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July 16, 2002 // UPDATED 1:27 pm - April 30, 2007
By: Kevin Featherly
Kevin Featherly

Rybak, City Council draft plan for higher property taxes and fewer programs to avoid even more pain later

To hear Mayor R.T. Rybak describe it, Minneapolis is on a fiscal collision course, saddled with the reckless spending of a past era's politicians. However, equipped with the tough new tax policy he successfully shepherded through the City Council this month, Rybak believes Minneapolis can stave off disaster - though not painlessly.

In a politically agile act for a new mayor, Rybak pledged 10 notoriously independent-minded councilmembers as coauthors for the tax policy, which is as stern as it is politically risky: At the same time it significantly raises annual property taxes, it also ensures deep spending cuts.

The plan was adopted July 12 in an 11-1 vote. Only 6th Ward Councilmember Dean Zimmerman voted no, bashing what he called its "screw-the-Park-Board" mentality. Councilmember Robert Lilligren (8th Ward), is also critical, but did not vote because he was out of town.

In essence, the plan seeks middle ground between tax hikes and budget cuts. It is the first step toward the mayor's promise of presenting a 2003 city budget by the end of August.

While it identifies no specific cuts, the plan caps the city's ability to generate new tax levies at 8 percent increases per year over 10 years. Half of the 8 percent would help cover growing costs, half would pay down city debt.

The 8 percent hike is far less than the city needs to pay its current bills without major reductions, according to city Budget Director Tammy Omdal.

It doesn't stop there. The policy calls on the independent Board of Estimate and Taxation - the seven-member body that sets maximum city tax levies - to adopt an identical policy. That would limit the ability of other independent tax-levying authorities, including the Park Board and the Library Board, to raise their levies. A majority seems likely; three board members -- Rybak and two councilmembers who sit on the board -- are policy co-authors, while a fourth, Wally Swan, has espoused fiscal restraint.

Finally, the policy reasserts a 1994 proviso that limits the Park Board's and Library Board's share of state-funded local-government-controlled by City Council. Thus, if the Park Board or Library Board raise levies above a set inflationary rate -- 4 percent a year -- the City Council will offset any gains by holding back an equal amount of state aid. (For park and library board reaction, see page 11.)

It's a hard approach, Rybak said, but necessary. All city taxes come from the same citizens' pocketbooks, he noted, and the council cannot act alone to rein in spending and prevent residents from fleeing to the suburbs to escape runaway taxation.

"If current spending patterns continue we would have to triple taxes in the next decade," Rybak told a council committee. "And that is not something that is at all acceptable to me."

Herding cats

One might well wonder how the mayor managed to pull 11 politicians together to endorse a plan that, according to various sources, could mean elimination of the city's Health Department and its Civil Rights Department, scrub the mayor's own promise of 24-hour snowplowing service, shorten park and library upgrades and hours and probably bite into key basic services such as police and fire protection and public works.

None of the councilmembers polled actually credit Rybak for prompting their decision, though they congratulate him for his leadership on the thorny issue. Rather, they say they were prompted by hard reality.

"There was no choice," said Councilmember Lisa Goodman (7th Ward), who represents part of Downtown. "Either we significantly look at reducing the size of government or we face substantial, incomprehensible tax increases over the next 10-year period."

Councilmember Gary Schiff (9th Ward) attributes the council's changed thinking to Barrett Lane (13th Ward), the lone council Independent, whose profile is rising after years of going virtually ignored as its voice of fiscal restraint.

Said Schiff of his peers, "I think the one thing we all have in common is that we don't want rich people to leave the city, and we want poor people still to be able to afford to live in the city. Are we going to be able to agree on the same priorities for budget cuts? Time will tell."

No one yet knows exactly what those cuts will be. Lane said budget cuts could come from anywhere; nothing will be held sacred.

"I think everything is literally on the table in a way that it never has been before," he said.

How it will be

An 8 percent hike in overall tax revenues will translate into an even bigger hike for Minneapolis residential property owners.

Residential rates will rise an average 13 percent per year over the next 10 years under the plan. That's because statewide tax reforms enacted in 2001 shift the tax burden from commercial and industrial properties onto homeowners.

Owners of less-expensive dwellings will see bigger tax hikes in percentage terms. (See charts below).

Omdal said the 13 percent annual increase does not include taxes assessed by the county, school board, mosquito control district, the Metropolitan Council, or a bevy of other tax-levying authorities.

They do, however, figure in another 2001 state tax change that eliminates "limited market value," which capped assessment increases and meant some homes were taxed at less than full assessed value. That is being phased out over six years.

Police and fire, not parks and libraries?

