The city of Ely has some tough decisions to make.

On the one hand, Ely’s city government has faced significant cuts in Local Government Aid in recent years, a collective total of more than $565,000 since 2008.

It’s also facing rising costs for energy and insurance, and a mounting bill for maintenance of its aging stock of city-owned buildings.

The city has made cuts to the budget, including the elimination of part-time workers in city departments, along with reductions of other staff through retirements and reassignments. That’s progress, but it’s going to take more as city officials grapple with additional cuts in LGA and the effect of the elimination of the homestead credit and its replacement by the new homestead market exclusion, which wipes out a notable portion of the city’s total tax base.

The city council reacted to this combination of factors back in September, and imposed a tentative 27-percent levy increase to help pay for the loss of state aid and the increased cost of city operations. The good news is that councilors this week announced they’d found additional budget cuts that will limit the growth in city spending to about 4.5 percent.

On the other hand, it still leaves Ely taxpayers, particularly commercial property owners, facing untenable tax increases during the worst economic downturn since the Great Depression. Ely councilors probably don’t need to be reminded of the difficulties of running a small business in the city. More than one of them has faced foreclosure or bankruptcy themselves in recent years.

The taxes that Ely businesses, or any business, pay must come from their sales, and the reality is, retail sales have declined in Ely over the past ten years. Back in 2000, city businesses reported a total of $112 million in sales, according to the Department of Revenue. In 2009, the most recent year for which statistics are available, sales totaled just $96 million. Compared in inflation-adjusted dollars, that gap is even larger. And the situation likely hasn’t improved much, if at all, since 2009, although we won’t know for sure until numbers are available for 2010.

These local businesses don’t have the option of raising taxes to make up for the drop in revenue. They have to cut costs in other ways when sales fall, or when unavoidable expenses like energy and insurance rise. There might have been a time when most small businesses had a little cushion to weather things like big tax increases. But after three-plus years of a poor economy, many small businesses are running on empty. A tax increase amounting to hundreds or even thousands of extra dollars is not just painful, it could be fatal for some local businesses.

All of our area’s main streets are hurting, as the vacant storefronts and the ubiquitous “For Sale” signs testify. Councils in other area cities have been cognizant of this reality, and have fought mightily to limit increases to single-digit percentages.

Ely’s whopping increase is out of step and signifies that city officials have much more work to do to rein in city spending. Progress has been made, but much more is clearly needed. The council can’t expect the city’s business community to bear much more.