CAMBRIDGE— If current revenue and spending trends continue and no policy changes are made, Minnesota cities of all sizes in all regions of the state will be broke by the year 2015, according to a study done by the Hubert H. Humphrey Institute at the University of Minnesota

The projection was released on June 24 at the League of Minnesota Cities’ Annual Conference in St. Cloud. From the city of Cambridge, City Administrator Lynda Woulfe, Mayor Marlys Palmer and council members Lisa Iverson and Bob Shogren were in attendance.

“There was this collective sigh from the whole audience,” Woulfe said.

Woulfe said representatives from cities of all sizes were represented at the conference.

“There were cities with populations of 100 and then Minneapolis and St. Paul were there too,” she said. “And they’re all sitting there saying, ‘yeah, we will all be in this boat.’”

According to the study, cities overall would see a deficit of 35 percent of city revenues by the year 2025. The study is entitled “Cities, Services & Funding: Broader Thinking, Better Solutions,” and the League will use it to spur dialogue on city services and how those services are funded.

Woulfe said at first mention of the study, she didn’t believe this could be the destiny of the city of Cambridge.

“We’ve done so well at long-range planning, we work our plan and we manage well,” she said. “Then I got the draft of our budget, and I’m thinking ‘we too could be broke by 2015.’”

That is, if current revenue and spending trends continue and no policy changes are made.

If cities reach the point where they are unable to pay the bills, agonizing choices would have to be made that would impact the day to day lives of Minnesota families, businesses and communities, states the report.

Cambridge’s budget

“The budget is a tough balancing act,” said Cambridge Financial Director Caroline Moe.

Why? Because the city must at all times be funding and managing at least seven different areas: equipment needs, fund balance reserve requirements, pavement management needs, economic development, service levels, state of Minnesota levy limits and council imposed levy limits.

The city gets their only paychecks from property taxes, local government aid (LGA) and market value homestead credit. These revenue sources accounted for 83 percent of Cambridge’s 2010 general fund budgeted revenue— and those checks come only twice per year.

“So whatever you have in the bank at the end of December has to last you until July,” Moe said.

Cambridge’s aid from the state has been cut in five of the past eight years— many of those times when the city expected to receive it.

“If we plan for LGA and it doesn’t arrive, we can create financial stress for the city, but if we don’t plan for it, we could potentially over-tax,” said Moe.

In the mid-1990s, the city of Cambridge was nearly bankrupt. Since then, staff has found a weapon against financial problems: planning 10 years in advance. This allows staff and the council to jointly set the best course for the city, said Moe.

In 2009, the city’s levy increased by zero percent. In 2010, it increased by 3 percent.

Given the economic times and hardships faced by taxpayers, the council has asked for a zero percent levy increase in 2011, Woulfe said.

“If we do that, it could make future increases higher— some 6, some 7, some 5 percent increases in future years,” she said.

Moe said the city is fiscally able to deliver a zero percent levy increase if that is what the council chooses to do, but it cannot be sustained year after year.

The outlook

“Right now we are assuming a flat growth model, because we don’t know what’s going to happen,” Moe said.

The study assumes a 3 percent increase in basic costs and no increase in service levels.

“We have all of our street projects and equipment purchases planned out for 10 years,” said Moe. “Again, it’s just to maintain— it’s not to add to our fleets or anything.”

Moe ran some scenarios to find out if this projection would be true for Cambridge.

The city would be receiving about $850,000 in LGA each year if they were actually receiving what is set in state law guidelines.

In the first scenario Moe worked out, she put the city at receiving 50 percent of the guideline LGA and implemented a 2 percent tax increase each year.

“When we looked at that by the end of 2015, our general fund is in the red by $113,000 which is completely what the League’s article was suggesting,” Moe said.

The city would make course adjustments in order to stay out of the red, but the city is “about out of tricks for what we can cut for equipment and what we can delay for street projects.”

Already this year, city employees had to choose to either take a salary freeze or 15 furlough days.

In scenario two, Moe put Cambridge’s LGA at 50 percent with a 4 percent tax increase each year. In that projection, Cambridge would be able to maintain operations and stay within fund balance requirements. City staff hopes the future of Cambridge turns out more like scenario two than scenario one.

The city of Cambridge currently maintains 16 parks and 55 miles of road. The miles of road maintained by Cambridge continues to increase each year as the number of staff who manage them stays the same.

Because the city is basically out of options for cutting road projects and equipment replacement, the only thing left to do is cut staff.

Since 2008, the city has already eliminated three full-time positions —a planner and two administrative assistants.

The future

Woulfe said looking ahead can be scary.

“However, I truly believe that we have some really dedicated staff and council who want to step up, address those concerns and prevent us from being in a crisis situation,” she said.

Woulfe asks citizens to take their tax bills and separate them out.

“There’s the school district, the city and the county listed on it,” she said. “Look at the portion that is your city taxes, and think about the value that you’re getting for those services. You’re getting police protection; you’re getting fire protection; you’re getting wonderful roads to drive on and sidewalk infrastructure.

“If your bill is $1,000 per year, think about the service that you get for that portion of your bill. Could you hire your own 24/7 security force for $1,000 per year? Sometimes those thoughts get lost in scale.”

As 2015 draws closer, cities around the state will be searching for answers to their budget woes.

A recent letter to the editor in the St. Paul Pioneer Press from an Inver Grove Heights resident who recently purchased property in Nessel Township in Chisago County addressed the idea of hiring private contractors to do city work.

“In getting permits, etc., I spoke with a city official,” wrote Maury Brown. “He stated they saved $70,000 last year by laying off two city maintenance workers, sold their equipment and contracted out the work to private contractors. This impressed me because every other city that I hear about is desperate for money, and this might work elsewhere.”

Woulfe said the same logic might not work for Cambridge.

“I believe the question of contracting versus having employees perform things such as snow plowing boils down to cost, consistency and timeliness of service,” she said. “With the 55 miles of road that Cambridge has to plow, sand and salt, it would be more expensive to hire a contractor to perform to the same standards as our employees do.”

Woulfe said city staff has penciled numbers from contractors in the past that have given them quotations on plowing parking lots and sidewalks, and the figures end up being more expensive if that same rate was used to plow the roads. Also, the city is prohibited from hiring private contractors to serve as police officers, due to state requirements.

One thing is certain as Minnesota cities head into the future, change is inevitable.