I have done a number of governmental budgets and one thing I can say is that
they are never balanced with rhetoric. It is easy to say that you want
"world class services" and at the same time say you want to "turn off the
money tap." (both quotes from your post) These are things we all want.
There is nothing more telling about a politician then where they allocate
dollars and staff. I personnally believe it is the hardest thing a
politician can do. I challenge you to put out a budget, a real balanced
budget that meets the criteria that you have set in this post.
In this post, you make many inuendos about inadequacies of Mayor Belton's
budget. You allege that she has not been doing an adequate job planning for
the City's budget. You allege that she has been selling out our future by
pushing off costs. You allege that she has not been creating a vision for
the budget. Nothing could be more from the truth. When the Mayor did her
first budget in 1994, she inherited a budget that had been facing
substantial declines in revenue. Overbuilding in the downtown and the
economic downturn in 1991 and 1992 substantially reduced property tax
revenues coming to the City. Over the next several years, revenues slowly
increased, almost reaching the pre-recession levels. Then the Legislature
began giving tax breaks to high value homes, to commercial/industrial
property, to rental property. Again, a downturn in revenues to the City.
So through most of her tenure, she has had to contend with cut-back budgets.
How idd the Mayor respond? She created a process to systematically evaluate
services and to find savings. What were some of the savings? The city
studied its fleet services which provides cop cars and fire trucks and dump
trucks and snow plows. It found that the fleet was too old and costing us
too much and if it modernized the fleet and replaced the 65 year old garage
with something more efficient, it could lay off one-third of the mechanics
and pay for both the fleet modernization and the garage and save several
million per year. It closed its dental and health clinics and contracted
with providers in the neighborhoods, serving more people better
at a cheaper cost. It merged our WIC services with the County's to reduce
overhead costs. It had staffed street maintenance and snow plowing with a
complex union contract that people worked 7 months a year and got paid for
11. The Mayor herself sat down with the union leadership and got a new
contract and now these people work 12 months a year and get paid for 12
months of work. It improved our risk mananagement and saved $500,000 a
year. It put in a new financial system and sold bonds and paid for it by
the savings we were to recapture in staff and service efficiencies. I could
go on.
Is this sexy stuff? Is this the kind of exciting thing that get the Mayor's
face on the TV news? Let me tell you, fleet replacement plans and risk
management programs and union negotiations are about as dull as government
service gets. But it is the kind of stuff that Belton has focused on to be
able to have a responsible budget. It is the workhorse kind stuff that is
her trademark. Not flashy. Just responsible.
Not only was she able to bring in the budgets to meet the shortfalls in
revenue but she was also able to find a little money to invest. She
invested first in additional cops and attorneys. The results of this are
clear in the double digit declines in crime we have seen the past several
years. She then invested in infrastructure, as you noted. She invested in
moving to a pay-as-you-go capital program which will save substantial
amounts of money in the future. She invested in improved street sweeping
and beginning a graffiti program where there was none before. Is this as
much new service as some folks would like? No. But it was what we could
responsibly afford.
The financial institutions have acknowledged this vision and leadership.
Even during the downturn in revenues, the City has maintained a AAA bond
rating. This means that national financial institutions have acknowledged
that Minneapolis has the highest level of financial management. Only a
handful of cities our size have this distinction.
There is no secret financial problem. There is no financial crisis. There
is no lack of disclosure. There is just the same on-going problem of
fitting demands to available resources.
Carol Becker
Longfellow
PS I wanted to respond to a couple points in your post that were factually
inaccurate.
Lack of priority-setting in the budget:
>There is no real effort to unpack the entire bundle. Even in cities which
>have attempted to identify core services, set real priorities and make cuts
>accordingly, these attempts have largely failed due to lack of leadership
>and lack of or failure to create common values. Moreover, the idea of
>systematically evaluating government's output - for efficiency, quality,
>coherence with public demand or whatever -- is apparently a cutting
>edge idea in public sector management.
