Part 1.
More bad news on the Mpls. budget scene according to recent article by
Rochelle Olson in the STrib-- The city expects a deficit of $22 million by
2025 in the revenues they use to pay off the Target Center bonds. Then
there are 'needed' improvements (approx. $10-$20 million), that the city is
responsible for in the shorter term. Target Center was financed with
tax-free bonds, which preclude the city under federal law from allowing the
team or the operators to make improvements, she says. To allow those groups
to upgrade the arena, the city would need to refinance with taxable bonds.
Clear Channel, a national entertainment promoter, manages Target Center. In
the article, it is suggested that Clear Channel, as an insider, can offer a
better deal to artists booking the Center, and therefore other promoters
nationally just avoid Target Center (can't compete w/ Clear Channel) and try
to work with Xcel instead. If this is true, the lack of a competitive,
unbiased promotional/booking market at Target Center may be hurting overall
bookings and revenues at Target Center ( w/Clear Channel being major
promoter), resulting in reduced tax receipts for the city-- i.e. they get
all of a smaller pie rather than less of a bigger pie, and more profit in
their pocket, the city be damned. Perhaps parties to this deal can arrive
at some attractive cost-share arrangement whereby the city might get a
no-interest loan from the owners/management team in order to get the
necessary improvements made, while the owners/management pump up marketing
to increase bookings and sales, bringing city tax revenues back in line with
what is required. Added revenues above a certain level in any given year
would result in the loan principal being repaid; however, if sales and tax
revenues aren't adequately raised in a given year, no principal payment is
due (now that would be marketing incentive). The incentive would be to get
the loan repaid ASAP. Insider financial whizzes could tweak the deal with
sliding scales and the like. Perhaps the extra 3 percent city sales tax
could also be structured as some type of inducement in such a deal, so that
both parties ultimately win. An incentive for both parties to get bookings
and revenues up without added pressure on property taxes would be the goal.
Why should Target Center be interested? Without increased Target Center and
city tax revenues, why should the city invest any more public money?
Negotiate a win-win deal where both parties stand to gain and taxpayers
won't loose. If owners/managers aren't interested, forget the improvements
and, then, the city could fall back and shuffle other tax flows (as is
currently contemplated) to pay the bonds... at least we wouldn't be throwing
more good money into a bad situation.
Part 2.
A couple of weeks ago Scott Russell reported (Southwest Journal) on current
and potential city taxpayer liability associated with three city employee
pension funds ('How pensions blew a hole in the city's budget' by Scott
Russell, 9-9-02 SWJ). Facing a $29 million shortfall in 2003, city leaders
are proposing to borrow the funds, paying back a couple million dollars
annually for twenty years-- that's just to cover the 2003 shortfall! The
city expects to borrow $123 million over the next five years just to cover
the projected shortfall associated with just one of the funds. These
shortfalls developed as the financial markets tanked in recent years, yet
pensioners benefited from legislation allowing them to collect 'bonus'
payments (the '13th checks' for police and fire funds) while the markets
were up! And politicians added to the dilemma by reducing plan
contributions in those good years.
The laws allowing public pensioners to reap upside gains in good years while
taxpayers remain on the hook for shortfalls in bad years should immediately
be repealed. It is outrageous! The city should take immediate action to
convert all defined benefit pension plans to defined contribution plans
where plan members and fund managers assume responsibility for fund
management rather than taxpayers, with annual contributions made on a
pay-as-you-go basis where the employee and employer make required payments
annually- period. As throughout history, abuses should lead to restraint
and reform. The local taxpayer should not be the guarantor of last resort
while funds are raided by pensioners and politicians seeking short term
gains through either 'bonus' withdrawals or reduced public contributions in
good years. All funds should be managed by professional money managers, not
controlled by fund members as in the current situation. These pension
shortfalls represent immense liabilities for city taxpayers to assume. City
leaders should take corrective action immediately to mitigate the problems
and restructure the situation to prevent similar episodes from recurring in
the future.
