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1 LEGISLATION The following is a brief summary of recent legislative activity affecting the finances of Minnesota cities: Levy Limitations — The 2008 Legislature passed a law that will limit general operating property tax levy increases for Minnesota cities with populations over 2,500 to 3.9 percent annually for the next three years. Local Government Aid (LGA) and Market Value Homestead Credit (MVHC) — Due to the state's economic condition, Minnesota cities received "unallotment" notices reducing the payment of these state aids for the second half of 2008. It is expected that the 2009 Legislature may again reduce the payment of these aids to cities for the 2009 fiscal year. FEDERAL RECOVERY ACT PROPERTY TAXES FUNDING CITIES IN MINNESOTA The American Recovery and Reinvestment Act of 2009 is expected to provide approximately $300 billion in federal funds to state and local governments, and to institutions of higher education. These funds are intended to supplement existing federal programs, create new programs, or provide more broad fiscal relief. Many cities are hoping to receive some of these temporary funds for programs and projects. The American Recovery and Reinvestment Act of 2009 mandates that there be an unprecedented amount of oversight and transparency around the spending of these funds, including specific audit and internal control requirements. The additional internal control requirements include the need for controls over the acceptance of recovery funds, appropriate controls over the segregation of these funds from other sources of revenue, compliance with the additional laws and regulations specific to each grant award, and additional financial reporting requirements back to the appropriate federal agency. These additional controls also include considerations into whether control procedures are in place over the federal grant expenditures to prevent unallowable expenditures, consideration into whether additional controls and systems will be needed to ensure funds are able to be separately tracked and identified, and consideration into if controls are sufficient for any funds that are passed along to subrecipients. Our management reports have tracked the evolution of property tax reform in Minnesota, and explained its impact on cities and their property owners. Now, with very little change in property tax formulas, attention has turned toward our current real estate and housing environment, mortgage foreclosures, and the world economy. -3-