NORTH MANKATO — The ax falls today at 2 p.m. for somebody, most likely local governments, state colleges and Minnesotans relying on certain state social services programs.

“Are we going to have an unallotment party here at 2 o’clock?” North Mankato Gary Zellmer asked fellow City Council members Monday night.

“Bring checkbook, right?” Councilman Kenny DeWitte answered.

That’s the hour Republican Gov. Tim Pawlenty has scheduled to announce how he will deal with a $2.7 billion gap between revenue and projected spending in the next two-year state budget that takes effect July 1. Pawlenty chose to use his special unallotment authority, which comes to a governor when the state budget is out of balance, rather than call the Legislature into special session to attempt to negotiate a compromise budget solution.

For North Mankato city officials, Monday night was a time for gallows humor, expressions of frustration and a warning to residents that coming years are probably going to bring tax increases even while local government services decline.

City Administrator Wendell Sande warned that the cuts in Local Government Aid to North Mankato will likely be close to the $300,000 reduction Pawlenty proposed in January for the remainder of 2009. That comes on top of a nearly $260,000 cut in state aid made by Pawlenty through unallotment powers in December — a date so late in the city’s budget year that the spending cuts needed to be made in 2009.

The city has learned that, despite the levy limits imposed by the state, the unallotted state aid could be replaced by boosting property taxes in 2010. But if the reductions expected to be announced by Pawlenty today, along with the December cut, were replaced with property taxes, North Mankato residents would see a 12 percent hike in their city real estate taxes next year.

The news would be even worse in 2011, when the city could levy back the even steeper reduction in state aid that Pawlenty is expected to announce for 2010. If the governor sticks to his January budget proposal, North Mankato would see a $700,000 reduction next year and would need to boost property taxes 15 percent just to get even.

Sande said the estimates put the size of the potential state cuts in context, but North Mankato residents probably needn’t worry too much that property taxes will rise that much.

“I don’t believe the council will entertain an adjustment of that magnitude,” he said.

Instead, the council will look for a combination of additional budget reductions and tax increases. Zellmer voiced his chagrin that residents will assume that higher property taxes mean the city is spending more. In reality, city aid could fall to as low as $1.1 million by 2010 — less than half of the $2.3 million provided in 2002 just before Pawlenty became governor.

“Property taxes keep going up and up and up and cities aren’t spending any more,” Zellmer said.

The bad news, according to Sande and Zellmer, is that bad news is likely to keep coming. Pawlenty is expected to push more than $1.7 million in school payments back a few weeks so that they won’t need to be accounted until the budget cycle starting July 1, 2011.

In addition, Sande warned that K-12 schools will be facing an 8 percent reduction in the 2011-12 cycle because federal economic stimulus funding will disappear. If the next governor and Legislature decide to protect K-12 funding from cuts, the rest of the budget could be in dire straits again.

“So maybe at that point, you’re upside down by $3 billion,” Sande said.