Cities can adjust to an LGA-less future, says former budget chief

For a couple months now, Ground Level’s “Cities in Crisis” effort has been tracking the financial squeeze Minnesota cities find themselves in this fall, and you can listen for my report on Morning Edition Friday on where the governor candidates stand on local government aid.

In the meantime, here’s what a longtime follower of the issue has to say.

Now a senior fellow at the University of Minnesota’s Humphrey Institute, Jay Kiedrowski has worked on budgets ranging from the state of Minnesota, under DFL Governor Rudy Perpich, to the city of Minneapolis. He also worked as an interim city administrator for Orono. Kiedrowski talks here about the future of local government aid and whether things might improve for cities.

Ground Level: Do you think cities have become too dependent on local government aid?

Kiedrowski: Well that’s like asking the question, “Have children gotten too dependent on milk?” The answer is yes. But what’s the alternative? The state has had local government aid since 1972. Most of the cities in the state of Minnesota receive local government aid. This is the way the state has attempted to hold down property taxes, by ensuring that they get significant money from the state so property taxes don’t have to be so high. So yes, they’re dependent on it. Can they live without it? It’ll take a period of adjustment, but they can.

Either services are going to have to be reduced or property taxes will have to be increased locally. It’s not a case where’s there’s such great inefficiencies that if someone came along and fixed ‘em, they would be able to provide services. I’ve looked at a number of local governments activities and I don’t see there’s a lot of inefficiencies that have to be resolved. I think we’re looking at service cuts,

service changes, increased fees, increased property taxes, all the things that are going to have to occur locally if local government aids are cut.

GL: Cities say that raising property tax base is a big concern right now because the economy is so bad.

Kiedrowski: Think about what your own home is worth. Most people’s homes have gone down in value over the last couple of years as the housing bubble burst. And that means the cities have less tax base, less value of homes, less value of industries and commercial properties to tax. So at the same time they need more from the tax base, the tax base has less value. So they have to increase the tax rate. i.e. charge people at a higher rate, just to get the same amount that they would have gotten had the tax base not dropped. So it’s a dilemma for local officials.

GL: When do you think the budget situation for cities will improve if at all?

Kiedrowski: Well, once the state gets to a stable budget situation it should get better. It was better in the later part of the ’80s and again in the later part of the ’90s, things did stabilize as state finances stabilized. But the state for the last 10 years now has operated with a shortage in revenues in comparison with the level of expenditures, we call that a structural imbalance and that is inherently unstable.

So local government aid has been one of the things that has been cut regularly. The difficulty for cities is they have to set their budgets and tax levies by December 31st of the year and they don’t find if they’re going to be able to keep the local government aids that were appropriated until even May of the following year. So that gives them six months to respond to a change that the state makes in local government aids. And that’s been the part that’s been really difficult for cities to deal with.

GL: Is the consolidation of city governments, or fewer cities, the answer?

Kiedrowski: When I worked in the private sector for 17 years, I learned a very valuable lesson that you want your organization to be decentralized and close as possible to your customers. That way you make better business decisions, you’re more nimble, more innovative and it frankly works better.

So the system we have created in Minnesota of having lots of local units of government arguably would give us that focus on the citizens, the flexibility, the innovation, opportunity to have differences among communities. I’m not necessarily a believer that we ought to have less governments and frankly you don’t save much. Maybe the cost of two mayors and two city councils.

Where the real savings could come in is if smaller cities shared services. And there’s more of that occurring. So there’s a police and fire training center located in Edina, it’s a joint powers agreement with the airports commission. I think Bloomington, Hopkins, Edina and there’s one other community that actually share that facility. You find a lot of police in the western suburbs being provided for multiple communities instead of being provided by one community. I know in North Oaks the policing is done by Ramsey County.

So there are ways you can share services, or buy services, that can make it more efficient and still allow you to have that local government that’s still close to the citizens. What I think Minnesota citizens want frankly is the ability to influence their local government.

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