Cities throughout the state fear that a tax bill passed by the Minnesota House of Representatives on March 28 could mark a phasing out of local government aid (LGA).
The bill, which passed by a vote of 73-59, lowered state aid to local governments and cut income taxes.
According to the terms of the bill, the 2011 LGA for most cities would be funded, but the 2012 amount would be reduced to 2010 levels. Duluth, St. Paul and Minneapolis would all be weaned from LGA by 2015.
For Perham, that would mean going from the 2011 LGA amounts of $556,000 to $460,000 in 2012.
However, Perham City Manager Kelcey Klemm said that he expects Gov. Mark Dayton to veto the bill in its current form.
"I can't believe he'd let a bill pass that gets rid of LGA for both Minneapolis and St. Paul," Klemm said.
Even though the bill would have cities like Perham returning to 2010 levels of LGA, Klemm wrote in a memo to city council members, "state politicians have warned that cities need to 'wean' themselves from LGA."
Klemm gave several examples of what it would mean to Perham if the city were to completely remove LGA funding from its budget, which included:
Eliminating local police department and fire coverage ($579,454).
Eliminating the Parks and Recreation Department, the library, the Economic Development Authority, administration and planning and zoning ($553,759).
"I think everyone gets my point," Klemm wrote in the memo. "Eliminating $555,000 with cuts alone would be very difficult."
Klemm said that he thinks LGA is misrepresented in statewide discussions, and that it's important for people to realize the history of LGA in order to have an informed discussion about it.
LGA, Klemm said, was instituted back in the 1960s and 1970s because cities needed additional sources of revenue to fund basic services in order to keep property taxes down.
Gov. Mark Dayton's Revenue Department reported that by cutting LGA, the GOP tax bill would increase property taxes $900 million statewide.
Cuts to LGA in Perham would mean higher property taxes - potentially twice as high as the metro area, Klemm said, because of the smaller tax base in the local area.
In addition, cutting LGA would affect small business owners, who Klemm said are most strongly affected by property taxes.
Such a high property tax rate could influence whether local business owners stay or leave, he said.
The perception that cities can make do without LGA simply by living within their means is false, Klemm said.
"[LGA] is not some sort of extra cash to do fun things with - it's core services," he said.
If cuts do come down, Klemm said, Perham would be in an okay position thanks to its strong tourism base.
At the same time, though, the city might find itself at a sales tax disadvantage because of its lack of a big box store.
"Cities with big box stores like Wal Mart definitely are at an advantage in the sales tax system," Klemm said.
Like most people in the state, Klemm doesn't know what's going to happen in St. Paul, with both sides so far apart and Dayton threatening to veto the tax bill if it reaches his desk.
Klemm thinks that a government shutdown on July 1 remains a serious possibility.
But if the cuts do come, Klemm said Perham would be ready.
"We've always had a contingency plan in place," he said. "We've identified a list of items that we'd axe first."
Capital purchases, such as a re-paving of the Cal Miller Bike Trail, would be put off.
"There's a base cost to provide basic services, and we're already there," Klemm said.
Forum Communications writer Don Davis contributed to this report.