Agenda - Council - 02/25/1986 - Laserfiche WebLink

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Fiscal stress continues Governor's budget reduction recommendations Revised state revenue and expenditure forecasts indicate a $720 million shortfall. This is the result of a lagging economy and some underestimating of the cost of the large income tax cut the state approved last spring. As a result, Governor Perpich has proposed reductions in the state budget. The proposal would use all but $100 million of the budget reserve to offset the deficit, and would cut the budget by $380 million. State taxes would not increase. The following questions and answers highlight the impact on cities. How m~ch mone7 would cities lose under the governor's recommendations? Local government aid (LGA) to cities would be cut $23.1 million to a total funding level of $262.7 million. This represents an 8.1 percent cut from the original LGA appropriation for 19B6. Homestead credit payments to cities would decrease 8.78 percent for 1986. Early projections indicate a loss in this program of $9.3 million. In addition, the budget proposal suggests reductions in other grant programs that benefit cities. How come the reductions are eight to nine percent? The papers indicated cuts to cities were 3.5 percent. There has been much confusion on this point. The governor's budget address framed the budget crisis on the basis of the state's biennium (a biennium being the two-year state budget period). The governor recommended 3.5 percent biennial reductions on most programs in order to balance the budget. However, because cities are already through the first year of the biennium, the practical reality is a seven percent cut in the last year of the biennium for most programs. But, cities' cuts equal more than seven percent because they would absorb the cuts of other programs. An additional $4.2 million would come out of LGA to cover the 3.5 percent biennial cuts of miscellaneous credit and expenditure programs (wetlands credit, enterprise zone credits, pension amortization aid, etc.). The governor's proposal would cut homestead credit more than seven percent, too. The additional two percent reduction is due to this program being expected to absorb the 3.5 percent biennial reduction in the circuit breaker program of property tax refunds. Because the tax forms and tables have already gone out, the governor looked for alternative places to cut these funds and decided on the homestead payments to local governments. How will these cuts apply to individual cities? The governor recommended that each city's LGA payments for 1986 decrease 8.1 percent from the level that the state certified to the city in August. One - ! -