Strong neighborhood organizations make for strong neighborhoods and strong
neighborhoods have made Minneapolis one of the most livable urban cities in the United
States. With this in mind we, as three of your elected members of the City Council,
want to address the long term funding issues and structural organizational issues
facing the City as we prepare to approve the city's five year budget priorities.
BACKGROUND -- COMMUNITY DEVELOPMENT RESOURCES IN CONTEXT
The City of Minneapolis faces major budget challenges in its property-tax
supported funds. Based on projected demand on the property tax that the City adopted
in March of 2002, ongoing expenses will exceed ongoing revenues by nearly $55 million
by 2008. This assumes that we keep our commitment to the current policy which
anticipates 8% annual growth in the City's tax levy over that same time period. That
policy provides approximately 4% for City cost-of-living increases (health insurance
and labor costs) and allocates 4% for past debt retirement. This also assumes that the
Legislature does not reduce Local Government Aid (LGA). LGA accounts for 40% of our
general fund resources. In order to balance our annual budget, we must find a way to
reduce expenditures. We must have a plan to live within our means.
Not since 1978 has Community Development in the City been supported by a
general tax levy. Most of the resources were generated by a pool of downtown tax
increment districts called the "Common Project." From 1990 to 1999, this pool
generated tens of millions of dollars annually. However, State tax law changes in 2001
significantly reduced the value of this pool. At roughly the same time, the debt
associated with NRP Phase I, and other related debt, came due. The continuing, annual
payments on this debt have first priority of Common Project revenues through 2014. The
combination of reduced income from the Common Project pool due to State tax law and
increased demand from NRP Phase I debt service all but eliminate the ability of the
Common Project pool to generate revenues for NRP Phase II. In a report dated May 16,
2001, the MCDA concluded: "The City Council has enjoyed unprecedented flexibility in
the use of tax increment over the last decade . . . . That period has come to an end."
In response to this resource gap, MCDA proposed that the City activate the
"Chapter 595 Levy". This is property tax levy which could help fill the gap between
historical Community Development demands and projected resources. The levy was
activated in the 2002 budget and was set at a $4 million level. For the first time,
community development became a direct competitor for property tax dollars alongside of
police, fire, public works and all other activities funded primarily through the
property tax. At least within the boundaries of the Chapter 595 levy, a dollar's worth
of Community Development became equivalent to a dollar's worth of police, fire or
public works. As the Council considered the ten-year projection on the property tax in
March of 2002, this trade-off became crystal clear. If we were to limit the overall
demands on the property tax levy to no more than 8% annual growth (an aggressive
assumption) a decision had to be made: is this Council willing to further cut the
growth in these core services in order to keep the Chapter 595 Levy at the $4 million
level?
In addition to Common Project resources and the Chapter 595 levy, the City has
other sources from which to fund community development. These sources are divided in
to two categories, City-controlled money and Federal grant money. Many of these
resources, whether City or Federal, have built-in restrictions and/or prescribed
processes which must be used to access them. Based on current assumptions,
City-controlled resources will average about $11 million annually (inclusive of
phasing out the Chapter 595 levy) over the next five years. We have no basis upon
which to project the availability of federal funding. However, the 2003 allocation is
about $22 million. Together, these resources represent an annual $33 million estimated
and projected community development program from 2003 through 2008.
These are all the presently known resources available for community and
economic development commitments - including funding all aspects of the Minneapolis
Community Development Agency (MCDA) and the Neighborhood Revitalization Program (NRP).
RESPONSE TO RESOLUTION ON THE FUTURE OF NRP
Some active members of neighborhood organizations have proposed a "Resolution
on the Future of NRP" that includes a list of demands regarding the future of NRP.
The four main demands that they are requesting the City Council approve are so far
from the reality we face in this financial climate that we need to address them
immediately so that no one is left wondering why we will be forced to reject this
resolution if and when it comes before the City Council.
1. $33 Million for Community Development
First, the resolution demands that the City Council approve $33 million
dollars for the City's community development priorities.
Community development funding sources come from a variety of revenue streams.
The largest portion at this time is in the form of a federal grant to cities called
the Community Development Block Grant (CDBG) program. This amounts to $18.5 million
annually. Should the federal government continue to fund this program, which is under
scrutiny each and every year, a majority of the funding is restricted to specific uses
such as funds for emergency shelters, housing people with AIDS, and affordable
housing. This funding is not available to simply be allocated to neighborhood groups
to spend on implementation of neighborhood plans. In addition, there are serious and
significant reporting requirements to the federal government which require public
hearings by elected bodies. It is possible for neighborhood generated plans to effect
the process and work with project developers to apply for funding within the CDBG
allocation for projects that meet the criteria - several neighborhood groups do that
currently. It is clear to us and our grants management staff that CDBG funding is not
an available resource to fund NRP as a direct contribution to neighborhoods to use for
either administration, staffing or direct contributions to projects or programs in
individual neighborhoods.
As for the Empowerment Zone funding, this resource is targeted to specific
neighborhoods in the zone. This is an independent operation from the City and has its
own Board of Directors as prescribed by federal guidelines. Like CDBG this funding is
restricted in its use for specific kinds of economic development projects as outlined
in the City's original application and is not an available source for NRP.
Neighborhoods can and have influenced the direction of these funds. Final decision
making on the use of Empowerment Zone funding comes from it's Governance Board and is
approved by the elected body, in this case the City Council. In addition, there is no
guarantee of future funding for the Empowerment Zone program from the federal
government past the next few years.
If we remove the $18.5 million from CDBG and $3.6 from the Empowerment Zone
from the $33 million available for community development we are left with
approximately $10.9 million, which will go up or down over the next five years
depending on economic outlook, tax increment collection, and charges to the
development account already incurred - but not yet spent - such as litigation, the
Target Center bond payments and other community development bond repayments like the
$6 million due in 2006 for the Pantages Theatre.