Mayor Belton created a process for systematic evaluation of Minneapolis
services and for building a coherent vision of the service provided by the
City. She created the "Priorities Process" where every service is evaluated
for its "ripeness" for service redesign. Each service is ranked on whether
it is a high or low priority, whether it meets the goals set out by the
Council or not, and on whether the service is being effective or not based
on its performance information. From this, services which need redesign are
selected. Cross-departmental staff teams are formed to look at the service
and put together a proposal for changing the services. Sometimes their
proposal is to get rid of the service, or give it to another entity or to
change the work processes or invest in automation. From here, the Mayor
reviews the proposals and then uses them as the basis for her Priorities
Speech in August. She also gives departments direction on how to submit
their budgets. The Council also reviews these proposals and gives input on
their development. Based on this, the Mayor develops her budget and
presents it to the Council. This process worked so well to build a unified
vision for the budget, for the 1997 budget, the Council made two changes to
the Mayor's $1 billion budget.
Also, "systematically evaluating government's output" in modern governmental
management finds its source in the program budgeting starting with the
Department of Defense budgeting in 1960. (Aaron Wildavsky "The Politics of
the Budgetary Process" 1984 - arguably the most important book written on
government budget and politics). You will find performance information in
the earliest Minneapolis budgets books and those go back to 1978.
Public Safety Initiative
> In her Budget Framework Address, the Mayor said that "Our 2001 budget
> will include $500,000, the first of a three-year commitment to make this
> investment in public safety happen." As I interpret this (and again, I
> have no additional information from her), this looks like the first $500K
> in new tax toward the total of the $1.5M needed in new money. What the
> Mayor does not mention is that once we ramp our commitment up to the
> $1.5M level, we will be paying that $1.5M yearly payment every year for
> the next 27 years!
Virtually all of the streets in the City, all of the Fire Stations, Police
Stations, Park Improvements, Library Buildings, storm sewers, water mains,
storm water ponds - in short virtually all of the City's infrastructure has
been financed with bonds. There is no secret here. Our capital program is
funded primarily with bonds and has been since the City was established.
Also the costs ramp up because you don't need all the money in the first
year. You are building stuff and you don't spend everything in one year.
Internal Service Funds
> So, what happened here? Our internal service providers did the work but
> didn't get paid because the "client" departments didn't have the money to
> pay the bill. It became like a huge accounts receivable problem. The
> total, cumulative deficit, according to Note 17 in our 1999 Financial
> Report, is $32.316M.
First off, this deficit is really more like $8-$9 million in real dollars
and has existed for over a decade. It is because of problems with setting
chargeback rates that stretch back to the Fraser administration.
Regarding the $32 million number from the financial statements, if you go
back to your governmental accounting book, you will see that much of this
deficit is related to having to disclose the maximum potential liability
for all of the lawsuits against the City. I believe it is GASB 34 which
requires disclosure of this. (accountants out there?) It isn't something
that we will end up paying. Also I believe that GASB 34 requires showing
the total outstanding debt as a liability. So the bonds issued for the
Public Works garages which will be paid from savings from reduced staffing
would also show up as a deficit but not something to worry about.
Inflation
>Second, in doing its budgets, the City departments have not accounted
>for the inflated cost of supplies for years.
The Mayor for the last several years challenged departments to find small
savings to help balance the budget. To trim here and there rather than
making dramatic cuts. And it has been successful in helping to trim the
budget. You are right in saying that this cannot be done infinitely. It
also isn't done across the board. When departments have not been able to
accomplish this, they have not had to.
----- Original Message -----
From: bwslane <[EMAIL PROTECTED]>
To: Multiple recipients of list <[EMAIL PROTECTED]>
Sent: Wednesday, September 13, 2000 4:55 PM
Subject: City Budget -- Answer to Peterson and Brauer Questions
> Mr. Peterson asked for some clarification on the Budget Office's
> responses to Mike Hohmann's questions. Mike wanted information on what
> the Mayor proposed to do about planned investments in infrastructure,
> public safety, internal service fund cash deficits and affordable
> housing. I can't speak for the Mayor, but I will try to translate the
> responses since I posted them.
