Report shows less revenue, less spending for MN cities

MARSHALL – Minnesota cities have been taking in less revenue and spending less in the past 10 years, according to a report on city finances released this week. State Auditor Rebecca Otto released the report, which looks at cities’ revenue, expenditures and debt in 2012, as well as tracking financial trends during the past 10 years.

Minnesota cities took in more revenue in 2012 than they did in 2011, and overall revenues grew from $3.84 billion in 2003 to $4.82 billion in 2012, the report said. However, adjusted for inflation, city revenue levels actually went down 9 percent between 2003 and 2012, the report said. Part of the decrease could be traced to cuts in funding sources like Local Government Aid.

At the same time, cities were also spending less to deal with cuts. The report said actual total city expenditures had grown from $4.64 billion in 2003 to $5.40 billion in 2012. But if adjusted for inflation, 2012 expenditures were down 16 percent from 2003 levels.

Cities were also making up for state funding cuts with property tax revenue, the report said. Cities with more than 2,500 people saw increases in property taxes in the past several years. The report said property taxes accounted for 40 percent of total revenues for larger cities in 2012.

The report notes that the biggest expenses for Minnesota cities are street and highway maintenance and public safety. That trend held true on a local level for the city of Marshall. In 2012, Marshall spent about $3.35 million on public safety, the auditor’s report said. That figure was the highest among several categories of current expenses the report tracked, including streets, general government costs, culture and recreation and housing and economic development. The city of Marshall also spent about $2.26 million on streets and about $2.27 million on culture and recreation, the report said. Marshall also had about $5.1 million in capital expenses for street projects in 2012.

Marshall City Administrator Ben Martig noted that the city’s culture and recreation spending can change from year to year. For example, he said, costs related to a big project like the construction of the new public library building could lead to a spike in cultural spending.

The auditor’s report found that smaller cities tended to keep a higher reserve of funds than large cities. In 2012, half of Minnesota cities with a population of less than 2,500 reported a year-end fund balance greater than 100 percent of their expenditures. The State Auditor’s Office recommends that local governments keep a fund balance of 35 to 50 percent of operating revenues.

In 2012, the city of Marshall’s fund balance was at a level of about 77 percent of city expenditures. Martig and Marshall Clerk/Finance Director Tom Meulebroeck said that was a good level – enough to help with cash flow and help cover unexpected expenses, but not so much that the city would be sitting on years’ worth of reserves.

Smaller cities also tended to carry more debt than large cities, the auditor’s report said. In 2012, cities with a population of less than 2,500 had a long-term debt of $3,096 per capita, compared to $2,044 per capita for larger cities. While the report said there wasn’t a single explanation for the higher level of debt, it noted that small cities have fewer taxpayers to help cover the cost of big projects like sewer and water treatment improvements.