Concern about a likely slash in state aid comparable to 2002-03 has Austin officials mulling how they will cope with the lack of funding, they said at their Truth in Taxation hearing Tuesday night.

A state deficit as much as $4 billion or more is expected; finance officials will release a budget forecast Thursday.

Tom Dankert, administrative services director, laid out the city’s proposed 7.08 percent tax levy increase for citizens during the hearing, a mandatory event if the proposed increase is above the state minimum. He said that approximately 3 percent of that increase will be covered by new residential and commercial growth.

With an operational budget of $29.27 million, Dankert explained that the city is heavily-dependent on local government aid (LGA). The looming question is how much — if any — of that aid will be cut next year.

“Folks, I read the paper every day and it’s not looking pretty,” Dankert said of the budget forecast.

The last large cut in LGA for Austin was in 2002-03, when the city suffered a $1.3 million loss.

Four employees were offered buyouts and their positions were not filled, fees were raised, expenses cut and capitol projects were postponed. Hearings were held in each city ward to explain the situation to citizens, Dankert said.

LGA accounts for 54.1 percent of the city’s annual General Fund revenue — $7.77 million for 2009 — compared to 64.9 percent in 2002.

Personnel costs are 58.8 percent of the city’s expenditures.

“It comes down to people being our major cost to the city of Austin,” Dankert said.

Dankert explained that for every dollar the average taxpayer spent in 2008, 33 percent went to the city, 43 percent went to the county and 21 percent went to the school district.

A handful of people attended the Truth in Taxation hearing; council members-elect and media equaled the number of citizens.

One citizen, Eugene Novak, asked if the city has considered cutting “extravagant” spending, like new fire trucks, and the street department’s “plowing concrete” and use of sand on slippery roads. He also questioned the city’s hockey arenas, and why they aren’t being utilized.

“There’s a lot of things we can cut in this community we don’t really need to have,” Novak said.

Dankert explained that rotating fire trucks and other vehicles is an “insurance policy” the city closely monitors.

The arenas, he said, are not meant to be money-makers, the city council had decided many years ago.

“In the end, they knew they weren’t going to make any money on the arenas,” Dankert said. “The ultimate goal was to be getting more things done in there.”

As for the street department, Dankert explained, “it’s darned if you do and darned if you don’t” when it comes to street maintenance in the winter.

“I’m quite certain after Thursday’s report we will be getting by much cheaper,” Dankert summed up in response to Novak’s questions.

Novak and another citizen, Mathew Simonson, had several jail and justice center-related questions that Dankert said were “for the county.” Mower County will hold its Truth in Taxation hearing at 5:30 p.m. Thursday.

Another citizen asked, when it comes down to it, will cuts amount to “projects or people?”

“What we’ll look at is everything,” said Jim Hurm, city administrator.

Dankert said the council would determine if there would be a hiring freeze, and would meet with department heads to decide — what — if anything — would be cut.

He said he doesn’t know when the city will find out how much LGA they will receive, but the budget forecast will be a good indicator of what to expect.

“We’re going to have to be reactionary,” he said.

“I’m a realist, people,” Dankert said at the conclusion of the hearing. “The state is broke.”

The city council will approve the budget and tax levy at its regular meeting Monday, Dec. 15.