>
> A couple of preliminary points. First, government accounting and
> government budgeting is not directly analogous to private-sector
> practice. If you want to know the details, I will refer you to KcKinney,
> Jerome, Effective Financial Management of Public and Nonprofit Agencies
> (2nd ed. Quorum 1995).
>
> Second, I can try to explain this, but it's probably more than you want
> in an e-mail post and may raise as many questions as it answers. I was in
> a graduate course at the Humphrey Institute last winter to get an
> overview, but I certainly don't claim to be a public finance expert. With
> that proviso, I'll try my best to explain.
>
> Third, since it is closely related to the above, I will respond to Mr.
> Brauer's question regarding my reaction to the Mayor's budget speech (I
> referred to it as a missed opportunity and a recipe for trouble). I
> apologize in advance for the length of this post.
>
> Question 1: What is the City's plan to deal with its infrastructure?
>
> As the Budget Director noted in her memo, in 1997, the City released a
> 200 page report entitled State of the Public Infrastructure. Sadly, this
> does not appear to be on the City's web site, although it is available at
> the Municipal Information Library. I'll see what I can do to post at
> least the executive summary and the introduction on my City web page.
> I'll notify the list if it goes up.
>
> The report concludes that "The City of Minneapolis is not facing an
> imminent infrastructure crisis." However, the task is to set "current and
> recommended funding levels to sustain the infrastructure and a finance
> process designed to correct deficiencies over a relatively short time
> frame (20 years or less)."
>
> In 1997, we were about $74M behind in maintaining our infrastructure, not
> including Parks and Libraries. So, the problem is how to dig out of the
> hole. The council (before I got here) chose to eliminate half of this gap
> (which is really just a bunch of projects which need to be done) over
> five years by making an installment payment toward these projects each
> year.
>
> The first challenge is financing the payments. The city has two choices,
> either borrow the money (that is what the Budget Director referred to as
> the "net-debt bond program") or, generate the cash flow to "pay as you
> go". Cities borrow by issuing bonds and we have to pay interest on the
> principal over time. Thus, pay-as-you-go financing saves the city
> interest charges in the long run (here, $17 million or about 30% added to
> the cost of the capital projects themselves). The trade off is that you
> must have the cash flow to make the payments now instead of spreading
> them out over time as you could if you had borrowed.
>
> The city decided to stop borrowing to do these projects ("eliminate the
> net debt bond program") and use pay-as-you-go financing to fill half the
> gap in five years. The trick here is you have to commit more money each
> year to ramp up your overall commitment to infrastructure.
> Hypothetically, $2M in 1999, $4M in 2000, $6M in 2001 and so on.
>
> Now, the next problem is where does the money come from. The Budget
> office memo mentions two kinds of sources. In the above hypothetical, you
> can see that it is better to ear-mark a part of the overall City revenues
> each year to deal with infrastructure. By doing so, you make it a
> more-or-less permanent part of the budget. In contrast, one-time-money
> (lets say, from the sale of an asset) helps you make the payment in this
> year's budget but does nothing to permanently ramp up the commitment to
> infrastructure.
>
> So, in 2000, the Council earmarked $4.8 in property tax revenue to close
> the infrastructure gap. It allocated $1.8 million to wean the whole
> package off of borrowed funds and on to pay-as-you go.
>
> Question 2: How are we going to pay for the "Public Safety Initiative"?
>
> The Public Safety Initiative is going to cost $30M over five years. We
> don't have a final cost or finance package, but we are going to borrow
> some of the money ("bond proceeds"), shift some current revenue from
> other activities ("Current property tax levy"), sell some stuff, use the
> money and reallocate some savings from another part of the operation. If
> the savings aren't enough, we would need raise more tax money (over and
> above that which is currently levied) to make up the difference. In
> order to pay back the money we borrow, $4.5M, with interest, we'll need
> new tax money. Finally, we need more tax money on top of all that; $1.5M
> to be collected in three $500K chunks.
