Blue Earth City Administrator Kathy Bailey got the shock of her short career here when she opened the mail last Tuesday.

After having spent untold hours working on the 2009 city budget – and getting it passed by council the night before, a letter from the Minnesota Department of Revenue sent her reeling, and the city budget back to square one.

Bailey had prepared the budget using the figures from the state for Local Government Aid (LGA) – the amount the state gives the city. That dollar total had been increased from the current year, a nice surprise gift from the state. But what the state can give, it can also take away.

Bailey was preparing for a future disaster. She knew there was going to be a large state budget deficit – and she was right. Her fear is that the state can reduce the LGA increase, or eliminate it altogether. After all, if they haven’t got it, how can they send it to Blue Earth?

In fact, they could not only eliminate the increase, they could also reduce, or delay, payment of the original amount of LGA.

To prepare for that possibility, Bailey had already trimmed the budget, and proposed a three percent increase in the local levy, basically to build in a cushion for this future potential state fund cut.

The letter on Tuesday told her she, and the city, couldn’t do that. Because the state was increasing the LGA to Blue Earth, the city could not also increase their local tax levy. In fact, any local increase would mean a dollar for dollar decrease in state funds. The state, to paraphrase their intent, doesn’t want the city to have its cake, and eat it too.

The good news is local taxpayers won’t see an increase in their city taxes this year, and could actually see a decrease. The bad news is, local residents may see some serious cuts in services if the state comes back later and takes the cake away.

Our hope is the state won’t do that. However, with a record-breaking deficit to face, state legislators will have to slash somewhere, and we fear local schools and cities may not be safe from the ax.