03-14-1988 - Agenda Packet City Council - regular meeting

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EXECUTIVE SUMMARY The League of Minnesota Cities annually publishes a "State of the Cities" report to provide the public and policy makers with an on -going assessment of the financial status of the 855 cities in our state. This year's report provides evidence that Minn- esota's cities are continuing to face economic stress as they struggle to maintain adequate service levels while coping with extremely large cuts in federal aid and the prospect of diminishing assistance from the state. The Federal Government is no longer a reliable financial partner in providing city services. Its massive fiscal difficulties and a change in philosophy about inter- governmental relations have caused a withdrawal of support for cities. As of 1987, the Federal Government terminated its general revenue sharing program which had provided Minnesota cities with over $40 million annually. Minnesota's state government has struggled to fill the revenue gap caused by federal funding withdrawal, but it too has had budget problems and has shifted its budget priorities. Financial difficulties are partly responsible for limiting Minnesota's ability to share state revenue with its cities. But changing budget priorities have also led the state to dedicate a declining share of its budget to city aid. Against this backdrop of dwindling resources, cities have had to deal with man- dates and similar federal/state restrictions that are increasing the costs of providing services and operating government at the local level. Mandates such as comparable worth, fair labor standards, and wastewater treatment requirements have adversely affected cities just as the 1986 federal tax act imposed new restrictions on cities' revenue -raising abilities. The main findings of this report, summarized by Chart 1 on page 2, are: • Federal aid to Minnesota cities has declined 48 percent in real dollar terms over the 1978-86 period. " Minnesota's state government has been unable to substitute through the local government aid and other property tax relief programs for the federal assistance which cities lost over the past decade. State aid in 1986 stood at a level only slightly higher --3 percent higher in real dollars-- than it was in 1978. City spending cannot be blamed for iarge increases in property and other local taxes. As of 1986 (the latest available State Auditor's data), per capita city spending in real dollars was one percent below per capita city spending in 1978. • As further evidence of the budget rc3traints on cities, the total number of city employees dropped a dramatic 24 percent between 1980 and 1985, more than three times the rate of decline in employment of any other state or local governmental unit in Minnesota. 3-