Gov. Tim Pawlenty plans to use the remaining $155 million in reserve funds and trim $271.4 million in state expenditures to balance the state’s budget for the current fiscal year.

Through a process known as “unallotment,” the governor has the authority to reduce the amount of state spending to prevent a deficit.

Minnesota state law requires a balanced budget by the end of each two-year budget cycle.

The largest portion of the governor’s $271.4-million in spending reductions will come from human services spending.

The second-largest amount will come from local aids and credits to cities.

The third-largest share of the state spending cuts will come from aids and credits to counties.

The governor is reducing state aids and credits to counties and cities by $110-million. That amount will be deducted from a larger amount to be distributed to cities and counties Friday.

County aid is being reduced by 1.68 percent of each county’s annual aid plus levy. Four counties with populations of 5,000 will be exempted.

City aid will be reduced by $66-million or a state-wide average 3.03 percent.

Cities with a population of less than 1,000 will be exempted.

The city of Austin will see $452,110 shaved from its expected LGA amount.

Meanwhile, Mower County municipalities such as Adams, LeRoy, Grand Meadow and several other small towns, will see their LGA go untouched.

Jim Hurm, Austin city administrator, and Tom Dankert, finance director, said the city must prepare to make up the LGA shortfall and “continuing and deepening cuts” still to come.

“In the final days of the year, as a result of the governor’s announcement Friday, the city will receive $452,110 less in aid than had been budgeted for,” Hurm and Dankert said in a press release.

“As an agent of the State, the City, in good faith, spent the promised LGA funds during this budget year. Now we must make up the shortfall which can largely come from funds unspent from the 2008 budget, and from funds that were being set aside for capital projects in 2009.”

“During the upcoming legislative session, the state will notify us how much of a cut there will be in LGA certified to the city for 2009,” the statement cautioned. “In anticipation of continuing and deepening cuts to LGA we will be identifying potential reductions in operating budgets.”

“Families and business across the country are tightening their belts and government needs to do the same thing,” Pawlenty said Friday to explain the cuts. “These reductions in state spending reflect our priorities to protect funding for K-12 education, public safety, military and veterans.”

“As much as possible, we he worked to minimize the impact of these cuts by reducing accounts with surplus balances or excess funds that have not been spent or committed to project,” Pawlenty said.

“I also appreciate the legislature’s construction input that helped us arrive at these decision,” the Governor added.

Pawlenty’s “Friday fix” for the state’s short-term $426-million deficit had municipalities and counties waiting nervously on “pins and needles.”

There was nothing else they could do but wait.

Background

By statute, the governor has the authority to unallot the LGA and Market Value Homestead Credit (MVHC) payments due to the current biennium budget deficit.

The original estimated cuts were calculated by determining the percent of total city revenue base (certified levy plus certified aid plus taconite aid) represented by the total cut amount.

The resulting percentage was used to determine each city’s total cut amount, according to the League of Minnesota Cities (LMC).

The approved cuts were taken from, first, LGA, and then, MVHC, if there was not enough LGA for the cut.

The LMC’s estimated cuts to December LGA and MVHC to cities in Mower County were (LGA followed by MVHC):

Adams: $104,304, $19,158

Austin: $3,810,488, $299,844.

Brownsdale: $78,101, $14,342.

Dexter: $35,477, $

Elkton: $6,501, $3,274.

Grand Meadow: $131, $22,537.

LeRoy: $141,750, $28,038.

Lyle: $78,587, $8,171.

Mapleviw: $26,769, $2,870.

Ostrander: $25,768, $6,198.

Racine: $28,886, $7,494.

Rose Creek: $38.046, $9,779.

Sargeant: $5,590, $1,328.

Taopi: $3,311, $773.

Waltham: $18,351, $2,655.

Austin, the population center of the County, is the only municipality to suffer a reduction in state aid after Pawlenty plan was announced Friday.

Among area towns, the LGA and MVAC estimated amounts were:

Blooming Prairie:

$376,056, $37.299.

Hayfield: $200,320, $25,458.

Spring Valley: $437,560,

$58,403.

More reaction

Although they were spared the Governor’s spending reductions, city clerks in rural Mower County communities felt shaken after the announcement.

Jim Kiefer, Adams city clerk, said LGA, MVCA represents 50 percent of the city’s annual budget.

Kiefer, who is also Taopi’s mayor, said it also accounts for one-half that village’s budget.

Both municipalities are operating on tight budgets already. ‘I don’t know where we can cut anymore,” Kiefer said.

According to the city clerk/mayor, municipalities are limited on the ways they can increase revenues without raising their levies.

“They could raise water and sewer rates, I suppose, but how much revenue would that generate? In Taopi, we only have 17 homes,” he said.

Kiefer’s frustration with the state is growing. “I’ll never understand why the state makes us set our levies and budgets in September for the new year and then does something like this,” Kiefer said. “This is money we have budgeted for and now at the end of the year they threaten to cut it.”

His counterpart of LeRoy, Patty White, said she is doing her best to keep mayor-elect Kathy Farlinger “in the loop” on the looming financial crisis if more reductions in state aids and credits occur in 2009.

Farlinger takes office in January, replacing 16-year mayoral veteran, Ed Koppen, who did not seek re-election in November.

For small town mayor and council members, stretching available financial resources to provide citizens with the program and services they expect from city government grows more difficult all the time.

“That’s all we can do at this time,” White said. “Keep everybody up-to-date on what’s happening.”

“Whatever cuts happen, it will have a general overall effect on the city budget,” she predicted. “The council has already approved the 2009 city budget. They don’t act on wages until the new year.”

“If they act at all,” was the unspoken, but understood last words on the subject from the LeRoy city clerk.

Not to be ignored is Mower County, which expected before the Governor’s announcement Friday to lose the $1-million of the $2.2-million in Country Program Aid monies coming from the state.

It won’t be that bad, but it will cause some county spending reductions.

Craig Oscarson, county coordinator, said, much like municipalities, counties set their tax levies and budgets in September.

“We’ve budgeted for the $2.5-million in County Program Aid we expected to receive in 2009.”

Couple with the cuts to come to human services, Oscarson and the county’s financial team have their work cut out for them.

The governor’s decision is being digested by city and county financial experts.

“We’re all on pins and needles,” said Oscarson.

The Mower County Board of Commissioners does not meet until Tuesday, Dec. 30, the earliest opportunity for them to discuss the crisis.