The McKinsey report: what it means for Downtown and the city

Share this:
June 18, 2002 // UPDATED 1:25 pm - April 30, 2007
By: Kevin Featherly
Kevin Featherly

Will a sweeping bureaucratic reorganization lead to smarter city spending or be another failed reform effort?

Mayor R.T. Rybak calls it his franchise; other city leaders declare it will prove this City Council's greatest economic legacy. But what is it? Just what does the highly touted McKinsey Report really mean for Downtown and Minneapolis citywide?

The wide-ranging study, unveiled June 14, proposes a massive reconfiguration of the city\'s economic-development bureaucracy, setting government's focus on two issues -- affordable housing and new jobs.

Councilmembers expressed enthusiasm for the report's underlying ideals, which boil down to realizing the mayor's campaign pledge to increase affordable housing -- and, as the mayor points out, no housing is affordable if you don\'t have a job.

Councilmembers say they are excited about the prospect of a smoother, more unified city development approach that de-emphasizes tall buildings in favor of "developing communities," as promised by the report's authors.

But some cracks are showing through the unity.

Councilmember Natalie Johnson Lee (5th Ward) has expressed concern that the report does not directly address communities of color, and fails to tackle poverty head-on. Councilmember Robert Lilligren (8th Ward), worries that taking council attention away from transportation could defeat any other attempts to rebuild Minneapolis\' economic strength.

"Those kinds of questions have not yet been asked," Lilligren said. "One of my concerns is that there is a movement on the City Council to just go forward and implement the McKinsey recommendations without having the policy discussions."

The Plan

The report, prepared at no cost to the city by Minneapolis-based McKinsey & Co. consultants, says city spending on housing and jobs creation is far out of whack with results. The report states that in the past five years, the Minneapolis Community Development Agency, the Neighborhood Revitalization Program and the Planning Department have spent just short of $1 billion. MCDA alone spent $856.5 million in that time.

But the city gained only 52 net housing units in those five years, McKinsey says. Minneapolis is now 8,300 units short of meeting its immediate affordable housing needs. And its job growth rate has fallen significantly behind Twin Cities suburbs and the national average, according to the report.

These aren\'t the only problems. State property-tax reform has depleted city tax-increment financing revenue -- the main source of NRP's $11 million annual funding. There have been federal spending cuts, and the Legislature is mulling aid cuts to cities, all at a time when the city expects to lose $40 million a year from the tax-increment changes, causing deep spending cuts or significant tax hikes.

A centerpiece called CPED

Report authors interviewed 311 business leaders, neighborhood association representatives, elected officials and city staff, among others. It also incorporated nearly 1,000 online surveys filled out by citizens and drew information from 125 city documents.

The centerpiece of McKinsey\'s recommendations is the combination of all Minneapolis economic development bodies into a single new oversight agency -- the office of Community Planning and Economic Development (CPED).

The new body would oversee five new city sub-agencies (Neighborhood and Community Planning, Development Services, Housing Development, Business Development, and Human Development). The Neighborhood Community Planning (NCP) would absorb functions of the Planning Department, part of Public Works, the MCDA and other offices. Regulatory Services, Health and Family Support and NRP employees would also be absorbed by new agencies.

400 to 600 city workers would work for CPED and the agency would oversee and coordinate all development and job-creation initiatives; its director would be held accountable.

The authors hope these changes would whittle down the city's Byzantine process of city development permit applications by bringing various agencies' staffers together into a "one-stop shop," where licensing applications and permit reviews would be expedited "to make the city easier to do business with."

That, in turn, would help developers launch into needed new development, whether city-funded or otherwise, according to McKinsey proponents.

Fixing customer service

Sam Grabarski, president and CEO of the Minneapolis Downtown Council that represents the city\' s biggest companies, says McKinsey\'s recommendations arrived not a moment too soon.

Grabarski, who was among those interviewed by McKinsey, said that the city\'s process is so tangled it can take up to five years to accomplish a large-scale Downtown development.

McKinsey consultants specified 17 steps needed to complete the zoning and planning process, even in a moderately complex job such as a business renovation. Grabarski said any of those steps could bog down a big project.