>
> In her Budget Framework Address, the Mayor said that "Our 2001 budget
> will include $500,000, the first of a three-year commitment to make this
> investment in public safety happen." As I interpret this (and again, I
> have no additional information from her), this looks like the first $500K
> in new tax toward the total of the $1.5M needed in new money. What the
> Mayor does not mention is that once we ramp our commitment up to the
> $1.5M level, we will be paying that $1.5M yearly payment every year for
> the next 27 years!
>
> Question 3: Internal Service Fund Deficit
>
> To understand this problem (remember, you asked) you have to understand
> something about governmental fund accounting practices. In this context
> "fund" does not refer to money, but to a particular pot of money. For the
> details, I recommend to those hearty souls still reading this post that
> you refer to pages 48-52 in McKinney's book.
>
> Government accounting is structured into funds, each of which has a set
> of self-balancing accounts. The "General Fund" is one. It is the City's
> general checking account, sort of. Internal service funds are another
> kind of fund. There's a dozen more.
>
> According to McKinney, "Internal service funds account for the financing
> of goods and services provided by one department or agency to other
> departments or agencies or a governmental unit on a cost recovery or
> reimbursement basis . . . ." McKinney, p. 49.
>
> So, what happened here? Our internal service providers did the work but
> didn't get paid because the "client" departments didn't have the money to
> pay the bill. It became like a huge accounts receivable problem. The
> total, cumulative deficit, according to Note 17 in our 1999 Financial
> Report, is $32.316M.
>
> What are we doing about it? In 2000, we identified $2M to pay this off
> and another $2M in cost reductions. The workout plan is not finalized
> but, as you can see, the issues are very similar to those presented by
> the infrastructure gap. Where is the money going to come from? How do we
> finance yearly payments which ramp up our overall commitment to filling
> the deficit? Can we pay-as-we-go? Must we borrow?
>
> Question 4. Affordable Housing.
>
> I posted the MCDA's response to this question separately.
>
> Believe me, these are just a few of the many challenges, financial and
> otherwise, which we face.
>
> A Recipe for Trouble:
>
> The lesson I take away from the above is that (surprise!) there is no
> such thing as a free lunch. City services, no matter how necessary or
> desirable, must be paid for in full, if not by the present taxpayers,
> then by our descendants. That common-sense message simply does not seem
> to sink in down here.
>
> In order to deal with deficits, gaps and over-obligations of the past, we
> have three choices: raise revenues and/or cut programs and/or find
> efficiencies. The City budget process establishes a "current service
> level", the total bundle of goods and services funded under the current
> year's budget. In preparing for next year's budget, the city moves the
> current service level forward (although not entirely in real dollars),
> adds some services and (perhaps) deletes others. Once passed by the
> council, this becomes the new current service level and the core for the
> following year's budget consideration. There is no real effort to unpack
> the entire bundle. Even in cities which have attempted to identify core
> services, set real priorities and make cuts accordingly, these attempts
> have largely failed due to lack of leadership and lack of or failure to
> create common values. Moreover, the idea of systematically evaluating
> government's output - for efficiency, quality, coherence with public
> demand or whatever -- is apparently a cutting edge idea in public sector
> management.
>
> Again, there is no free lunch. If we want it, we have to pay for it -- if
> not now, eventually. Like everyone else, the City's cost of doing
> business is subject -- at a bare minimum -- to inflationary pressures. If
> you think we are offering exactly the right mix of services and products
> at complete efficiency, the whole package will still cost 1-3% more next
> year than it did this year. New services and products (like graffiti
> abatement) are extra.
>
> Ignoring inflation has a huge impact on the city's tax policy. If you
> paid $100 in taxes last year, can you really object to paying $103 this
> year if the annual rate of inflation is 3%? It costs you nothing. It
> simply moves the "current service level" ahead in real dollars. Yet, we
> fail to do this. Actual levies from 1990-1996 failed to keep pace with
> inflation. Increases since 1996 have not (as of yet) brought us back to
> where we would have been had inflation been taken into account. Thus,
> while we continued to spend, we weren't even taking in enough revenues to
> do the prior year's work.
