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Published on Friday, March 22, 2013

First budget proposals and impacts to cities likely unveiled next week

For months, AWC has been communicating with you and others that the partnership that has long defined the fiscal and service delivery relationship between cities and the state is about to be very seriously tested. Within days, we’ll see the first-out-of-the-gate budget proposals by the new Majority Coalition Caucus in the Senate and more details from the Governor revealing his budget priorities.

  • We anticipate the initial Majority Coalition budget proposals will include cuts to shared revenues and grant and loan programs important to cities of all sizes across the state.
  • We don’t know what level of detail the Governor’s proposal will include.

To help balance the budget last session, the 2011–2013 supplemental budget included across-the-board reductions of 3.4% to several shared revenues. In addition, liquor tax distributions were stopped through the end of the 2011–2013 biennium (but were mostly offset by a one-time sharing of profits from the sale of small liquor store facilities), and any growth in liquor sale profits was diverted back to the state, rather than being shared with cities. There also were diversions of revenue from various grant and loan programs. Efforts by cities to seek reductions in, or better management of, state mandates fell mostly on deaf ears.

Prior to proposing 2013–2015 biennial budgets, key policy makers waited to see and digest the second-quarter state revenue forecast. It came out earlier this week and the forecast was fairly flat, with an increase of $59 million for the current biennium and a decrease of $19 million for the biennium starting on July 1.

While this forecast was better than many expected, showing state revenue collections coming in close to pre-recession levels, the forecast did not improve the outlook for the continued funding of budget items important to maintain and operate cities. Why and what’s at stake for cities?

  • The state still has a revenue gap of roughly $1.3 billion just to maintain general fund programs and services at current budget levels. Add to that the state Supreme Court mandate for increased funding to K-12 education, and the gap likely doubles.
  • Divergent voices within the Legislature will soon sharpen their pens and messages aimed at balancing a budget and making political points. Some say it’s a spending problem, not a revenue one, while others believe that new revenue or eliminating certain tax breaks is the only way to maintain a proper array of services. That debate will intensify as the Governor is expected to identify his budget priorities or principles at the end of next week and the Senate Majority Coalition unveils its budget – possibly right before the Governor’s announcement.
  • Understanding and “doing the budget math” presents the most significant challenge. The chart below illustrates where the state’s general fund revenue is now spent and what it would take to maintain current spending levels in the 2013-15 budget. Note that two-thirds of the budget is “off limits” to cuts because of constitutional and federal requirements. That leaves only the other one-third in the more lightly shaded area ($11+ billion) to find cuts.

    • It’s not likely that further cuts will be made to corrections.
    • Higher education cuts would mean layoffs and higher tuition costs – not likely either.
    • Further human services cuts will be strongly opposed and, if significant, could have serious impacts on service demands for local governments.
  • That leaves the “Other” slice of the pie that funds most non-transportation expenditures for cities, such as liquor revenue, criminal justice support, sales tax streamlining, and Public Works Trust Fund and Model Toxics Control Act account allocations from the general fund. It is also the slice that funds the Legislature, many agencies, all natural resource programs, some education, and some transportation services. All together, these “Other” expenditures account for just under $3 billion spent in the current 2011–13 biennial budget – just about equal to the projected “gap” facing the Legislature.

In anticipation of imminent budget releases, the AWC Board is finalizing a letter to the Governor and legislative leadership that outlines city priorities and suggestions and reaffirms the importance of the state and local government partnership. Be on the lookout Monday, March 25, for an important message to you from AWC President Don Gerend.