St. Paul grapples with loss of $3 million in state aid

St. Paul officials will consider at a 7 percent hike in the tax levy or cuts to key city services — libraries and recreation centers, police and firefighters — as they look for ways to close a $3 million gap in the mayor's proposed 2017 budget.

The city was banking on a $3 million increase in local government aid (LGA) from the state to cover proposed expenses. But that evaporated last week when Gov. Mark Dayton announced there would not be a special session. A $20 million boost in LGA statewide for 2017 was among the items included in the omnibus tax bill that was left unsigned.

St. Paul has not given up on the possibility that state leaders will hold a special session, but the city needs to come up with plans to fill the gap if they do not act, St. Paul Mayor Chris Coleman said in a letter he sent Wednesday to the City Council.

"Everyone kind of expected it would be law," Rep. Pat Garofalo, R-Farmington, said of the tax bill, which had broad bipartisan support. "The city of St. Paul is just one of hundreds of organizations hurt by the failure of the tax bill to be signed."

Coleman's letter asked the council to set the maximum tax levy at nearly $113 million, a 7 percent increase from 2016. The city was previously looking at a 4 percent increase, which would have resulted in a $109.8 million levy next year. The owner of a median value home, worth about $161,200, would see a $42 tax hike if the city passes the 7 percent increase.

"It seems that the legislators' inaction is either, frankly, going to hurt the public safety of residents of St. Paul or it's going to take a big swipe into the wallets of St. Paul taxpayers," Council Member Chris Tolbert said.

The city has a Sept. 21 deadline to set the maximum levy. City leaders cannot increase the total after that date, but could lower it throughout the budget process as they identify areas to cut.

"We had every reason to be optimistic that there would be a solution," Coleman's spokeswoman Tonya Tennessen said. "We're still going to urge the state to act before our deadline, but in the meantime we have to move forward and we have to move the city forward and identify a path."

As St. Paul looks at areas to cut, it first will consider new spending proposed for 2017, even though those programs are high priorities for the mayor, Financial Services Director Todd Hurley said. The city could save $885,000 by cutting new programs, including civilian outreach in the police department, spending on a proposed citywide sick leave mandate and investments in recruiting people of color, Coleman said in his letter.

"This is not acceptable," Council Member Dai Thao said. "If we're going to cut anything it should not be programs that help disadvantaged, marginalized communities."

Even if those cuts are made, a more than $2 million gap would remain in the proposed budget. If St. Paul cuts department budgets in a way that is proportional to spending, then police, fire, libraries, parks, and safety and inspections could see big reductions, Hurley said.

Coleman's letter says he doesn't think "any of us can stomach" losing nine police officers, seven firefighters, closing a recreation center, reducing library hours and cutting an inspector.

St. Paul does not finalize its budget until December and has months to work through potential cuts with department leaders. The city will continue to push for a special session during that time, Tennessen said.

Without a special session, cities and counties would likely have to wait until spring of 2017 to see if they get the additional local government aid, state legislators said.

House Taxes Committee Chairman Greg Davids, R-Preston, said, "I hope Mayor Coleman calls Governor Dayton and says, 'Call a five-minute special session and pass the Davids tax bill,' and that would take care of all those problems."

Uncertainty over LGA has been a long-standing frustration for city leaders.

In Minneapolis, Mayor Betsy Hodges' proposed budget does not include additional local government aid. She suggested a 5.5 percent property tax levy increase and said the city could lower the levy if more state assistance comes through.

Coleman joked in his budget address this year that "no budget speech would be complete without a discussion of local government aid."

"The mayor knew there was risk going into this," Scott Cordes, the city's budget and innovation director, said of the assumption that the $3 million LGA bump would pass. "We think this highlights the importance of LGA. We've been talking about this for a good 15 years now."

Jessie Van Berkel • 612-673-4649