Red Wing officials are sorting out priorities as they dive into planning for 2012 in the wake of state funding cuts and other issues.
At its meeting Monday, the City Council approved designating $709,799 from the general fund to cover about half of the Port Authority's cash deficit and more than $3.2 million to manage the incinerator's negative balance, among other financial decisions.
"My opinion is that we address known fund deficiencies that really are not going to be resolved without any direct action," Finance Director Marshall Hallock said.
The designations do not officially transfer the funds but are more for planning purposes. Still, Hallock pointed out some of the risks along with the benefits of the shifts. Funding has become increasingly unstable with continued financial uncertainty at the state and federal levels and other questions still lingering.
"It's a double-edged sword," Hallock said, explaining that while the problems need to be addressed at some point, the general fund can't afford to cover all expenses, especially given the recent volatility.
After taking into account existing earmarks, the city's general fund balance has about $4.4 million available for designation, Hallock said. Red Wing's reserve policy directs the city to keep 60 percent of budgeted expenditures on hand.
Council member Mike Schultz ultimately supported the move, but warned he thought it was premature given pending federal decisions.
"My guess is we're somewhere on the short end of that stick," he said. "I think we need maximum flexibility."
State cuts to Local Government Aid in recent years have risen, and the recent state budget deal keeps Red Wing's funds at the 2010 level for this year and the next. That means reductions of $1.6 million for 2011 and near the same for 2012 from originally certified amounts.
"The escalation is unprecedented and problematic," Hallock told the council Monday.
Red Wing officials have said LGA cuts likely could mean significant reductions of city services and could drive up local property taxes.
Council Administrator Kay Kuhlmann said the council's decision on designating funds would give staff direction as budgeting continues, and some council members agreed.
"This is just designating it," Council member Dean Hove said of the money. "Until those funds are transferred we can redesignate next week if we have to. ... We need to give staff direction on how to start lining up a budget."
Council President Ralph Rauterkus said the shifts can communicate the council's priorities.
"It is prudent of us to tell the public, 'This is where the money needs to go to cover those areas,'" he said.
The city is likely to face these discussions many times moving forward as staff and council members focus on budgeting for 2012.
The first public budget workshop, slated for Aug. 15, will center on general and special revenue funds.
The council will have to keep in mind many new fiscal realities, Hallock told members Monday. "The 'new normal' is year-over-year reductions in revenues to finance the services that the community relies on," he said.