This week, State Auditor Rebecca Otto released her office’s annual report on city finances. The press release for the report can be found here and the full report can be found here.

The State Auditor’s key finding is that cities are responding to cuts in state funding programs, such as LGA, by relying more and more on property taxes. In fact, between 1999 and 2008, the report notes, revenues derived from property taxes have jumped 37% when adjusted for inflation.

But cities aren’t just increasing property taxes to combat reduced state aid and other economic factors such as declining property values. According to the State Auditor’s report, both city revenues and expenditures have decreased 7% between 1999 and 2008, when adjusted for inflation. This means that cities are spending less than they did 10 years ago, and as costs for items such as fuel, health care, and road maintenance balloon beyond inflation, a city’s dollar today doesn’t stretch as far as it did in 1999.

Moving forward into the 2010 legislative session, LGA and the viability of Minnesota’s communities will be a main topic of debate, to which the State Auditor offered the following caution:

The State is facing a large budget deficit. If the Legislature and Governor further cut local government aids, this will continue the trend of a greater reliance on property taxes,” Auditor Otto said. “I will meet with Legislative leaders to share this very important information for consideration in budget negotiations.

St. Paul Mayor Chris Coleman and Wadena Mayor Wayne Wolden, spokesperson for the Coalition of Greater Minnesota Cities, released the following statement in response to Governor Pawlenty’s decision to spare LGA from December unallotment:

We applaud and thank Governor Pawlenty for recognizing that Minnesota cities have hit the financial edge and additional cuts would jeopardize public safety and do further harm to our fledgling economy.

Over the past year we have done everything we can to speak out for cities across the state to show how critical services like police, fire, snowplowing, libraries and property taxes have been affected by continued cuts to local government aid.

Over the past seven years Minnesota cities have lost $754 million in LGA and the consequences have been profound-a 64% increase in property taxes and significant cuts to core services like police, fire, snow plowing and libraries.

As a major winter storm is bearing down on us, the critical role our cities play in the lives of our citizens is no more apparent than today.  Across the state, cities are battling the storm by plowing streets, dropping salt and doing everything we can to protect the safety of Minnesota families.   All of us know that this comes at a cost.

We look forward to working with the governor and the legislature in the upcoming session to ensure our cities will continue to be protected.

St. Paul Mayor Chris Colemand and Wadena Mayor Wayne Wolden issued the following statement today regarding the need for a special session to resolve the state’s $1.2 billion shortfall for the current biennium:

Today we are calling for an immediate special legislative session to address the $1.2 billion dollar budget deficit.

Minnesota cities are so close to the financial edge that any reduction in the December funding will spell disaster in the form of closed libraries, deeper cuts to police and fire protection and a sharp reduction in critical services, like winter snowplowing.

This is one of the most challenging times Minnesota has ever faced, with high unemployment and virtually no economic growth. Another hit to cities will cripple our communities and the effects will only worsen the state’s economy.

A special session is the only reasonable, rational and responsible option. There has never been a greater time for state leaders to drop political slogans and petty disagreements and come together to address the long-term financial needs of our state.

From Thank LGA partner www.greatermncities.org:

Today’s budget forecast projects that the state is facing a $1.2 billion deficit for the current 2010-2011 biennium and a $5.4 billion deficit for the 2012-2013 biennium. Documentation on the budget forecast is available here.

To close the current biennium’s $1.2 billion budget gap, Governor Pawlenty noted in a press conference today that he would prefer to work with the legislature on the final solution. However, the governor also cited that because the December 2009 LGA payment is due in a matter a weeks, it will likely be impacted regardless of the legislature’s input. This means the December LGA payment could be reduced through unallotment, delayed, or a combination of both.

In response to this news, Wadena Mayor Wayne Wolden, CGMC spokesperson and former CGMC president, issued the following statement:

“It is outrageous that all signs are pointing to local communities being asked again to disproportionately bear the burden of balancing the state’s budget. Communities are repeatedly targeted for cuts, yet the state’s long-term structural budget problems persist. It’s time to pursue meaningful solutions that actually improve the stability of Minnesota’s financial future.

“This news couldn’t come at a worse time for Minnesota cities. The result of additional cuts to LGA-on top of the $150 million cut from last June-will mean that Minnesota families will see even higher property taxes and deeper cuts to public safety, libraries, parks, winter snow plowing.

“Minnesotans have had it with the lack of leadership at the Capitol. It is long time for the governor and legislature to show some backbone and work together to address the state’s financial situation.”