[Mpls] Five Year Budget Outline Does Not Hurt NRP

[Greg Abbott]

Monday night, in my capacity as a board member for the Linden Hills Neighborhood Council, I attended a meeting called by Barret Lane for 13th Ward neighborhood groups to discuss the proposed five-year budget outline and its possible ramifications for NRP funding.

It was an excellent meeting, and quite helpful in sorting through the details and heated rhetoric that the budget situation is generating.

Some people are apparently lobbying the City Council to reject the five year budget outline because of its perceived negative impact on future NRP funding.

This would be a grave mistake in my judgment. Rejecting the five year budget outline does nothing to solve the financial problems facing NRP, and would hinder the city�s effort to address its severe, long-term budget problem.

There are some points to make about the current situation:

1. Rejecting the budget outline does not help NRP
2. Reports of NRP�s death are greatly exaggerated.
3. Earmarking $11 million a year for NRP is Bad Policy
4. The Hypothetical Threat to NRP Does Not Justify Tax Increases


Here I go, in numerical order:

1. Rejecting the budget outline does not help NRP

The five year budget outline estimates the amount of community development funds available, annually, at about $33 million. Two-thirds of that amount are federal funds which have significant strings attached to them, and which fund social service activities. The remaining one-third, about $11 million, is what�s left of the revenue stream traditionally earmarked to support ALL community development, including both NRP and the MCDA.

It is easy to jump to the conclusion that these numbers result in defunding or zeroing out of funding for NRP, if you assume that the federal dollars cannot be used for NRP, and that the MCDA eats up the lion�s share of the remaining $11 million. It is this scenario that is driving NRP supporters to push a resolution to earmark funds and to lobby against the five year budget guideline.

Neighborhood opposition to the budget guidelines is a classic case of blaming the messenger for bad news. The current funding dilemma for NRP was caused by the 2001 changes in the TIF law and the need to begin repayment of principal on the NRP bonds. Both of those factors exist � and will continue to exist � whether or not the city adopts a long-term budget policy. The five year budget guidelines only highlight the problem, not create the problem.

In fact, the greatest threat to NRP funding would be a failure to adopt a long-term budget policy. If the budget crisis is not addressed now the squeeze on NRP resources in the future may well be intolerable.

2. Reports of NRP�s death are greatly exaggerated.

CM Lane argued on Monday night that a discussion of the future of NRP, including funding, is premature as it relates to adoption of the five year budget guidelines. The guidelines themselves do not dictate or even suggest how much funding NRP will get, nor do they affect the debate over how to restructure NRP as part of the city�s administrative overhaul. Under these circumstances assumptions about how the city will divide community development resources are premature.

The budget guidelines do suggest an estimated annual limit on community development spending of about $33 million. There has been no discussion about how to allocate these funds among the various competing programs. It may or may not be possible to reallocate some of the $22 million in federal funds to NRP to cover the gap, or to move federal dollars to the MCDA, freeing up non-federal dollars for NRP use. Under any scenario, NRP obviously has a high priority claim on these dollars.

Let�s plan for a worst-case scenario, however, and assume that no federal funds can be reallocated for NRP or MCDA purposes. Under that scenario, NRP and the MCDA would compete for the estimated $10.9 million generated from the TIF districts and other activities.

On Monday night, I asked CM Lane point blank how he envisioned dividing the $10.9 million between NRP and the MCDA, if it comes to that. He qualified his answer as speculative and premature, because the Council had not yet focused on this question (and may never have to, if reallocation of federal funds is possible), and because he had not discussed the issue with his colleagues. But his preliminary feeling was that an equal division of the funds between the two agencies was appropriate, largely because the current division of community development resources between NRP and the MCDA is approximately 50-50.

This is a reasonable allocation of resources, in my judgment. As a speculative worst-case scenario, it would fund NRP at about $5.5 million a year. This is obviously much worse that funding at $20 million or even $11 million a year, but it is far less daunting than the specter of �de-funding� NRP which has been raised by some neighborhood advocates.

One thing to remember is that the debt service on the TIF districts expires in 2009-10, which would free up tax revenue to resume more normal funding of NRP. Given that Phase II has already been extended to 15 years instead of 10, there is the possibility we could catch up on NRP funding shortfalls in the second half of Phase II.


3. Earmarking $11 million a year for NRP is Bad Policy

The question if earmarking is premature because we do not yet know if, and if so how many, federal dollars can be reallocated to help NRP. It may still be possible to fund NRP � or neighborhood planning functions under CPED � at $11 million a year.

But we have to account for worst-case scenarios under which we can�t fund NRP at $11 million a year without taking scarce resources from other city programs. Goodman, Lane, and Benson were essentially correct in their post a few days ago about the dangers of earmarking.

For example, if you earmark $11 million for NRP, and discover that none of the federal CD dollars can be reallocated, the immediate consequence would be to zero out the entire budget of the MCDA. Now, you could argue that NRP funding is more important than MCDA funding, but in my judgment killing the MCDA by zeroing its budget would be extraordinarily foolish.

Under this scenario, resources will have to be diverted from other city programs in order to fund NRP if you don�t chose to cut the MCDA. Because the dedicated sources of funding for NRP have become very limited (i.e., surplus TIF revenue), additional funding for NRP is now on the same level as any other discretionary funding. That�s where we get to the point of debating a tradeoff between NRP funding and police, fire, or public works.

This is a worst-case scenario, and not necessarily the most likely one. But the consequences are severe if we earmark for NRP and this scenario occurs � mandatory cuts in core city services, **after** those programs have already been cut significantly in response to the budget crisis.

The problem with earmarking NRP funds � or earmarking any discretionary spending, for that matter � is that it elevates NRP **above** other programs which are not earmarked. It is the non-earmarked programs which will disproportionately bear the brunt of budget cuts if city revenues drop unexpectedly for external reasons, such as recession, war, or reductions in local government aid.

No one could reasonably argue that funding NRP is **more** important than funding the police. Yet earmarking discretionary NRP funds produces exactly that result � holding NRP harmless while other core city services shoulder the brunt of future budget cuts.

Another problem with earmarking is the variable nature of the separate funding for community development. The figure of $33 million annually in CD resources is an estimate, and actual CD resources could vary significantly. Again, earmarking would unfairly fix one component of the budget at a static level, reducing the city�s flexibility to deal with variations in revenue.


4. The Hypothetical Threat to NRP Does Not Justify Tax Increases

The only way to take the NRP funding out of the current budget crisis is to raise taxes. However, I cannot imagine a justification for tax increases above and beyond the 8 percent annual increases already planned, particularly since the NRP program should survive under the current budget outline, albeit at somewhat less funding.

In fact, 8 percent annual tax increases may not be sustainable over a five-year period. Taxpayers will start pushing hard for reductions in city taxes once these increases begin to have a tangible impact on household budgets. For that reason, if city revenues increase more than expected (as a result of a spurt in economic growth, for example), we should use most of the �excess� revenue to buy down future tax increases before increasing spending.


These are dark times for the city. We got ourselves into this mess by choosing to fund individual programs and projects without regard for the overall economic picture. Focusing on the prospect of harm to NRP in isolation, without reference to overall tax and spending policies, is not a constructive contribution to the debate. Indeed, a narrow focus on NRP might tie the city�s hands when it desperately needs flexibility to address the worst budget crisis in living memory.

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Greg Abbott
Linden Hills
13th Ward


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