Revised 2009 City Budget
Mayor R.T. Rybak
Monday, February 23, 2009
I asked to speak to the council today because we have serious financial challenges. The State has made significant cuts to Minneapolis’ 2009 budget, and the Governor is proposing even deeper cuts in 2010. If the Governor’s proposal stands we will have to cut about $30 million out of the current budget and another $35 million out of next year’s budget. How big is $35 million?
- It is about what we spend in a year for all street and bridge maintenance and repairs, traffic operations, street lighting and maintenance of all malls and plaza.
- It is about two thirds of the entire budget of the fire department.
- If you spread this cut equally across the budget it would lead to cuts of 329 jobs.
Fortunately the budget I am going to propose will have significantly less impact on our workforce, primarily because we prioritized cutting non personnel costs and we were able to use significant one time dollars available through the federal Recovery legislation. Before we get into those details, I want to set some context about why we are in this situation.
How did we get here?
The challenges we face today were not created by the city of Minneapolis, its employees or it residents. Over these past few years, Minneapolis city officials, Minneapolis employees and Minneapolis residents have been partners in making tough choices, sacrificing in the short term to create opportunity over the long term, and avoiding quick fixes that create problems later.
In fact, if not for that strong long term fiscal stewardship by the city of Minneapolis, the problems we face today would have been much worse. In the past six years we have paid down or avoided almost $90 million in debt, and like the family that pays off its credit card, that means we have more to spend on basic services each month. In our case, paying down that debt means we have an additional $7.6 million a year to spend in our general fund. If we had not done that our situation today would have been much worse.
This is tough problem but we are in far better shape to handle it today than we were a few years ago because we faced our problems head one, have been strong stewards of our budget and we have made significant reforms in the way we spend money, and deliver services.
Instead we are here today to address are the extremely serious financial challenges created by two factors. The first is the faltering economy, and its impact is painfully obviously to anyone who has lost a job or a home, or seen their investments evaporate. The U.S. economy, and now the world economy, is in the midst of a radical downturn. Minneapolis is not immune to this.
There is a second reason we face financial challenges today and that is the state of Minnesota’s budget. Minnesota’s budget has not had the same long term fiscal stewardship as Minneapolis has had. For too long, the state has used short term budget fixes, and avoided strategic choices. Today’s state fiscal crisis, like the one that happened in 2003, and the one we could expect a few years from now, could have been partly avoided if they adopted some of the long term fiscal strategy that has helped us restore fiscal stability to the city of Minneapolis.
Minneapolis cannot just observe the state’s budget challenges from a distance. The state and its largest city have had an intertwined relationship for about 150 years and that relationship became more connected as the state has taken more of the revenue collected by the city in return for a promise that the state would return some of that money from Minneapolis in the form of local government aid.
That local government aid, which is returning only a part of what the state collects from the city, was cut radically in 2003. We navigated through that crisis but today we face another massive state cut brought on by another state budget crisis. We have a plan to weather this storm that I will outline in a couple minutes. It will once again require sacrifices by the city, its employees and its residents. It won’t be easy, and we will get through it, but because we find ourselves once again put into the middle of a mess created in large part by the state, we should first remember a couple points.
First, Minneapolis sends more to the state than the state sends to Minneapolis. The state of Minnesota collects about $74 million from Minneapolis property taxes, and $390 million in sales taxes. For every dollar the state gets from Minneapolis, the Governor is proposing sending back only 15 cents. (This does not even account for the income taxes paid by Minneapolis residents.)
We should also remember that state spending has been increasing much faster than spending by the city. Over the past five years state spending, adjusted for inflation, has increased 11%, 8% more than spending in the city of Minneapolis.
The state is lurching from budget crisis to budget crisis and until it gets its financial house in order, Minneapolis will suffer, and cities and citizens around the state. In the meantime, the state’s poor fiscal management creates a crisis here in Minneapolis so now let’s turn back to what we need to do to change the 2009 budget.
The 2009 budget:
The 2009 budget we passed in mid December was the culmination of years of tough choices and strong management. It was a common sense budget that invested in the bread and butter basics, and maintained fiscal responsibility. It tacked financial problems head on and didn’t pass them on to our children.
