Minnesota cities, counties are strained as $667M in aid remains in limbo

The Legislature ended its work Sunday without a decision on how to distribute $667 million in federal aid for counties, cities and towns — leaving cash-strapped communities in limbo as coronavirus costs pile up.

Local governments across Minnesota are struggling with unexpected expenses, from personal protective equipment and overtime costs for public safety workers to new remote setups for employees. Some states have already shared federal CARES Act dollars with communities dealing with the pandemic's fallout. But Minnesota's leaders have been tied up in negotiations over how to distribute the money.

"The impact of the pandemic is real. … It is incredibly painful," said Duluth Mayor Emily Larson. "We have $667 million sitting in the state's account right now to be disseminated to cities, and there is no current path by which we can access any of that. And, in the meantime, we are laying off staff, we are cutting city services, we are delaying projects. It's our residents who are experiencing the impact of that devastation."

The Republican majority in the state Senate and DFL House leaders clashed over how to dole out the money in recent weeks, and the issue got ensnared in other end-of-session deals at the Capitol. The Legislature could try to reach a compromise by mid-June, when they anticipate returning for a special session.

But Gov. Tim Walz could beat them to it.

"Governor Walz and his administration understand the urgency felt by communities to get these funds out the door. We plan to have guidelines in place within the next week," Cynthia Bauerly, Revenue Department commissioner, said in a statement Tuesday.

The governor technically could immediately start divvying up the money, which is part of the nearly $1.9 billion the state received last month through the CARES Act.

The Walz administration had no comment Tuesday on whether it will also start distributing money next week, and whether legislators would be involved with shaping the guidelines.

Meanwhile, the pandemic has continued to put a crunch on city budgets.

Widespread business closures meant to slow the spread of coronavirus are causing tax revenue to drop, while cities are spending more to provide aid to struggling residents and buy materials to protect employees.

St. Paul Mayor Melvin Carter said during a public meeting May 6 that preliminary 2021 budget forecasts showed a potential deficit of up to $34 million, and that the city accrued unexpected expenses related to COVID-19.

In Minneapolis, the budget office expects revenue could drop as much as $200 million this year, or roughly 12%. At the same time, the city reported $4.7 million in pandemic-related spending, as of last week.

The city's elected officials, including Mayor Jacob Frey and City Council President Lisa Bender, have been asking state lawmakers to provide aid, including a portion of the state's CARES Act funding. Because the city's population is below 500,000, it did not receive direct federal funding from the CARES Act.

The only local governments in Minnesota that met that threshold are Hennepin and Ramsey counties, which received a combined $317 million. GOP state lawmakers want those counties to share the money with cities inside their borders, while Democrats said the two major counties should use those funds as they see fit.

Taking that money from counties would hamper their efforts to provide other much-needed services, such as temporary shelter for the homeless and assistance for hospitals and small businesses, Hennepin County Commissioner Jan Callison said.

"It simply will impede our ability to respond to the crisis," she said.

Sen. Julie Rosen, R-Vernon Center, said she is hearing from communities in her district who want the state to act quickly on the CARES Act money. Rosen, who sponsored the Senate GOP's plan to disburse the dollars, said that speed is critical.

But it is more important to ensure that one person — Walz — doesn't have control over hundreds of millions, she said.

"I see it as a complete overreach" if Walz decides how to use the money, Rosen said, and the Legislature would be "usurped of their authority."

A six-person Legislative Advisory Commission has oversight of the governor's use of federal money, but does not have veto power.

Other issues divide Republicans, the Walz administration and House DFL's plans for the $667 million.

Rosen has suggested distributing all of it right away, while Democrats want to reserve some of the cash to use as future hot spots emerge.

Counties also have differing viewpoints on which way would be best, Association of Minnesota Counties spokesman Matt Hilgart said. But there's an overwhelming preference for getting the dollars into local hands quickly, he said, adding, "No one is served well by waiting on this."