\"Groups can go millions of dollars into the process,\" Grabarski said. \"And [after five years], think of what all the effects of inflation are on construction costs. Think of how long it takes to keep a financial team committed to the project while they are constantly being barraged by other opportunities.\"

Grabarski said business leaders agree that a major problem is complacency among some city development workers. Grabarski complains that workers sometime take job security for granted, and that a housecleaning might be needed. (The McKinsey report is "neutral" on such recommendations, though one city staffer noted that salaries are a major city expense and would be an obvious place for policymakers looking to save money).

\"I don\'t know if they need to let people go,\" Grabarski said. \"But there actually might be an opportunity to hire other people with different skills, certainly to hire people who are more customer-oriented. The city can\'t just keep people in position who are notorious for being grouches and obstacles to the community.\"

Neighborhoods: winners or losers?

Councilmember Lisa Goodman doesn\'t like questions about what the McKinsey recommendations could do for Downtown development. It\'s not just about Downtown, she said. The plan encompasses neighborhoods, businesses, citizens. It\'s about everything and everyone connected to economic development.

\"I would assume Downtown residents and Downtown businesses and the commercial corridor all will benefit from the report equally, because it will make the city more efficient and more effective,\" Goodman said. \"The bottom line is there are not supposed to be winners and losers from trying to enact reform.\"

But the plan also is about new priorities, and Goodman anticipates resistance. She said most city employees are union members, and the plan hints at big changes in many job descriptions. \"I haven\'t heard from them as to what their specific concerns are,\" Goodman said. \"But I do expect there will be some.\"

The report also strongly recommends that the city encourage neighborhoods to align their own priorities with the key city objectives. Now, as Goodman puts it, there are 81 neighborhoods with 81 different opinions on what the city\'s priorities should be.

However, she added, because the McKinsey Report suggests making NRP an official part of the city\'s development process, neighborhoods\' influence over city planning objectives should actually increase under CPED. The plan promises to help neighborhoods complete some projects that otherwise have stalled, she said.

\"Right now, you have all these disparate and individual plans, and they\'re housed in a variety of different offices," Goodman said. "Combining planners who do neighborhood planning from six different departments and having them all in the same space sharing information means they will act in a more coordinated way.\"

That could be both good and bad for neighborhoods, according to Gretchen Nicholls, executive director of the Minneapolis-based Center for Neighborhoods. In the past, she said, because neighborhoods dealt with separate agencies like the MCDA, Planning Department and NRP -- each with its own priorities -- neighborhoods could rely on the agency most closely attuned to its own mission.

But that won\'t be possible anymore, Nicholls said, because the departments will have to toe the line on city-dictated priorities.

\"It means that we won\'t be able to operate as autonomously anymore as we have in the past,\" Nicholls said.

She added that her organization is still assessing the McKinsey Report's overall impact. But it doesn\'t appear to threaten neighborhood goals, she said, even if it does mean more strings attached to future NRP funds.

"I think we need to think of it as an opportunity to get greater impact from the efforts that we're trying to mount at the community level, in partnership with the city," she said.

How they play the game

Implementing the report is more important that the report itself, several of those interviewed for this story said. McKinsey representatives suggested the plan could be fully implemented in 18 months, cautioning against adopting it in bits and pieces.

However, some, such as NRP Director Bob Miller, don't think the plan can be implemented wholesale.

Miller said there would be resistance to moving Public Works planners into NCP while shifting Public Works development reviewers into the new Development Services department, as McKinsey suggests. And he said the report would force legislative changes and city charter amendments that might be difficult to achieve.

Even Goodman points out that there have been four attempts in 20 years to reform city government on a similar scale. For various reasons, all have failed. It begs the question: Can 13 politicians resist pressure to fund pet projects in their wards and remain committed to a preset slate of city priorities? Councilmember Dean Zimmerman (Ward 6) is among those not convinced they can.

\"We don\'t know,\" he said. \"This whole thing is so large and complex. If we\'re able to step back a couple of paces for the broad perspective and get a handle on it, yes. If we spend our time nitpicking over every little detail, we probably won\'t get anywhere.\"

Goodman, however, is confident the council will cooperate and implement the changes. The times dictate it, she said.

"This last election was clearly a mandate," Goodman said, "and anyone who doesn't think so clearly wasn't listening at all. ... Either we change with the times or we stay entrenched in the way we've been doing things, and we run out of money."