2003-02-26 CC Packet - Laserfiche WebLink

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Governor's Budget Proposal: Deep Cuts for Cities Page 2 of3 The current LGA formula, without the grandfather, would be used to distribute $250 million in preliminary state aid. This preliminary aid would be compared to the 2003 initial LGA (before the governor's proposed 2003 reduction) and if the difference exceeded the targeted reduction (either 9.5 percent or 8 percent of total city revenue), the city's aid loss would be limited to the targeted reduction. Interestingly, the governor's plan appears to create a new $100 million grandfather due to the fact that the overall cost of the proposal exceeds the $250 million distributed by the formula. The budget documents state: "the Administration believes that these reductions can and should be absorbed by the cities through spending restraint rather than raising property taxes." The $294 million cut for 2004 may not be the end of the cuts. Cities will be encouraged to participate in an LGA reform effort. If an "acceptable formula" is not enacted, another substantial reduction in state aid would occur. At this time, we do not know what might constitute reform and we do not know how large the penalty might be. Levy limits, referendum, and reverse referendum Making the budget proposal even worse, severe levy limits would be imposed. Although we do not yet have detailed information on the specific structure of levy limits, they are described as "strict" in the governor's budget documentation. Apparently, cities will be allowed to ask their voters to exceed the state-imposed levy limits through a revised referendum process. However, elsewhere in the governor's budget documentation he is also proposing a "reverse referendum" process that would allow voters to reverse a levy increase decision of the city council. This process appears to allow voters to appeal not only normal budget-driven tax increases but also tax increases to replace state aid cuts. It is unclear if voters could approve a levy increase through the referendum process and then later reverse that decision with the reverse referendum process. Salary freeze The governor is also recommending a salary freeze for all state and local government employees. The details of the freeze, including how it would affect existing employee contracts are sparse at this time but we suspect that the salary freeze will be considered by state officials to be tool to help local governments address the impact of state aid reductions and to avoid employee layoffs. Other points for city officials to consider: · State aid to cities is only 5 percent of the state budget, but the cuts represent 10 percent of the governor's proposed budget solution. · Net state aid to cities would be temporarily reduced by $139 million in calendar year 2003, and then permanently reduced by $294 million beginning in calendar year 2004. · The governor indicated the total state budget will still increase by more than $1 billion under his plan. In contrast, the aid cuts and levy restrictions placed on cities will force some communities to actually cut their local budgets. · The governor stated that cities were not affected by last year's budget balancing plan. In reality, the tax increment financing (TIF) grant program, which would have provided up to $200 million in assistance for TIF district deficits caused by the 2001 tax reforms, was used last year to balance the state deficit. In addition, the LGA reform account, that would have provided $14 million per year to implement reform was repealed. Only one year earlier, aid to cities was reduced by $60 million under the 2001 tax bill. http://www.lmnc.org/main/lmcstory1.cfin 2/26/2003