Budget Woes Welcome in the New Year

Shortly after we approved our 2009 City budget we learned that the Governor was "unalloting" 13.1 million of the 41 million dollar payment we were anticipating in December.

In addition to the loss of Local Government State Aid we are also being challenged by Minneapolis’ closed pension obligations. Because of commitments made decades ago, the City must cover the pensions for some retired public employees. Because there are no new retirees who are entering into these pension programs they are called closed funds. For these closed funds, losses due to stock market drops in the 2008 calendar year are expected to exceed $38 million over the next 5 years. Unless the state is willing to reform its pension laws and merge these few older pensions into the larger state pension plan, the City must cover this loss.

The unexpected pension obligations together with the state aid cuts expected next year, mean that we will likely need to make significant changes to our budget in 2009.

Fortunately we have a reserve of about $50 million dollars, so we will be able use this to cover the lose of the 13.1 million. Then part of our work early next year will be making adjustments to our budget to replenish our reserves.

Of the City’s overall budget of $1.4 billion , the majority (about 75%) is restricted for specific uses, such as water utility, storm water, solid waste/recycling, and the Convention Center.

The City’s “general fund” makes up the non-restricted dollars and is about $374 million. The 13.1 million was to help pay for the following that make up the general fund:

• 48 percent for Police & Fire


• 11 percent for Public Works - street maintenance, plowing, etc.


• 18 percent for City Coordinator Departments, including the large Regulatory Services and Emergency Preparedness department that covers housing inspections, business licensing, emergency preparedness and animal control as well as Communications, Finance, Human Resources, Business Information Services, Intergovernmental Relations


• 23 percent for other City Departments, including Elections, Health and Family Services, Community Planning and Economic Development, City Attorney, Civil Rights and more.

Some highlights of the budget include:

1. An 8% property tax revenue increase for 2009. This is up from the Mayor’s original proposal of 6.9%, and will increase total property taxes collected by $2.6 million. I supported this both because of the anticipated cuts to state aid and because of unexpectedly high pension obligations.
2. Increased spending on road maintenance and infrastructure repairs by $5.5 million per year for the next five years. I supported this because I do not think we have adequately funded road repairs for many years and much of our basic public infrastructure is in desperate need of repairs. As road conditions worsen they are much more expensive to fix so fixing them now will save money in the long run and this is a way to reduce future debt for Minneapolis taxpayers. To cover these costs we approved tapping into a specially reserved fund, known as the Legacy (or Hilton) Fund (formed with proceeds from the sale of the Hilton Hotel several years ago). This was a difficult decision because this has been a source for discretionary development dollars, that have helped small businesses and improved our commercial corridors and nodes. In the end I agreed with the mayor that it is worth using it to pay for much needed transportation infrastructure improvements, including: $19.5 million to resurface 43 miles of streets and parkways and seal cracks and patching potholes in another 26 miles of streets; $5.25 million to replace 900 traffic light and street light poles that are corroded beyond repair, and repair 3,800 other poles that are at risk of corrosion; $2.5 million to make infrastructure improvements in Minneapolis parks, including construction of a new pedestrian bridge in Minnehaha Park.
3. We also approved $100,000 a year to maintain bike trails throughout the City, including snow removal and resurfacing of the Midtown Greenway and other trails. This is the first time we have set aside funding specifically dedicated to maintaining our bike trails.
   
4. After a good deal of discussion about how to divide up the revenues, we voted to re-authorize 100% of the TIF districts that are set to end in 2009. These districts are projected to produce up to $24 million per year for 10 years. This will provide funding, starting in 2010, for a new Neighborhood Investment Fund, for neighborhood association administrative support and Target Center debt relief. I fought unsuccessfully to exclude 3.5 million for a new "neighborhood commercial revitalization" program that was added in the last weeks of the budget formation. But I was successful in getting an amendment passed that stipulates that if the proceeds exceed $24 million some or all of excess may go to the Neighborhood Investment Fund.
5. The overall City budget directs $210 million for public safety, which includes the Police Department, the Fire Department, 911/311 and the City Attorney’s criminal division. That’s an increase from just under $200 million spent last year. $8.5 million will help implement the Youth Violence Prevention Plan and includes $75,000, (that was not in the original Mayor's Proposed budget) for Somali gang prevention and $75,000 for graffiti prevention grants.
   

Overall I think that we adopted a good budget. Unfortunately, these difficult economic times also make it difficult to be certain about future funding and so make it especially challenging. In the months ahead we will have to be mindful of the changing financial projections, especially of the anticipated cuts to state aid. I will also continue to to push for reform at the Legislature so that, even as we make sure to have the funds to fulfill this $38 million obligation, we can merge this group of closed pensions within the larger, less risky state retirement fund that is used by nearly all the other Minnesota public employee pension programs.