The state government may be up and running again, but now the city of Austin must cope with the Local Government Aid (LGA) freeze put in place when the shutdown ended.

When Minnesota legislators voted to end the 20-day shutdown, they also voted to freeze LGA at 2010 levels, meaning Austin will miss out on more than $687,000 of its certified LGA amount for 2011, according to city Finance Director Tom Dankert.

Half of the city’s $7.1 million LGA check is scheduled to be sent to the city by July 27; the other half of the funds will be sent in December. The 2012 LGA payment will also be the 2010 amount, which is $7.1 million.

The LGA freeze coupled with the elimination of market value credit will create a loss of more than $1.3 million for Austin over the next two years.

“1.3 million dollars — that won’t be easy for the city of Austin to deal with,” Dankert said. “We are in the realms where we’ve never been before.”

Mirroring the decision Minnesota legislators had to make to balance the state budget, Austin City Council members will have to decide whether to cut services or raise revenue, or a combination of both.

“We have to make some decisions in the city of Austin, and my goal is to make that a long-term decision,” Dankert said. “It’s a permanent problem now. I don’t want to patch it up with duct tape and Band-Aids at this point.”

Mayor Tom Stiehm said although the LGA freeze will hurt, he’s glad the Legislature didn’t cut it further or eliminate it altogether.

“This gives us the ability to plan a little bit long-term,” he said. “We’ll have to see what the council will want to do with taxes and levies.”

Stiehm said its up to the City Council to cut spending or raise taxes.

“We have some other revenue sources we could look at, and some things we’re going to have to ax,” he said.

City Council members are scheduled to discuss next year’s budget at a work session following their 5:30 p.m. meeting on Monday, Aug. 1. From there, Dankert will continue drafting a budget for 2012.

“Any time you’re losing that much state aid, something has to give,” Dankert said. “We either need to find $1.3 million in revenue enhancements or (make) additional cuts.”