NORTH MANKATO — It’s not unanimous, but a consensus is forming around a 3 percent property tax hike in North Mankato — down from a 7.3 percent increase the City Council preliminarily approved in September.

Because of steep cuts in state aid to cities, a 3 percent levy increase will require nearly $421,000 in budget reductions, fee increases or accounting shifts — about $200,000 more than what’s necessitated with the 7.3 percent hike in property taxes.

Councilman Bill Schindle said he’d prefer to drop the property tax increase even further.

“I want to go down as far as I can, to be quite honest,” Schindle said. “In a household, if you lose part of your income, you make adjustments. You make cuts.”

Councilwoman Diane Norland was the one member of the five-person council who advocated sticking with the 7.3 percent increase recommended by city staff in September. Norland said the city may need all of that additional property tax revenue if Gov. Tim Pawlenty makes further cuts in city aid through special budget powers known as unallotment.

“I fully believe that Pawlenty will unallocate again if the courts don’t stop him,” Norland said.

The Republican governor made deep cuts and instituted accounting shifts earlier this year to deal with $4.6 billion in red ink for the current two-year budget cycle — prompting a legal challenge that argues he exceeded his authority.

In the meantime, state tax revenue has continued to come in at rates below estimates. State Rep. Terry Morrow, DFL-St. Peter, told the council Monday that rumors around the Capitol are that the state might see a shortfall of another $500 million because revenue isn’t matching projections.

“Could you be unallotted? Absolutely,” Morrow said.

Norland said that would force the city to make short-sighted cuts in key areas — including street maintenance — that will prove more costly in the long run.

“It’s investing in the future,” Norland said of the spending she’s looking to preserve.

Mayor Gary Zellmer suggested the 3 percent target.

“I can see ways to get to 3 percent without considering reductions of labor and cutting positions,” Zellmer said.

One proposal was to put all or most of a projected $150,000 anticipated surplus in this year’s budget into the 2010 general fund. The reasons for that surplus included lower-than-anticipated energy costs and good luck with weather, which means reduced snow-plowing expense, City Administrator Wendell Sande said.

Zellmer also suggested fund transfers from parkland and community development funds to the general fund. In addition, Zellmer and Schindle questioned whether the city could afford an additional library employee, which city staff proposed to help supervise a library that is undergoing an expansion in size of 60 percent.

Zellmer said the budget is getting tight enough that the 3 percent levy hike could result in some emergency cutting at the end of 2010.

“We’re going to have to talk about furlough days or something like that if we run into trouble,” he said.

Sande will bring the council the staff’s recommendations for additional reductions or other measures to reach the $421,000 target. A total of $205,000 in recommended cuts and borrowing have already been tentatively approved by the council, along with $8,000 in added revenue from higher rental housing licenses and a $7,000 increase in library funding from Nicollet County.

A final budget must be approved by mid-December.