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Thanks for nothin', bro

State budget problems get passed down the ladder

January 1, 2004


Ron Wirtz Editor, fedgazette
Thanks for nothin', bro

Talk about a hand-me-down you could do without.

Like a youngster who's forced to wear the clothes of an older sibling, state budget crises are slowly getting passed down to local governments across the district.

States, in essence, have asked local governments to share their budget burdens, cutting funding for many programs—including mandated ones—delivered at the local level. Additional state cuts to shared revenue and other general-purpose, local-aid programs have also been popular among states, further tightening local budgets. Talk to local government officials about budget problems, and they are quick to mention reduced funding from the state as the major reason. According to one source, "not all spending decisions are local. ... We're not experiencing the same reduction in mandates as we are reductions in funding."

With steadily growing property values—the foundation of city, county and school tax revenue—local governments have not been financially cornered in the same way as their big brother. But with fewer state resources being handed down, local governments have been forced to pay heed to the general public attitude of "what have you taxed me for lately."

Anoka, a suburban Twin Cities county, is looking at a fiscal year 2004 budget that decreases total spending by almost 4 percent, much of it the result of pass-through cuts by the state to programs administered at the county level. Over fiscal years 2003 and 2004, the state cut funding to Anoka County by about $16 million, according to Terry Johnson, division manager of finance and central services for the county. "If the state cut money, we cut spending." His own department saw a decrease of 4 percent, which means that "a number of positions that are vacant will have to stay vacant."

Though seemingly innumerable anecdotes are available, the sheer scale of local government—Wisconsin alone has 3,060 such units—makes it hard to get a clear picture of the depth or breadth of tight budgets at the local level. Anecdotes and other available evidence, however, suggest that local governments are indeed seeing tighter budgets and making hard decisions about whether to raise local taxes or cut services where they can. In Anoka County, 2,700 residents responded to a county survey seeking budget input and said they wanted the sheriff's office, road construction and maintenance, and child services saved from budget cuts and were more open to cutting other services.

Elected county officials listened and pared back library hours, closing one location. They eliminated lifeguard positions at county beaches and lowered funding to outside agencies like the extension service and historical society. They left 130 vacant positions unfilled, reduced hours and services for property records, cut back on juvenile programs and increased caseloads for social workers.

Johnson understands that tight budgets require some pain-sharing and acknowledged that it offers an opportunity to scrutinize all operations in an annual county budget that exceeds $200 million. "We'd be kidding ourselves" to say there is no waste to be eliminated or efficiencies to be gained, he said. "Difficult times force us to become more efficient and more effective" with available resources.

At the same time, county government is a good example of the strings-attached model of government that's been created, particularly at the local level, where funding and spending accountability are easily obscured in the confines of a bureaucratic labyrinth of programs, innumerable delivery points and funding cross-subsidies.

For example, Anoka officials estimate that as much as 85 percent of total county spending comes from mandated programs not under local control. But federal and state funding accounts for just 40 percent of the county budget. That means spending decisions at state and federal levels, along with recent budget cuts to local aid, are merely being transferred to local property tax bills, which have steadily increased even through the recent recession. Anoka County will reportedly spend $14 million less in 2004 than it did in 2003, but its county tax levy will increase more than 3 percent to partially make up for recent state budget cuts.

That tax creep is evident throughout local government: Local property taxes increased by 9 percent in 2003 in Minnesota and are projected to increase almost 7 percent this year, according to the Minnesota Department of Revenue. Minnesota counties are facing between $300 million and $500 million in cuts, cost shifts and new mandates, the Association of Minnesota Counties reported. Given state reductions in county property tax relief of about $115 million in 2004, the association said a cumulative county property tax increase of over $67 million "is probable."

Among the 26 northwestern Wisconsin counties in the district, 15 saw their tax levies increase at least 100 percent from fiscal years 1992 to 2002; three increased more than 150 percent, with Iron County's levy up more than 200 percent, according to analysis by the Wisconsin Taxpayers Alliance.

Mark O'Connell, executive director of the Wisconsin Counties Association, likened counties to vendors. "[State lawmakers] give us some money to do their work." The system doesn't allow counties to deny or ration services, and counties are often hog-tied to raise the revenue necessary to provide high-quality service.

"Are our hands tied? Absolutely," O'Connell said. He compared it to getting his house painted, "only I'm not going to pay you what you need [to do the job], but I still want the best job." There are a few spending items in which counties and their taxpayers have a say, he said, "but that would be a very short list."

Ultimately, lack of funding and spending accountability lead to service levels that neither taxpayers nor service recipients are particularly happy about. "We need to modify the system to talk about services we can afford," O'Connell said. If there's not enough money to go around, "let's just say some people aren't going to get served. There's going to be some unhappy people," he conceded, but giving taxpayers a clearer choice between tax-and-service options is a more "honest" approach to the matter.

O'Connell is not optimistic, however, about any dramatic changes, in part because he sees more people paying attention to and supporting individual programs irrespective of the larger budget context. "Do we have to live with it? No, we can't. That's a recipe for disaster," O'Connell said. "Can it be addressed? It's a long process."

Ron Wirtz
Editor, fedgazette

Ron Wirtz is a Minneapolis Fed regional outreach director. Ron tracks current business conditions, with a focus on employment and wages, construction, real estate, consumer spending, and tourism. In this role, he networks with businesses in the Bank’s six-state region and gives frequent speeches on economic conditions. Follow him on Twitter @RonWirtz.