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Farmington will feel state aid cuts

When Minnesota Gov. Tim Pawlenty announced his plan to trim $271.4 million from the state's current budget last Friday, he effectively cut approximately $174,000 from the city of Farmington's budget, as well.

Farmington finance director Robin Roland said the city will not receive the second half of its market value homestead credit for 2008, but Farmington is still in a better position than hundreds of other Minnesota communities. This year, at least, the city will stay in the black despite the state aid cut, but deeper cuts could still come to next year's budget.

Since 2003, the city of Farmington has not received Local Government Aid. The city receives some state aid -- the market value homestead credit -- in two separate allocations. The first half arrives in October, the second is supposed to come in December.

But under the governor's plan, cities will not receive the second half of the MVHC, and those who would get LGA will see a decrease in that amount. Locally, that plan means Farmington will not receive the $173,812 that was allocated to the city for 2008. That money was earmarked for the city's general fund and is counted as part of the city's tax revenue.

"It could have been a lot worse, but we have done a couple of things that will make this tolerable," Roland said.

Back in May and June, Roland saw there could be some budget issues very soon. At that time, Roland identified about $300,000 in budget cuts to the current general fund, "because we knew we weren't going to make our revenues and expenditures," she said.

The proactive approach means the city will not experience a deficit in 2008, but the city's fund balance will not increase, either.

"We do have a few things in our revenue budget that will offset this, but what will happen is that, rather than adding to the fund balance in 2008, we will break even. We were hoping to add to the fund balance this year, but with this cut, I can't see that happening," she said.

Since 2005, six staff positions have been vacated and not filled. The 2009 budget cuts another position. When the majority of the city's general fund is allocated to salary and benefits of staff, those cuts are the most effective, she said. A full 75 percent of the general fund goes toward staff benefits and salary.

Looking ahead

The governor's announcement came just four days after the Farmington City Council approved its 2009 budget and levy. Looking ahead to next year, Roland said she would not be surprised if the state cuts even more aid -- possibly all of it -- in order to balance an estimated $5 billion shortfall in the next two years.

"Frankly, we expect that the $174,000 is just the beginning," she said. "If the state continues on the path I expect it to, they will probably take our MVHC, all of it, in 2009. That totals about $350,000... We'll take it as it comes, see what happens before we start making cuts. We are not going to panic, we are not going to be reactionary. We are going to be thoughtful about what we see coming."

Not alone

Farmington actually fares better than many Minnesota cities, partially because Farmington no longer plans on LGA, and partially because city officials recognized there could be more cuts in state aid last summer.

Some communities are hurting much more because those communities spent that state aid before receiving it. She likened the scenario to going out Christmas shopping and building up a balance on a credit card, but then losing a job and being unable to make payments on those presents.

That means many communities will be making deep cuts next year, and likely raising taxes, as well. So far, Farmington has been able to keep the tax levy increases to a minimum, but if the future brings more cuts in state aid, the city will either need to cut staff, or increase taxes.

"Property tax revenue is the most stable source of revenue that cities and counties have," Roland said. "You really can't talk about the budget without talking about people."

This is not the first time in Roland's 20-plus years of doing city finance that she has had to deal with state aid cuts. In fact, the cycle seems to be the same -- the state makes cuts, putting the onus for increasing taxes on local governments.

"The local governments do their part, and we're the ones who get bashed," she said.