Neighborhoods, taxes become adversaries in current budget climate

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August 31, 2009 // UPDATED 8:24 am - August 31, 2009
By: Cristof Traudes
Cristof Traudes
// Fully funding a 2008-approved plan for neighborhood revitalization could mean a 22.2 percent property tax increase in 2011 //

Funding for neighborhood revitalization, which for two decades has been on a seemingly constant up-and-down trip, might just have run into its biggest wall yet: the economy.

Mayor R.T. Rybak’s proposed 2010 city budget is filled with cuts, with every department set to take a hit. City programs faced similar scrutiny, and the mayor proposed that Minneapolis spend no more than $6.5 million per year on neighborhood revitalization from 2011 to 2020.

That’s a $1.5 million drop-off from last year, when Rybak proposed a $8 million-per-year plan. It’s also a much smaller number when compared to what the City Council approved at the end of 2008: $12 million per year, with $8.5 million for so-called general neighborhood revitalization purposes and $3.5 million for community revitalization.

Why such a steep drop just one year later? The simple explanation, as offered by city Finance Director Patrick Born, pits neighborhoods’ funding source against citywide property taxes. If one goes up, the other comes down — and right now, property taxes aren’t dropping.

In fact, Finance Department projections show, if the city were to finance neighborhood revitalization the way it said it would last December, the average homeowner could be faced with a 22.2 percent property tax increase for 2011. If instead it followed the mayor’s $6.5 million-per-year proposal, the average homeowner could see a 15.7 percent property tax increase.

Both numbers, council members said, carry some significant sticker shock. The impact of Rybak’s proposed 2010 budget, after all, is a 6.6 percent property tax increase.

The TIF-tax connection

The property tax and neighborhood revitalization issues are connected through what the city chose as neighborhoods’ funding source through 2020: a tax-increment finance (TIF) district.

Within the geographical boundaries of a TIF district, any rise in property values due to redevelopment is funneled toward a specific purpose, in this case neighborhood revitalization and Target Center debt relief. Because of that funneling, properties within a TIF district don’t produce the same amount of property taxes that they would if they weren’t in the district. More properties within a TIF district mean a heavier property tax load for the rest of the city to carry.

A TIF district that has funded the Neighborhood Revitalization Program (NRP) since 1991 is about to come to a state-mandated end. The city wants to retain a NRP-like program, so it last year lobbied the state Legislature to let Minneapolis certify a new TIF district. That effort succeeded; now it’s time for the City Council to decide how many of the allowed properties will be included in the district.

Certify 100 percent, and the city can follow its 2008-approved neighborhood revitalization plan. The mayor’s proposal calls for 50 percent certification.

‘No single answer’

For now, council members are undecided about where they want to see all of this end up. Early indications point to a final outcome with anywhere from zero to 100 percent certification.

Council Member Betsy Hodges (13th Ward) said that for her, it comes down to the context of the overall budget.

“I think everybody in this city, not just council members, has to ask themselves, what other city service would you have cut to maintain the funding level?” Hodges said. “How much higher should property taxes be? How many services should we cut from other parts of the city? We have to weigh these choices against one another. There’s no single answer.”

Council Member Robert Lilligren (6th Ward) had been ready to approve the full, 100 percent certification of the TIF district until hearing the property tax projections.

“I think I’m more focused now on (the taxes) than on the $6.5 million,” Lilligren said. “The question of whether it’s 50 percent of the tax-increment district — at this point I’m not ready to say it’s 50 percent or 10 percent or 100 percent.”

Lilligren said there’s some hope for neighborhood revitalization in other funding sources. One could be community development block grants, which traditionally have been used for development but could apply to other city purposes, he said.

Barring an unexpected influx of money, though, the funding situation could provide ammunition for those who last year opposed the city’s new direction for neighborhood revitalization. One of their main arguments was that under the city’s wing, neighborhoods could get lost as just another piece in a jumble of priorities. Some might classify the $12 million to $6.5 million drop as a prime example.

But Hodges said people shouldn’t see the mayor’s proposal — or any future decisions on neighborhoods’ funding — in a vacuum.

“I’m guessing that by the time we’re done with the entire budget, no one will have been singled out, but everyone will be feeling pain,” she said.

Neighborhoods’ funding through the years

— The Neighborhood Revitalization Program (NRP) is proposed as a 20-year program supported by tax-increment financing (TIF) limited to $20 million per year through 2009.

— As much as $404.3 million in TIF is expected to be produced through 2009, more than enough to support NRP.

— The state Legislature passes an omnibus tax bill that significantly changes the state property tax system. The effect: The revenue-generating capacity of TIF districts takes a hit throughout the state.
— Before the bill passed, the city had projected $180 million to be available for NRP’s second phase. That drops to $72.9 million.
— NRP Director Bob Miller puts a halt on all NRP phase two projects.

— The city amends the NRP ordinance to prioritize how reduced TIF revenues would be spent.

— Miller gives the go-ahead on phase two.

— Phase two projections drop to $66 million.
— The city creates a working group to explore the future of NRP.

— The Framework for the Future, a plan that essentially brings NRP under City Hall’s wing, is approved.
— In his 2009 proposed budget address, Mayor R.T. Rybak suggests that, starting in 2011, the city put $8 million per year for 10 years toward neighborhood funding. He proposes spending $500,000 per year for two years from the general fund to help launch the city’s in-house Neighborhood and Community Relations Department.
— The City Council amends Rybak’s proposal during its budget discussions, upping funding for general neighborhood revitalization purposes to $8.5 million per year for 10 years and for community revitalization to $3.5 million per year for 10 years.

2009 so far
— In his 2010 proposed budget address, Mayor R.T. Rybak proposes cutting back on projected annual neighborhood spending, dropping the annual amount for 10 years to no more than $6.5 million, down from the approved $12 million.