State of MN Financing Local Government in the 1980's

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Special Report of VRT & CO. Page 2 The 1980's came in with a "bang" for Minnesota local government. The 1981 Minnesota Legislature had problems "balancing" its 1981 -1983 (July, 1981 to June, 1983) biennial budget. The magnitude of these problems became more severe as the calendar progressed through 1981 and 1982. With hindsight, the "balancing" problems faced by the 1981 Minnesota Legislature were nominal com- pared to those faced by the 1982 Legislature. To truly understand the effects of the State problem, we must review the events from • a historical (look -back) perspective. The State problem came to public and local atten- tion during the later part of 1980. At that time, it was viewed (by the State) to be a cash -flow problem rather than a budget problem. Accordingly, the State used cash -flow techniques to solve this problem. These techniques became known as "shifting ". More important, these techniques did not resolve the problem because the problem was one of budgeting and not cash -flow (i.e., State financial commitments exceeded available finan- cial resources). STATE BUDGETING amir The State of Minnesota operates on a biennium (two year) budget year ending on June 30 of each odd numbered year. During the later part of 1980, the State was compiling its budget for its June 30, 1983 biennium (i.e., July 1, 1981 to June 30, 1983). The January, 1981 recommended State budget for the 1981 -1983 biennium reflected the follow- ing major budget "shifts" or cash -flow techniques and /or solutions: • LOCAL GOVERNMENT AID - Delay the March payment until after June • RENTERS CREDITS - Delay payment of these credits from before July to after June Total $ 67,400,000 107,400,000 $ 174,800,000 The above "shifts" were considered sufficient to "balance" the 1981 -1983 biennium _ budget when this budget was originally proposed in January, 1981. As the 1981 Minnesota Legislative Session progressed, the State budget situation went from bad to worse. Not