Agenda - Council - 02/24/1981 - Laserfiche WebLink

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league February 9, 1981 TO: FROM:' RE: of minnesoba cibies Mayors, Managers and Clerks Peggy Flicker, Legislative Counsel Governor's Budget Proposals for Local Government Aid 'nor Quie's budget proposals for 1982-1983 for local government aids will have a ~erious impact on cities' financial outlook. The Governor's proposal for local government aid would 1) FREEZE the level of funding for local governmental aids; and 2) DELAY the distribution of aid payments to cities. THE FREEZE The Governor's budget proposes to fu'nd the local government aid formula at $270 million dollars annually for 1982 and 1983..This is the same amount cities were entitled to in 1981, before the Governor's 8.3% cutback. In other words, the proposal is for no increase in funding for 1982 or 1983. The aid freeze means that other revenue sources, primarily the property tax, will have to be tapped to pay for increased operating costs. Either property taxes will rise at a rate faster than inflation, services will be cut back, or capital expenditures deferred. OThe enclosed chart projects the effect of the freeze on property taxes on a sample city assuming that property taxes plus state aids will continue to make up the same relative share of the city's total expenditures. We have assumed that inflation would cause expenditure increases of 12% in 1981, and 10% in 1982 and 1983. THE DEL~AY Beginning in 1982, the Governor proposes to ~hange the aid payment schedule. , The Governor's proposal would eliminate the March payment entirely. Instead of four equal payments in March, July, September and November, cities would receive their aid payments in six equal monthly installments, to be paid in July through December of each year. Obviously, this will result in a financial cost for each city. Cities will lose the interest income that would otherwise be earned from investment of all or part of the March payment. The total amount of that lost interest is estimated to exceed $7.5 million statewide. In addition, some cities will also be forced to borrow to cover current expenses. Such borrowing will cause direct costs due to interest expense. An indirect, but potentially more harmful cost, is the possible effect which such borrowing has on the city'~ credit rating. (OVER) 300 hanover building. 480 cedar street, saint ~aul. minnesota 55101 (612) 22212881