Some cities warn of budget cuts while sitting on rainy day funds

Gov. Tim Pawlenty wants to cut at least $245 million in aid to local governments to help balance the state's budget over the next two years. That has prompted local government officials to warn the cuts will have a devastating effect on their communities.

"For us, what that's going to mean is that we're going to plow our streets every other blizzard," said Wadena Mayor Wayne Wolden.

"For cities like St. Paul, where two-thirds of our budget is police officers and firefighters, we can't take a $30 million cut without significant reductions in our forces," said St. Paul Mayor Chris Coleman.

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Coleman and Wolden were quick to point out the impact of the cuts. What they don't mention is the amount of money in their budget reserves.

In fact, the latest report of Minnesota city finances released by the Minnesota State Auditor said collectively, cities have $1.5 billion in reserves. About half of that is being saved for things like new fire trucks or recreation centers. The other half is undesignated, something usually referred to as a city's rainy day fund.

The 2007 report is the most up-to-date glimpse of city finances. Some city officials say the figures have changed slightly, but they won't be able to provide the newest numbers until they finish their annual audits later this year.

In any event, some Republican lawmakers say cities should use their reserves to offset any cuts in state aid.

"Generally, rainy day funds are to get through tough times, and right now it's raining," said House Minority Leader Marty Seifert, R-Marshall.

"Rainy day funds are to get through tough times, and right now it's raining."

"We're all in this together,and my hope is that they'll do their part in sharing in it," Seifert said. "This is what budget reserves are for, is to kind of ride out tough times until the economy improves."

"When that money is gone, then what?" asked Wadena Mayor Wayne Wolden.

Wadena has about $1 million in reserve, about one-third of the city's annual budget.

Wolden said he considers that reserve the city's savings account, and it wouldn't be wise for the city to use it.

"We are protecting that reserve because it is cash flow," he said. "We do not have any other pots to dip into. We use that cash flow, so we are making serious cuts. It's prudent financial management."

Wadena and several other cities were forced to use a portion of their reserves when Gov. Pawlenty used his emergency budget-balancing authority to cut state aid to cities in December. But most city officials say they plan to build their reserves back up, not to drain them further.

Minneapolis has $133 million in reserve, the most of any Minnesota city. Mayor R.T. Rybak said he's not willing to spend it down.

"The city of Minneapolis has been able to weather extremely tough times," Rybak said. "We've done it because we've had good, smart, long-term fiscal strategy, including having a reserve that will allow us to weather moments like this. So I'm not going to put future city councils in the jeopardy that I now see the state being put into."

This isn't the first time city budget reserves have been questioned. In 2003, then State Auditor Pat Anderson released a report suggesting that many cities could absorb aid cuts because they had large reserves.

Anderson, who now oversees the conservative think tank Minnesota Free Market Institute, says a lot of cities could weather additional cuts this year.

"When a mayor or a city council member says the sky is going to fall -- it's wrong. It's just ethically wrong," Anderson said. "It didn't happen in 2003. These mayors and city council members should be sitting down and saying, 'How are we going to get through this?'"

Anderson and State Auditor Rebecca Otto both recommend that cities should keep some cash on hand, as much as 40 to 50 percent of their annual budget.

St. Cloud Mayor Dave Kleis said cities need to keep their reserves in place in case the economy takes a dramatic downturn or the state completely eliminates aid.

"One of the reasons we don't do that is because we don't know what happens to the Legislature," he said. "We may predict for the worst, and we may get worse than the worst. We have received 30 percent of our general fund appropriation. If that was completely eliminated, that, of course, would completely eliminate our reserve also."

Several mayors also point out that not every city has a reserve to rely on. The report by the state auditor shows that several cities either have no reserve or are running a deficit.

And not every city gets aid from the state. In general, smaller cities rely on government aid more than cities with populations greater than 2,500 people.

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