We continued to put public safety first, spending $210 million to maintain the gains we have made the last two years. That investment has paid off:
- Violent crime in Minneapolis is down 25% from where it was two years ago, and trending down in every part of the city.
- Some of the biggest safety gains have been on the Northside, where violent crime is down 28% compared to two years ago.
- Juvenile violent crime is down 46% compared to two years ago.
We made a significant new commitment to our infrastructure, paying off a debt you won’t see in the financial books but in too many potholes on our streets. We funded the Infrastructure Acceleration Program to repave or repair more than one third of all the heavily-traveled streets and parkways maintained by the City. The acceleration funding also pays to replace or repair more than 4,700 traffic light and street light poles and improve City-managed bike paths.
We also continued to pay off the credit card and the 2009 budget we passed meant we had paid off $90 million in six years.
Just as we were passing that budget, the Governor cut $13 million from the state money we were get in the last two weeks of the year. Because the year was almost over we covered this money from our cash flow/contingency account, be we now need to restore that money. Two weeks ago the Governor also proposed cutting another $17 million from Minneapolis. So together that creates a $30 million problem we have to solve.
To make this $30 million cut this year we gathered as much information as we could from department heads, leaders of our unions and other leaders in City Hall. We also had two forums with employees and two forums with residents. We solicited emails and calls to 311, used Facebook and Twitter. There were many good ideas, some of which will go into play in this budget, some which are being studied to see if they can help us with our challenge in 2010.
Our Communications Department put together this analysis of the callers who gave their opinions online. It reinforces the results of the citizen survey that the most important areas are fire, police and transportation. This is not a representative sample but it does roughly parallel the feedback we got in the community forums and in our semi annual citizen survey. Our citizens support the fact that we make public safety our number one priority and they want us to invest in basic infrastructure.
Taking that feedback we have set out to solve the $30 million problem. As we did that we had three goals:
1. Strong, reform-minded stewardship of public money.
All that tough work we did to get the city’s financial house in order had to continue. Even in tough times, and especially in tough times, we had to deliver a revised budget that kept this city on a strong financial course. That meant our top priority would continue to be to make Minneapolis a Save Place to Call Home, it meant would continue our investment in basic infrastructure and it meant we couldn’t slide back into using the budget gimmicks and quick fixes that continue to get the state into trouble.
But with less money we had to make choices. Our choice was to say that instead of doing everything less well, we had to get out of some parts of our operation. You will see evidence of this in a minute.
This is only the start. We have to go much, much further is we are going to balance the budget in 2010 and beyond. That’s why in the coming months as I prepare the 2010 budget that will be presented in August, the key question I will be asking is: What can we stop doing so we can continue to have high standards for the services we continue to provide. Every service we deliver must be done well so that means we have to deliver fewer services and be honest with our residents about what that will mean.
2. Keep as many people working as possible.
Minneapolis employs 4,000 people who live in communities around Minnesota. They serve 60 square miles in Minnesota’s largest city and deliver critical services. Our employees keep streets safe, fix our roads and clear them of snow. Our first obligation is to the taxpayers of Minneapolis and if we can do something more efficiently we need to explore that. But in these times especially we should be looking for ways to keep important employees on the job. (This is a step up for why to use one time dollars to keep police on the job, a contrast to budgets in other times when we have been pretty doctrinaire on not creating or keeping a position unless there is secured long term funding.)
We need to land here that this will mean a sharper set of cuts next year but also a more accurate picture of the economy, attrition, the state and federal budget - basically make it clear that we should go out of our way to avoid laying someone off until we have to.
3. Do what we can to get people back to work as quickly as possible:
Most city governments are not actively involved in job training and placement programs that help put people back to work. Minneapolis is different. In the past few years we have dramatically expanded our Neighborhood Employment Network, which works with community-based organizations. More than 10,000 people have found jobs since 2004 because of these important city efforts, and in this critical period of time, we cannot stop the momentum. In spite of all the tough choices we have, this budget, and the budget I propose in August, will not have any cuts to our job placement programs.
This is the wrong time to cut our commitment to putting people to work. It is also the wrong to cut our commitment to getting our young people into the workforce, which is why we will continue the city’s involvement in the Step Up Summer Jobs program at least the level of last year.
