01-14-2002 Council Packet - Laserfiche WebLink

Home Browse Search

• Tapping city fund balances through state aid cuts would be a one-time source of revenue for the state and would not solve the ongoing state budget problem. • Looking at city fund balances on December 31 is very deceiving since cities have just received state aid payments an 1 property ta.\ settlements. It is akin to looking at your checkbook on payday and believing you have a lot of money, wthout accounting for the bills that must be paid. • Financial advi.sors have indicated that bond ratings could be adversely affected by a forced depletion of reserves. Although the governor and others have recently criticized city and county fund balances, at this time we believe that neither the legislature nor the governor will propose legislation that will directly force cities to deplete their reserves. A more likely scenario might be that the governor or legislators rationalize general cuts in city aids by concluding that local reserves are higher than they need to be and that cities can weather the cuts without cutting ser\ ices or raising taxes. If that scenario plays out, there are several points that you may wani to consider. -Cities did not proportionately benefit during the state’s economic growth over the past decade. • In the decade from 1992 to 2002, aid to cities has grown by about 10% while state general fund revenues have increased by over 60%. • Overall, aids to cities were cut by 10% for 2002 alone. • Cities have paid a sales lax since the last state recession in the early 1990s. Cities and counties now pay over $100 million per year in sales tax. -Cutting aid to cities will have consequences • Aids and taxes pay for city services. Reducing aids will affect the level of ser\ ices citizens receive. • The largest expenditure category for cities is public safety. Depending on the extent of aid cuts, public safety expenditures could be impacted at a time when citizen demands for increased public safety are rising. • Financial advisors have indicated that city- bond ratings could be adversely affected depending on the nature and severity of cuts. Preserving bond ratings is as important to cities as to the state; they directly affect tlie cost of government. • All of these impacts could be compounded in cities with low property values because they cannot as easily compensate for aid cuts. If you have general questions on fund balances, contact Eric Willette or Gary Carlson at the League offices.