Establishing a tax policy, of course, is merely the first stage in setting a budget. The heavy lifting will come this fall, when officials sit down to argue over which departments will see the deepest cuts. It is possible that the council coalition is a fragile one.

The mayor won't tip his hand on where he thinks cuts ought to be made, allowing department heads to suggest their own cuts before weighing in. He only suggests that some city-owned properties could be sold to get them on the tax rolls and raise revenue, or that some services, such as the city and park police, could be combined to cut costs.

Already, park and library board officials are protesting 1 percent cuts in their operating budgets under the plan.

Goodman thinks that if the choice is between increasing park and library funding and cutting fire and police protection, parks and libraries lose. "As needed and as justified as they may be, we can't be in the position of eliminating needed city services," she said.

"Public safety is number one," Schiff agreed. "Police and fire are going to take the least amount of cuts. Social services are going to get hit hard, and we're going to look to the county to pick that up."

Dario Anselmo, owner of Downtown's Fine Line, 318 1st Ave. N., likes the tax cap idea, repeating his mantra that Downtown businesses already are overtaxed. Like councilmembers, he wants police and fire services to remain intact, and also hopes sanitation services will be left alone.

But Anselmo is not as keen on cutting social services programs. He said they often target at-risk youth - the ones most likely to head Downtown to do damage once they spin out of control. But he also agreed that the county should provide those services, not the city.

Can it work

Councilmember Natalie Johnson Lee (5th Ward) voted for the plan with reservations. The only "aye" vote who was not a plan co-sponsor, Johnson Lee, who also represents Downtown, said she didn't like the way the Park and Library boards were brought into discussions near the end of the process. She also worries that social services - many of which she provides council leadership on - are too inviting as targets for the axe.

"The challenge is that anytime there is a budget cut, you have to fight like hell to save some of your social services programs in your department," Johnson Lee said. "Those are the easiest targets. The assumption is that the neediest people are not involved in the political process."

Lilligren, who is taking leadership classes at Harvard University, said he knew nothing of the plan until he received a phone call the Sunday before the policy was enacted. The plan's fast track worries him, he said.

He called the mayor's approach an "aggressive" way to tackle the city's budget woes, adding that it reflects a realization that changes are needed in the way the city spends its tax money.

Still, he said needs to know more before he can fully support it. And he has some doubts.

"The budget cuts may cause more hardship in some of the communities that I represent -- lower-income, higher crime, more development opportunities and blight -- than on some of the more stable, static wards," Lilligren said.

Several councilmembers have mentioned cutting city social spending, typically a county responsibility in Minnesota.

Peter McLaughlin, the 4th District Hennepin County commissioner whose jurisdiction lies entirely within Minneapolis, is supportive.

Five years ago, he said, the city began transferring most of its Health Department functions to the county, and that has worked out well. It could do the same thing with jobs training and employment programs, he said.

McLaughlin is worried, however, that the city could follow the school board's lead and drop out of programs like Way To Grow, which is designed to help young parents in Minneapolis connect with social services.

"I think we've got an obligation to look at these questions," McLaughlin said. "A financial crisis changes the dynamic."

Past leaders skeptical

Some question if the city is in quite the fiscal pickle that officials say it is. One of those is former councilmember Joan Campbell, the past chair of the Ways and Means Committee.

An unapologetic liberal, Campbell doubts that, in Lane's words, "there is more government than we can afford."

"I was always willing to raise taxes in order to accomplish what I thought government should do," Campbell said. "As a liberal, I believe that government should make a difference in people's lives."

She said it is difficult for her now to hear what she called Lane's fiscal conservatism overtaking the council's thinking. While serving, she and Lane often were at loggerheads.

Lou DeMars, a former council president who served throughout the 1970s, ribbed the current crop of elected officials for spending too much time listening to conservative talk-show king Rush Limbaugh. He also takes them to task for blaming today's woes on past councils, saying that they, like the current council, simply were serving their constituents.

"I don't understand why they're doing what they're doing," he said.

DeMars is blunt: the tax policy is doomed. While Budget Director Omdal says the policy aims mainly to guide the department heads in their budgeting decisions over the next 10 years, DeMars said a decade-long policy, in the end, will amount to meaningless words on a page.

"They can't bind the next council," DeMars said. "The best they can do is restrict themselves for their current terms in office. Anything after that is up to the next council or the next mayor, whoever that is."

Herding the cats on the current council over time will be hard enough, DeMars said. The toughest part of the process - deciding who gets what - has not even begun.

When it does, DeMars predicts, there will be ship-jumpers.

"Once you find out what the cuts are going to be," he said, "how are you going to hold the votes together?"

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