INFORMATION #1 01-28-2002MEMORANDUM
TO: Mayor and City Council
Pat Klaers, City Administrator
FROM: Lori Johnson, Finance Director
DATE: January 25, 2002
SUBJECT: Proposed 2002 State Aid Cuts
As you all know, Governor Ventura is proposing sizable cuts is state aids to cities in an
attempt to deal with the State's estimated budget shortfall. The Department of Revenue has
calculated the proposed cuts for each city for 2002 and 2003. Elk River's proposed cut for
2002 is $317,722. The 2003 cut increases to $430,886. In 2003 the $200,000 growth-based
cut can be added to the levy with voter approval. The rest of the cut ($230,886) could be
replaced with property taxes in 2003.
If the Govemor's proposal passes, the City will need to deal with its own budget shortfall.
Program expenditures and personnel additions will need to be carefully evaluated and
monitored. Fortunately, the City has a healthy fund balance that, if necessary, will be able to
absorb this state aid cut. But it will come at a cost including a possible negative impact on
the City's bond rating, less Council flexibility to add new programs or cover costs, such as
natural disaster preparation or recovery, not anticipated when the budget was adopted, and
possible reductions in the City's level of service. With possible ongoing aid cuts, it will be
increasingly difficult for the City to fund its current service levels or add new programs,
particularly if the cuts are not included in the City's tax levy.
Finally, I will continue to monitor this issue as it works its way through the legislature. I am
sure it will be a frequent item of discussion for most cities until we know the end result and
then evaluate how to best deal with it. In the meantime, feel free to contact me if you have
any questions.