that LGA aid, all cities see community pressure for spending and service increases — driven by an aging population, for example — and tax cuts — driven by residents struggling in a weak economy.

The league’s report, at four pages almost a back-of-the-envelope calculation, notes that pain will be felt across the board, from Minneapolis to regional centers to towns under 1,000. It doesn’t analyze how cities differ on how they tax and spend or how well they deliver service, and it stops short of framing how residents might come to grips with the looming dilemma.

It’s pretty easy to imagine scenes of shouting in city council chambers and frustration or even desperation at the mailbox when tax statements come out. Likewise doctrinaire positions staked out by elected officials and city residents.

This seems like a ripe conversation in the making. Do people start by talking about what services are most important? About what level of sacrifice is called for? About how well service is delivered by cities? About who is successful and why? I keep thinking about gravel roads.

  • Jack Geller

    Hi Dave,

    While the methodology is a bit elementary, you are correct in saying that the same warning bells are still there. As the League suggests, a new model to finance city services will be needed in the future. Here are some initial thoughts:

    While in Morris at the Symposium on Small Towns I asked a local City administrator what he and his city council were thinking during the years as they watched their LGA allocation increase and as a result the city slowly went from having LGA comprise 35% of their budget to 65%. Weren’t they concerned that they were getting too dependent upon the state? His response was “why did they keep giving us more money?”. BAD ANSWER.

    I think our cities and towns now need to prepare to live with a very limited LGA allocation. In fact, it may end up being statutorily tied to the most essential of services. At the same time the legislature needs to unshackled communities regarding revenue generation. If communities are going to be asked to float their own boat, then they need more tools than just a very regressive property tax.

    As long as local residents have the opportunity to vote on new taxes, I have no problem with cities fully managing their own budgets (which includes both expenditures and revenues).

    A good example is the tiny community of Fisher, MN, which has a very high property tax assessment, mostly due to the local school assessment. Most towns the size of Fisher consolidated their school districts decades ago. But maintaining their own district is important enough to their residents that they voted to support the necessary referendums. So who am I to say no?

    Give communities ALL the tools they need to figure it out and let the residents/voters chart their collective future.

  • Charles Marohn

    I agree with Jack here. The tools used for the LMC/HHH report were disappointing and I hope are not used to discredit the conclusion.

    Specifically, any analysis where it assumes growth in expenses greater than growth in revenue will end up in the red if it is extended out far enough.

    The “gov’t is wasteful” argument makes a strong case when it points out this trend. It can’t continue. Assuming it will and then projecting a problem from that proves little.

    I was hoping the report would take a deeper look at why city expenses are increasing at a rate greater than their revenue. It is not because they are wasteful (as most people define waste) or that they are inefficient (again, as most would define inefficient). It is because our development pattern is extremely expensive to maintain.

    The really scary thing is that the trends highlighted in the report don’t address the reality that most cities are falling behind – far behind – with infrastructure maintenance. If we were honest with our accounting at the local level and accurately maintained capital accounts to cover these long-term liabilities, the rate of growth in expenses would be much greater.

    It is very expensive for us to construct a society with everything so spread out. The long-term costs have been masked by the near-term payoff from growth. Now that growth has slowed/stopped, these long-term costs are catching up to us in a powerful way.