Minnesota cities scramble as budgets take hits from the virus

The coronavirus pandemic is opening giant holes in city and county budgets in Minnesota and across the country, choking tax revenue and forcing officials to weigh layoffs and deep service cuts.

Officials in Bloomington, home of the temporarily shuttered Mall of America, learned this week that they are facing a budget shortfall of more than 20%.

Roseville has furloughed nearly four dozen seasonal and part-time workers as parks and ice arenas remain closed. In Duluth, officials have started dipping into the city's $10 million reserve fund and face a shortfall of up to $25 million.

"So much is unknown," said Bradley Peterson, executive director of the Coalition of Greater Minnesota Cities. "That's what is fueling the anxiety."

Local officials also are facing unexpected new costs, such as the urgent need for new technology for staffers working at home and protective gear for those who must stay at the office.

A survey released last week by the National League of Cities found that more than 2,100 cities across the country expect budget shortfalls and anticipate having to cut programs and staffers. Officials in nearly half those cities said they likely will have to cut public safety departments.

"We hope the state and federal government will come up some sort of relief plans for cities," said Bloomington City Manager Jamie Verbrugge. "But we recognize hope is not a plan."

Some help may be on the horizon. Sen. Roger Chamberlain, R-Lino Lakes, who chairs the Senate Tax Committee, said a $300 million package is in the works to provide tax cuts and business incentives. House Tax Chairman Rep. Paul Marquart, DFL-Dilworth, added that he might consider a recovery package for cities toward the end of the session.

Meanwhile, Congress recently approved $150 billion in aid to states to be used to help local governments to respond to the pandemic.

As layoffs mount and businesses struggle for survival, local officials are trying to ease the burden for taxpayers while honoring their financial commitments. On Tuesday, the boards for both Hennepin and Ramsey counties joined a growing list of counties that won't penalize residents for delaying property tax payments for up to two months.

But that in turn could strain cities' ability to make bond debt payments that are due in August. If the economy worsens and residents can't pay their taxes, it could create significant budget problems in Minneapolis, said city spokesperson Sarah McKenzie.

The state's largest cities are expected to experience some of the greatest financial hardships. In Minneapolis, officials predicted revenue will drop by as much as $200 million, or nearly 12%, depending on the duration of the pandemic.

St. Paul officials said the city could be facing potential losses of up to 70% in revenue directly affected by the pandemic, such as hotel and sales taxes.

No city, whatever its size, is immune. Budget gaps are growing the longer recreation centers and ice skating rinks are closed. Fees from building permits and utilities are shrinking. Firefighter hires and new snowplow purchases are on hold as city leaders grapple with Gov. Tim Walz's stay-at-home order, which could stretch well into the summer.

Cities are examining the virus' financial impact in three budget categories, said Peterson, with the Coalition of Greater Minnesota Cities: unplanned expenses for equipment to allow employees to work at home and overtime for first responders; lost revenue from sales and lodging taxes, fees and facility closures; and the long-term ability of businesses to bounce back.

The latter, Peterson said, "is causing the most anxiety."

The coalition sent out a survey last month to cities for a first impression of the virus' impact. Nearly 100 responded, and 70% said they anticipate collecting less in property taxes.

Little Falls Mayor Greg Zylka said he worries about downtown businesses that are struggling, including restaurants, shops, a bakery. At the same time, some needs have to be met. Little Falls recently advanced its quarterly funding for the city-owned Pine Grove Zoo to make up for lost attendance dollars. "They still have to feed the animals," Zylka said.

Metro suburbs are looking for ways to absorb their losses.

Woodbury has delayed the filling of 300 temporary and seasonal positions, Eagan has laid off 100 part-time workers, and Roseville has furloughed 45 seasonal and part-time parks and recreation workers. Suburbs that own sports centers are taking a hit at a time when they would ordinarily be busy with athletic tryouts. Savage has lost $100,000 on its sports dome, and West St. Paul is down $270,000 in ice arena and sports dome revenue.

Brooklyn Park Mayor Jeff Lunde said city officials are looking at cutting expenses. "Are we going to buy that big new snowplow for $150,000 or can we wait a year?" he said.

Bloomington officials said the city may have to delay capital projects, leave jobs vacant or dip into its reserve fund.

"Most people expect a well-run government to have a rainy-day fund," said Verbrugge, Bloomington's city manager. "But it's only good if the rain stops."

Staff writers Shannon Prather, Katie Galioto, Kim Hyatt and Rochelle Olson contributed to this report.

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