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March 28, 2020

2/13/2020 8:41:00 AM
The State of Main Street - holding steady for now

The beginning of every year is a time to take stock and make plans.
In government, one way we do that is by sharing a "State of" address. The president has the State of the Union, the governor has the State of the State, but what do local governments have? I believe the work we do closest to home deserves the same attention we give to national and statewide issues - it's time for a State of Main Street.
At the office of the State Auditor our entire focus is local government. We oversee the almost $40 billion spent in townships, cities, counties, schools and special districts.
Local government finances
This year, we are using that focus to educate decision makers about the financial health of local government.
We analyzed our township, county and city reports to find key trends in local government revenues, expenditures and reserves. We shared those trends at listening sessions in Marshall, Albert Lea, St. Paul, Duluth, St. Cloud, and Thief River Falls. What we learned gives us hope...and pause.
Local spending
Over the past 20 years, overall local government income and spending has remained relatively constant when adjusted for inflation.
This is true despite external forces, particularly drops in state aid that challenged local governments to diversify revenue streams. That is a good sign: it suggests local governments are keeping a close eye on their finances and making adjustments when needed.
All across the state we heard a variety of ways local governments have responded to financial pressures: seeking new sources of revenue like grants, sales taxes, forming partnerships to share costs with other municipalities, and increasing attention to long-term planning.
Local challenges
We also heard that there are challenges for local governments on the horizon.
Aging populations, increasingly severe weather events like flooding and sudden surprises like unfunded mandates can shake the stability of local budgets.
At our Marshall listening session, we heard how important it is to use debt wisely to maintain aging infrastructure while keeping local taxes reasonable.
The bottom line
The bottom line is that local governments have been creative and effective in maintaining stable budgets despite external pressures.
However, we need to be aware there isn't much low hanging fruit left to deal with future fiscal pressures.
Based on our data and feedback from those closest to local issues, we have some recommendations to keep our local government finances stable. Local control has led to creativity and efficiency. Local governments need flexibility in how to apply resources and support partnerships between entities. Sudden changes are costly.
Governmental bodies that create mandates or make errors that affect other levels of government should bear those costs. Changes in state and federal aid levels have significant impacts, beyond just the total revenue shift.
Whenever aid levels and formulas change, decision makers need to take into account all of the financial effects.
Finally, good planning leads to cost savings. When local governments are able to plan ahead for challenges like our changing weather patterns and changes in their resident populations, they have more stable budgets.
The bottom line is this: the State of Main Street is holding steady. And if we give local governments the support they need, it can stay that way.

Julie Blaha is Minnesota's 19th state auditor. The state auditor is a constitutional office that helps ensure financial integrity and accountability in local government financial activities.

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