That said, it is impossible for the City Council to "guarantee" that, a) $33
million will even be available for community development spending, and b) even if it
is, two-thirds of that $33 million are ineligible to be used to fund NRP.
2. Dedicated Resources for NRP
If the City Council were to act on the resolution's request to dedicate
one-third of the $33 million community development dollars to NRP then no other
funding would be available for any other community development programs or projects
citywide. The last one-third of the community development funding (outside of CDBG
and the Empowerment Zone) comes from development revenue, tax increment levy, the
remaining 595 levy proceeds for 2003 and 2004 and a small amount of interest. If we
were to dedicate all of this revenue to NRP the City would not have the ability to
fund other development citywide including: commercial corridor development on Central
Avenue, Franklin Avenue, Broadway or Lake Street, historic preservation projects, any
downtown development, development priorities such as re-opening Nicollet at Lake
Street, the redevelopment of the Hi-Lake shopping center site, Light Rail
re-development, the upper River Master Plan - all of which have used or will need
development account or tax increment revenue. In addition, this choice would severely
cut the number of people working on the City's development goals at the MCDA since
employee labor is paid for out of this pool of resources as well.
3. Community Development (Chapter 595) Levy
The resolution's third demand is that the City Council support efforts to
remove the Community Development levy from the proposed budget cuts and dedicate this
money to NRP.
We cannot support keeping the chapter 595 levy on the community development
side of the ledger since doing so intensifies cuts to police, fire and public works.
Under our levy policy these functions are a direct trade off. It has been the intent
of the City Council to protect those core services to the greatest extent possible.
Even under the proposed financial plan they will face significant reductions. The
levy was put in place for the first time in 2002 in response to the concern about a
future lack of resources for community development functions. This was prior to the
time that the full picture of the City's financial outlook was known and the threat of
the loss of Local Government Aid became a reality. Now, with $55 million in cuts over
the next five years to the City's budget looming and the loss of LGA a real
possibility, we must preserve our ability to fund basic services in the general fund
(police, fire and public works) prior to funding community development.
4. Nine Principles -- NRP Structure
Lastly, the resolution outlines nine principles for the continuation of NRP,
including the NRP continuing to operate as an independent agency.
In this time of major financial challenges, structural reform is essential!
The days of separate staff, offices and administration for the core development
functions of the City including the MCDA, the Planning Department, and NRP are over.
The whole purpose of the McKinsey Study of development functions and the adopted Focus
Minneapolis Plan was to align, streamline and bring together staff who work on
community planning and economic development under one umbrella department. Given the
severe lack of resources for funding community and economic development the last thing
we need to do is have separate staffing and a continued lack of coordination between
planning and development functions.
In addition, NRP funding came through issuing bonds for the first 10 years of
the program. In the second 10 years of the program tax increment revenue was the
source of funding. Given the tax increment law changes imposed by the State of
Minnesota the tax increment paid, and thus collected to fund NRP, has been reduced by
about one third. Because the taxes collected need to be used to pay off the bonds
first and the amount collected is reduced - there is little if any funding left for
NRP.
If the NRP program is to continue the source of funds would need to come
entirely from the City and not other jurisdictions. If the funding is provided by the
City, out of our community development resources, then the program must be integrated
into the City structure and process. Remember, the purpose of NRP was to provide
service re-design and to better integrate neighborhood planning into all City planning
and development decision making. Now NRP has become more about the money, not the
planning, and that's unfortunate.
CONCLUSION
The Council is currently taking prospective action to deal with the $55
million gap between projected demands and anticipated resources over the next five
years. However, the City's financial challenges, even without LGA reductions, clearly
extend at least through 2010. The planning effort which has been proposed -- and which
we support -- provides the Council and the public with a road map to managing these
problems for the next five years. We must identify the demands on the increasingly
scarce property tax dollar and prioritize them if we are to live within our means.
This is precisely what the five-year plan does.
The phase-out of the Chapter 595 Levy is part of the five-year package of
equally unpalatable cuts which we need to make to assure that core basic services are
protected to the greatest extent possible. Other sacrifices include backing off on our
commitment to close our infrastructure gap, increasing capital bond payment periods to
the extent possible within recommended financial practices, phase out of the general
fund support to the health department, and growth reductions in other property-tax
supported departments such as Planning and Civil Rights. All this amounts to an
approximately $22 million package which allows the Police Department to grow by 3.6%
over five years (a little over half of what we project they would need to keep pace
with current cost drivers) and the Fire Department to grow by 5.5% over that same
time. That represents $30 million of additional resources to the two departments by
2008. By way of comparison, an "across the board" cut would represent a nearly 4%
reduction to each department over time, a loss of nearly $28 million between the two
departments.
This problem is manageable, but not without a lot of shared pain. We will need
to make these and many more difficult decisions -- and stick to them -- if we are to
lead this City into the future. However, it bears repeating that this plan cannot
anticipate what the State will do with Local Government Aid.
We call on neighborhood associations, activists, and community leaders to work
with us as your elected representatives to help us figure out the future of the NRP.
Resolutions like the one being circulated have little basis in the financial reality
we face together as a City. They only serve to split the community and the
neighborhood groups into factions that will end up competing with each other for
resources rather than focusing on planning for outcomes.
We face serious challenges as we move forward as a City to address our
economic and community development issues. Developing and sustaining healthy, safe
and affordable neighborhoods, with living wage job opportunities and a sense of
community can continue. Bringing all voices to the table for an honest discussion has
been our desire all along. Straight talk, whether the message has been hard to deliver
or hard to hear, has been a priority for us and we will continue to tell the truth and
hope you take our efforts at face value as we proceed down this difficult path.
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