ST PAUL &045; State Auditor Pat Anderson today released an annual report titled Minnesota City Finances, which covers revenues, expenditures and debt of Minnesota cities for the year ended, Dec. 31, 2003.

“Taken as whole, cities look to be in good financial shape,” said Anderson. “Most cities seem to be weathering the cuts in local government aid well.”

The report showed that statewide, city revenues in 2003 decreased 1.7 percent from 2002. However, total expenditures in 2003 increased 2.0 percent over 2002. Cities under 2,500 were much more dependent on intergovernmental revenues than cities over 2,500.

In 2003, intergovernmental revenues accounted for 39.3 percent of total revenues for cities less than 2,500 in population compared to 29.2 percent for cities over 2,500 in population.

The spending priorities of cities under 2,500 in population differed from those cities over 2,500 in population.

For example, cities under 2,500 tended to direct a greater percentage of their resources to general government (13.9 percent) and less to culture and recreation (7.2 percent) than cities over 2,500 (10.6 percent and 11.8 percent respectively).

In addition, streets and highways are the largest category of spending for cities under 2,500 (22.9 percent) compared to public safety for those cities over 2,500 (22.1 percent).

Another area where small and large cities differ is in their use of debt.

Overall, small cities tend to carry a greater debt burden than large cities.

In 2003, small cities carried long-term debt of $859.5 million, or $2,127 per capita, compared to $6.89 billion, or $1,865 per capita for large cities.

Unreserved fund balances

While total revenues decreased in 2003, the amount of money cities held in unreserved fund balances of general and special revenue funds actually went up slightly. At the end of 2002, the overall unreserved fund balance for cities was 54.5 percent of total current expenditures.

At the end of 2003, the overall average increased to 55.9 percent of total current expenditures. The State Auditor’s Office recommends that cities keep their fund balance somewhere between 35 and 50 percent of total current expenditures.

“Despite significant cuts in state aid, the amount of money cities held in reserve increased in 2003,” said Anderson. “In fact, 211 cities in Minnesota had unreserved fund balances that were over 100 percent of their total current expenditures.”

Reductions in local government aid and market value credits

2003 represented the first year of reductions in the level of local government aid and market value credits to cities as a result of the budget agreement that balanced the state budget.

The decrease in these two programs between 2002 and 2003 totaled $120.6 million or 3.1 percent of the total revenues raised by cities in 2003.

Among Greater Minnesota cities, the reductions in state aid amounted to about 3.2 percent of the total revenues they raised in 2003.

Even with the reductions in state aid, cities in greater Minnesota increased total revenues by 1.7 percent and total spending by 7.3 percent.

Unreserved fund balances increased 7.2 percent in actual dollars between 2002 and 2003.

Unreserved fund balances as a percent of total current expenditures increased from 71.5 percent to 75.8 percent.

Among metro area cities, the reductions in state aid amounted to about 3.1 percent of the total revenues they raised in 2003. The reductions in state aid to metro cities were part of an overall decrease of $90.4 million or 3.5 percent in total revenues. Total expenditures decreased 0.9 percent.

The unreserved fund balances of metro area cities increased $40.5 million or 5.5 percent between 2002 and 2003.

Unreserved fund balances as a percent of total current expenditures increased from 46.0% to 46.4 percent.

Revenues derived from property taxes increased 5.9 percent between 2002 and 2003.

“Cuts in LGA and the Market Value Credit were the biggest change to city finances in 2003,” said Anderson. “While many predictions were made regarding the effect of LGA cuts, one prediction that did not materialize was a decrease in spending among cities as a whole.”

City finances in Southeast Minnesota

Cities in the Southeast region of Minnesota generated $875 in total revenues per capita in 2003, down slightly from $878 in 2002. Statewide, cities generated $937 per capita in total revenues in 2003. Total current expenditures also decreased slightly in the region from $571 per capita in 2002 to $559 per capita in 2003. Statewide, cities had total current expenditures of $609 per capita in 2003.

“Total revenues and total current expenditures remained fairly stable in Southeast Minnesota cities in 2003,” noted Anderson. “The region remained slightly below the statewide average in both categories.”

As a whole, cities in Southeast Minnesota had fund balances that were equal to 57.6 percent of their total current expenditures. This is slightly above the acceptable range set by the State Auditor’s Office.

Several cities, however, had fund balances that were either very high or

very low.

“Citizens in cities with either very high or very low fund balances should press their city council members and city staff about their city’s fund balance policy,” said Anderson. “A very low fund balance could make it difficult for the city to cash-flow expenditures in the case of an emergency or fiscal downturn. A very high fund balance raises questions about why the city is holding so much money in reserve.”

The Southeast economic development region includes Dodge, Fillmore, Freeborn, Goodhue, Houston, Mower, Olmsted, Rice, Steele, Wabasha and Winona counties.

Regional analysis and comparison tool available online

In addition to the report, further regional analysis is available online. Tables and maps are available on the State Auditor’s website that show the per capita revenues, per capita expenditures, and unreserved fund balance figures for the 13 different economic development regions in the state.

The State Auditor’s Office has also designed a new online tool that will allow citizens to easily access a variety of information on city finances. The tool will allow users to perform side-by-side comparisons of cities, or to compare the same city in different years. In addition to the customary financial data (revenues, expenditures, debt, fund balances), the tool will also include information on the number of full-time and part-time employees within the city. Much of the information is available in a per capita format to allow for easy comparison, and includes rankings of how cities stand. The data is also available for downloading in its entirety.

“This new tool will allow users to more easily access information on the finances of their city and to compare the data to that of other cities,” said Anderson. “This will be an invaluable accountability tool for citizens.”

The online search tool and a PDF version of this report are available for download and viewing by the public at www.auditor.state.mn.us.