South St. Paul City Council election: Budget and debt

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South St. Paul was declared a federal disaster area about 30 years ago, after the closing of meatpacking plants cost the city more than 12,000 jobs. Is the city of 20,000 people now on the road to recovery or is it going downhill? We’re looking at the November city council elections with a series of four articles: South St. Paul’s city council race: Young Tea Party trio challenges incumbentsSouth St. Paul City Council election: Housing, crime and residentsSouth St. Paul City Council election: Business climate and developmentSouth St. Paul City Council election: Budget and debt. For a brief description of South St. Paul history and economic development, see South St. Paul then and now.

Part of South St. Paul’s current economic stress comes from big cuts in Local Government Aid, which is allocated to local governments by the state in a complicated formula including income, population decline, age of housing, vehicle accidents, and crime. When the state budget faces a deficit, the legislature then “unallots” some of the LGA funds, leaving cities to make up for revenue taken back by the state. City Administrator Stephen King describes recent history as “a roller coaster cycle of LGA cuts and unallotments.” King wrote in his 2012 Budget Process Report, “Out of the last nine years, the City received the promised [LGA] amount only four times.”

Incumbent city council member Dan Niederkorn says he has had to deal with budget cuts during his entire time on the council. “Every single year we have had to cut the budget. I hope to see the end of it,” he said.

Council member Christopher Lehmann said he would like to serve the citizens during its better days, “Now that we’ve gone through the really bad times, it’s starting to turn around and I’d like to be involved in that and pursue some of the projects that we didn’t get a chance to complete during that terrible financial crisis.”

City council candidates Mike Marschinke, 28, Shawn Meck, 28, and Nick Schaefer, 29, say that South St. Paul’s budget is in dire straits, including being in the red. Even before the last election in 2008, the city was spending more than they were taking in, said Marschinke.

“First things first,” said Meck “If we get elected, we need to cut [South St. Paul’s] debt. Make a surplus. There’s going to be a small area where [the city] is not going to be able to do projects because we can’t afford the project. But over time, we’ll create a surplus and we’ll be able to do those projects. There’s no reason to borrow the money to do it.  You constantly put yourself in debt and then you have to raise taxes to make up that deficit.”

The trio agrees they would pay off current city debt. “The less debt you have, the more money you’d have to spend on other projects. So if you have more money to spend on other projects without paying off debt. It’s just like personal finance. If you have 300 extra dollars at the end of the month because you paid off a credit card, you could go to Target and buy a TV,” said Schaefer.

According to South St. Paul’s Comprehensive Annual Financial Report for the year ending Dec. 31, 2011, South St. Paul had a total bonded debt of $12,135,000, a decrease of $1,276,000 from 2010.

Council member Lehmann said the city is in better shape now than a few years ago. “Recently our bond rating was upgraded two notches from A1 to AA2. I have worked hard to adopt sound fiscal policies, increase fund balances and reserves, and decrease debt capacity. This has all been done during times of extreme economic stress.”
Looking at taxes: no agreement

South St. Paul has the highest property tax in Dakota County, said Marschinke. Meck said the city is scheduled to have the highest property tax increase in the county next year.

“All the information we get is from Dakota County, that’s how we know we have the highest tax rate and what it is increasing to next year. It’s all laid out on the Internet. But the thing is, people don’t go on the Internet to find things on the local level. No one pays attention to it,” said Marschinke.

That’s not exactly true. Dakota County figures show that South St. Paul actually has the lowest property tax of any city in the county, not the highest. (It also has the lowest home values.) A proposed tax increase of 8.04 percent would be the highest percentage increase, but would still result in the lowest tax bill in the county.

City Administrator King’s Report said the 2012 city tax base was primarily residential at 77 percent and their commercial/industrial portion of 20 percent is primarily locked-up in tax increment financing. He said the recession, an almost fully built-out community and the challenges a former sprawling stockyards facility presents are some of the reasons for its difficult tax base development. In the City’s proposed 2013 budget, the residential tax base will represent 82 percent. At the same time, South St. Paul is experiencing the national decline in property values, leading to less property tax revenue.