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2009 budget worrisome, 2010 looks worse

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news Cottage Grove, 55016

Cottage Grove Minnesota 7584 80th Street South 55016

It was a rougher-than-usual budget road for Cottage Grove officials last year, and the route ahead looks rockier yet, strewn with the remains of a housing market gone kaput, city leaders said last week.

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It was no easy task to keep budget growth down in 2008, officials said last fall, and 2009 looks much the same in light of a stagnant economy. But it's looking a little farther ahead that worries those running the city.

"I don't see 2009 as a horrific year," said city administrator Ryan Schroeder. The city "won't have to cut the guts out of any programs. 2010 is the year I'm worried about."

That's because roughly 70 percent of Cottage Grove's revenues come from its capacity to tax, and about 70 percent of the city's tax capacity comes from its housing market.

Last year saw just 67 new residential construction permits, down from a decade-high of 308 in 2004. New homes built in 2007 were roughly one-third of those built in 2006, and Schroeder said he isn't betting on a market improvement this year.

Officials are "still projecting a very modest year," despite seeing 13 new home permits in January and February, Schroeder said at last week's meeting of the Economic Development Authority.

So as much as cities felt the squeeze of slow residential growth in 2008 budgets, a second consecutive down year will likely mean Cottage Grove feels more of a pinch in the future.

"We're going to have (preliminary budget figures) at some point and they're going to look awful," said council member Pat Rice. "And we're not going to be able to do some things we thought we could three years ago."

Cottage Grove has "always had to be cautious and careful" when budgeting, Schroeder said, "but we've always had growth that has helped us along the way." Since 1960, the city has experienced only one other period where residential growth screeched to a halt, making the recent downturn nearly unprecedented in modern Cottage Grove.

Cottage Grove City Council members last week held the first of many budget discussions this year, aiming to give staff some direction as they begin preliminary work on what is expected to be a tight 2009 budget.

Already, the city has enacted a hiring freeze on seven vacant staff positions in a cost-cutting move. And plans for large projects like a new combined city hall and public safety building and often-discussed community center have been pushed back until the middle of next decade, at the earliest.

Mayor Sandy Shiely, in her final year in office, said she wants a community center "as much as anybody. I just don't know if it's something we can afford right now."

The goal in budgeting for 2009, Schroeder and council informally agreed, is the same as the previous year-- a no more than 3 percent increase in expenditures while driving down or holding steady the property tax rate.

Schroeder said the city is accustomed to the constant, steady growth in new housing as well as the value of existing homes. That, too, is gone, with many Cottage Grove homes seeing a drop in their market value -- and that means less growth, less available tax capacity and more headaches for city staff.

"There'll have to be some tough choices going forward," Schroeder said in an interview. "Decisions made for the 2009 budget certainly impact the 2010 budget. So we need to be cautious."

Jon Avise can be reached at javise@swcbulletin.com.

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