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The state's budget deficit could delay or cut state funding for the city of Paynesville.

The League of Minnesota Cities recently notified the city that the governor either could delay or withhold entirely a $280,000 aid payment to the city.

Each year the state makes two Local Government Aid payments to cities, once in July and another in December. In 2002, Paynesville was allotted $570,000 in aid, almost 40 percent of the city's operating budget. While the July payment was made, the December payment is in jeopardy, according to the League of Minnesota Cities.

Since the state faces a deficit for its yearly budget, the governor has the power to cut or withhold payments. In a deficit situation, the governor can cut a payment entirely, or delay all the payments until the Legislature convenes and deals with the budget deficit. Or the governor could let the payments go out as scheduled.

The situation has been complicated because second half aid payments have already been made to flood-stricken areas of the state. This means there is less money to distribute to remaining cities, such as Paynesville.

Steve Helget, city administrator, said Local Government Aid is never a sure thing, but he has never seen payments withheld or cut in the ten years he's worked in local government. In recent years, the state government has run surpluses and aid to cities has been steady.

The aid payment was included in the 2002 city budget. If it is reduced or delayed, it could cause a budget shortfall for 2002. To offset a loss in aid, the city will likely take monies from its capital replacement fund and its economic development fund and use them in the general fund. These monies could be replaced if the aid is simply delayed.

The capital replacement fund is used to replace city vehicles and equipment. The economic development fund is used to attract new businesses to the community. If the city has to use parts of these funds for its general budget, replacing capital equipment may have to wait and the Economic Development Authority of Paynesville would have less money available for loans. Since the city only learned about the possible loss of aid recently, and won't learn for sure until the end of December (at the end of its fiscal year), it has not had the opportunity to cut other spending.

In 2003, though, the city is already planning to target spending cuts if state aid is cut. The League of Minnesota Cities had previously warned the city of Paynesville to anticipate cuts in its state aid for 2003. The city's budget for 2003 hasn't been finalized yet, but it has been proposed at $1,373,692. The city has also proposed raising its tax levy for 2003 but will look for ways to cut spending first.

The December aid payment is due towards the end of the December. Barring a decision by the governor before then, the city should learn the fate of its aid by then.