Part 3 (refrain).
Existing city budget shortfalls involving internal service account deficits
(about $30-$40 million), infrastructure shortfalls or deferred maintenance
(about $70 million) and balances due on a public safety initiative (about
$25 million) remain alive and well with interest accruing. Workout plans
are devised and revised as the game plan changes in St. Paul, city debtors
default, etc. The City Council has made recent efforts to stem this
budgetary hemorrhage (described below).
And these are only a few representative examples of amounts, above and
beyond, the normal costs of providing everyday services to city residents.
These costs are also exclusive of those required to operate and maintain our
public schools, our park system and our libraries. And there is talk of
closing libraries and reducing service levels; closing ice rinks, and
raising parking fees at all our public parks. The primary source of revenue
for all these local services, shortfalls/defaults, and interest costs is the
local property tax, which our elected city leaders have agreed (some
begrudgingly) to restrict to what will effectively become double-digit
increases in local property taxes over the foreseeable future-- that's
better than triple the rate of inflation. Property taxes aren't based on
ability-to-pay; owners and renters alike, rich and poor; those with fixed
incomes, those with growing incomes and those with declining, will pay these
taxes, in good times and bad.
Thoughts to ponder
Yes, our annual cash deficit is horrendous in Minneapolis (and getting
worse), and we remain in the midst of a national recession. Commercial
vacancy rates are climbing; commercial rents, valuations and property tax
revenues are declining. How long until residential valuations begin to
fall, with attendant ramifications? It has been suggested that there are
indeed residential real estate bubbles in certain markets across the
country. What if residential property values begin to stagnate or even fall
here? There is pressure for more subsidized housing in the city, even as
market rates continue to fall. Beware of subsidized packages that can't
carry their weight in the marketplace-- where the market value isn't capable
of covering the mortgage and subsidized rents undercut private, unsubsidized
investments in like property, thus killing private sector involvement
entirely. Our city government, operating on property taxes, should NOT be
the employer of last resort, the small business lender of last resort, the
health care provider of last resort, or the developer of last resort. Don't
kill the goose! (And remember, even the fat city geese will fly when
pressed.) The state has a $3 BILLION deficit to resolve in the upcoming
session, and federal surpluses are history. The state provides many
millions of dollars in local government aid to cities throughout Minnesota--
those dollars are at risk. The public trough is dry, and we are on the edge
of a deflationary economy. Corporate earnings have not recovered and
markets remain in the tank. Layoffs continue.
And now Henn County Commissioners and other elected officials have the
audacity to suggest that Minneapolis taxpayers, or a sub-segment thereof,
should pony up additional taxes to support a stadium for private sport
franchises (again making the city less competitive with surrounding
communities for food/entertainment; wit Target Center situation and loss of
Pickled Parrot on First Ave- across from subsidized competitors in Block E
as examples); others suggest that some unit of government should facilitate
purchase of professional sports teams, for public ownership, w/ public
stockholder scenarios, whatever... each option involving hundreds of
millions of dollars, plus the thousands of hours of talented public employee
time associated with such proposals... all while half of incoming freshman
high school students in Mpls. will drop out before graduating and too many
other students struggle with low test scores; while thousands of adult city
residents have no recognizable job skills to lift themselves out of poverty.
Yet we continue to ask for more from our government at all levels... more
services of all type, more housing, more jobs, more health care, higher
wages, increased benefits, welfare extensions, more mass transit, bigger
highways, less pollution, less sprawl, safer neighborhoods and better
policing, higher taxes on businesses, improved mental health services,
reduced reliance on fossil fuels in city fleets, and a more efficient and
streamlined bureaucracy. Where are our city priorities? What can we afford
on a city budget dependent on property taxes?
We have met the enemy...
Michael Hohmann
Linden Hills
www.mahohmannbizplans.com
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