Report: Minnesota local governments see rising spending, shrinking revenues

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(The Center Square) – Minnesota cities and towns saw rising costs and declining revenues in 2023, highlighting ongoing pressure on local budgets.

That’s according to the 2023 Minnesota City and Town Finances Report recently released by State Auditor Julie Blaha, which analyzed financial data from 1,659 local governments across the state for the calendar year ending Dec. 31, 2023.

The report found that property taxes remain the backbone of city and town finances. Since 2014, property tax revenue in Minnesota cities has risen 63%, while federal grants have grown 186% and state grants 50%.

Blaha said that means federal funding now plays "a significant role in shaping local budgets, so careful planning is essential for sustainability.”

Federal and state funding to Minnesota cities and towns surged during the COVID-19 pandemic but has since begun to decline. According to the report, 2023 marked the first time in five years that total revenues dropped, largely due to decreases in federal grants.

Blaha also raised concerns about potential federal policy changes affecting Minnesota, as previously reported by The Center Square.

“I worry with what President Trump has been doing with federal funding over the last year that we’re going to see a shift, a big shift, especially in Minnesota, where we have been a target of some of his economic attacks – and that has made a lot of that funding volatile,” Blaha told The Center Square in an exclusive interview. “I worry that Trump is really rocking the boat here, and I’m worried because we’re starting to take on water.”

She warned that federal and state funding changes can quickly ripple through local budgets, particularly for programs like SNAP and Medicaid, which in Minnesota are administered at the county level.

“When you’re cutting off SNAP benefits, it’s local food banks that feel that impact,” Blaha said. “It’s your local grocery stores where their customer base falls off, and that affects property tax collections.”

Blaha said the report also underscores how local governments are playing an increasingly significant role in residents’ daily lives.

“What I noticed is that we’re seeing how the local government is playing an even bigger role in people’s lives over time,” she said.

At the same time, local costs continue to rise. The report found total governmental fund expenditures increased 7% in 2023, reaching $8.3 billion.

Blaha said public safety costs are among the most noticeable increases.

“I think the cost increases in public safety have been notable,” Blaha said. “Anecdotally, we hear people talking about it having to do with things like shortages of law enforcement and some additional labor costs there. So much of the work that local government does is people.”

Infrastructure costs are also climbing. Roads, in particular, are becoming more expensive as material prices rise.

“We also see costs going up on roads,” Blaha said. “That’s just the cost of materials.”

Meanwhile, town finances have faced longer-term pressure. When adjusted for inflation, total town revenues have decreased slightly since 2014, while inflation-adjusted expenditures increased 16.8% over the same period.

Blaha said local governments are particularly vulnerable to shifts in revenue.

“It’s like pushing on a balloon,” she said. “If federal or state funding drops, they have to make it up locally, and that’s primarily property taxes.”

Blaha said the report provides lawmakers and residents insight into the interconnected nature of federal, state and local finances.

“These systems are deeply interconnected,” she said. “Every level needs to understand what every other level is doing. If you’re a state legislator, you need to know what’s happening at the federal level, because it affects the state and it affects your local communities.”

Blaha explained that local governments also have limited flexibility in their budgets because much of their spending goes toward essential services such as public safety, roads and emergency response.

“You can’t just say you’re not going to respond to fire calls this year,” Blaha said. “If streets are falling apart, you’ve got to fix them.”