>
> Second, in doing its budgets, the City departments have not accounted
> for the inflated cost of supplies for years. Departments are having to
> pay 1999 electricity bills, gasoline bills and the like with allocations
> which, even if adequate years ago, haven't been adjusted for inflation
> since. Add to this a policy of internal across-the-board 3% cuts, cuts in
> state aid to local governments, unfunded mandates from other levels of
> government and demand that localities pick up service gaps left by other
> levels of government (like affordable housing) and I think we can all see
> why we're in this mess. You can absorb these costs for only so long
> before the whole house of cards collapses. That's all before adding one
> dollar to new services, whether we need them or not.
>
> Why don't we want to pay more taxes (assuming we all could afford to)?
> Because we don't trust government to use the money wisely. Therefore, we
> conclude that we are already paying too much. We look at the Schubert,
> Block E, the Target Store and others and wonder what the hell is going
> on. We suspect that government is not efficient. We object to the mix of
> goods and services produced by government. We don't think anyone listens
> to us even when we complain loudly and clearly (NRP Phase II).
>
> We've borrowed from our future and now it's time to start to pay back.
> And it's going to hurt. Regressive property taxation is going hurt people
> on fixed income as the largest generation ever prepares to retire. It's
> going to hurt poor people as they try to engage the best economy ever to
> try to pull themselves up into self-sufficiency.
>
> So now what?
>
> The Mayors' speech didn't go far enough to level with all of us about the
> true magnitude of this problem or the sacrifice required to solve it.
> We're in trouble, that's clear. Only decisive and committed leadership
> will get us out of the deep weeds.
>
> We need to level with taxpayers. This is the only way to earn their
> trust. We need to explain exactly where are we and exactly what do we
> need to do to go where we need to be. We must establish what level of
> financial health we want to have and establish a plan to get there. How
> will the plan be implemented and who will be responsible for seeing it
> through? We must clearly state how much flexibility we will have each
> year, if any, for new programs. I'll bet that it's darn little.
>
> The council and the Mayor need to level with one another. We have a
> global economy, we're a regional financial center and we're still focused
> on wards. E pluribus unum, today. We need to develop a real strategic
> plan and effective priorities based thereon. It's time to stop doing
> deals and start doing policy. It's time to focus politics on what we hope
> to achieve, what goods and services we plan to deliver at what cost, and
> depoliticize how these services are delivered.
>
> We need to level with our managers and employees. It is time to change
> how we do business; radically and right now. We must boost efficiency,
> quality and customer satisfaction and be able to prove to the world that
> we did. We must offer world-class products and services or none at all.
> No more under-funded, half-hearted programs. Enough is enough.
>
> We need to level with the legislature and see what can be done to
> reestablish fair tax policies and aid to cities throughout Minnesota. Our
> fates are linked. So go the cities, so go we all.
>
> Our outgoing Finance Officer said it last year: "We have got to stop
> spending." We have got to stop promising more than we can deliver.
> However, the conventional wisdom seems to be that those who turn off the
> money tap, justified or not, will lose their jobs. Those who raise taxes,
> justified or not, will lose their job (just ask President Bush). The
> truth is that we might have to do a lot of both before we get through
> this problem.
>
> In the end, it will be up to the voters. You all out there have to
> support elected officials who will risk enough to lead; who will risk
> enough to tell you the truth even though you might not want to hear it;
> who will tell you both "yes" and "no" when the time is right to do so.
> Will you support us if we decide that Your Issue (whatever it is) is just
> not going to be a City Priority, considering everything else which is on
> our collective plate? If you don't get your variance, can we still talk
> about affordable housing? It's up to you.
>
> Change is in the wind. We can leverage it or it can crush us. We still
> have a chance to pull this all together. But, the longer we wait, the
> fewer options we have. It won't be easy; it might not be pretty and many
> of us stand to lose in the short term for the sake of a solid, stable
> city in the future. Shall we at least try?
>
> "First ponder, then dare." H. von Moltke.
>
> Barret W.S. Lane
> City Council -- Ward 13
> Minority Leader
>