This is also a critical time to make sure the jobs the city does, and the work it creates, creates opportunities for everyone in Minneapolis. That’s why we will not only continue the contract compliance work in the Civil Rights Department, but we will also involve Civil Rights Director Michael Jordan directly in the applications we make for federal Recovery dollars. We want to make sure the benefits of this stimulus to the economy reach all Minneapolis residents. I also want to applaud Mr. Jordan for his work pioneering a city apprentice program and we want to see this vision realized in the coming year.
My budget proposal is based on three principals:
- Strong fiscal stewardship
- Keeping as many people working as possible and
- Getting people back to work as quickly as possible
I developed a budget that makes the $30 million in cuts necessary to respond to the Governor’s cuts. First, is my proposal to address the part of that $30 million that the Governor cut at the end of 2008. As I said earlier, we temporarily covered that $13 million with funds from our reserve/cash flow account. That money must be paid back. Having an adequate reserve is exactly why we are able to weather tough times and we know there are more of them to come.
We got a head start on paying this off because as that bad news was coming we got the good news that there is more in our Hilton Fund account than previously estimated. I am proposing we use another $0.7 million from the 2013 allocation of the Infrastructure Acceleration program. As the primary advocate for this program, this is a very difficult cut for me to propose but I am committed to finding a way to replace that money before 2013. We also can use an additional $1.2 million in unspent fund we put away as the economy continues to falter. We have also found a way to use Enterprise funds to help pay for the Hiawatha Public Works facility, which puts an additional $4.2 into the General Fund. Finally, we are using $500,000 that had been allocated to public improvements in the North Loop.
Having taken care of the first $13 million the Governor cut, we now turn to how we will deal with the additional $17 million he proposed cutting in the 2009 budget. (The city’s share of this will be $11.6 million.) The remainder will be passed, through our usual allocation to the Park Board and other independent boards.
About 80% of our costs are personnel and the bulk of our costs are in the three largest departments: Police, fire and public works. If you allocated the Governor’s proposed cuts equally across the city it would lead to the elimination of 161 positions, including 57 sworn positions and 19 civilian positions in the police department and 27 firefighter positions. In public works it would mean a cut of $2.2 million to public works transportation.
This could create an extremely serious set of challenges in the city and fortunately the budget I am proposing today does not make cuts that deep. We have been able to protect jobs and services through several key steps:
- Using $7.6 million a year freed up by paying down debt
- Disproportionately focusing cuts on more expensive management positions.
- Eliminating services
- Developing new revenue options
- The federal stimulus funds
Let’s start with the Fire Department. As I said earlier, if the Governor’s cuts were passed on directly to the Fire Department it would have led to the elimination of 27 firefighter positions. But we will not have to do that because of good work by Chief Jackson, the Firefighters Union, members of the fire service and members of other key departments. Firefighters who are on duty but not fighting a fire can generate more revenue for the department if they perform some fee based work. We began doing this four years ago when firefighters began performing residential inspections work. The result has not been perfect, we need to improve the service, but in this period of serious financial challenge, we believe we can make what we do better, and expand it to include commercial structures and, perhaps, assisting on boarded and vacant buildings.
Based on these work we believe firefighters can generate enough revenue this year to fund 21 positions. This means that this budget will only have to eliminate six vacant positions. There will be no layoffs in the Fire Department.
Before leaving the Fire Department we need to make clear there are two major unknown factors:
First, the revenue we believe we can generate from those inspections is only an estimate. We have to work hard with both the firefighters and Regulatory Services to make sure we can deliver
Second, Minneapolis may still qualify for the Safer Grant, a federal program that would provide additional money to hire firefighters. The grant, when it was awarded last year, was very reluctantly turned down by a number of cities because the federal rule required cash strapped cities to spend more money to get the new money. Minneapolis and most other cities couldn’t do that. That provision was waived in the Recovery package and in the coming weeks we should know if Minneapolis still qualifies. If we do, that, too, could have an impact on staffing in Fire.
Now let’s turn to Police. If the Governor’s cuts were passed on directly to the Police Department, it would have led to the elimination of 57 sworn police officer positions and 19 non sworn employees. We will not have to do that because of two factors. First, working with Chief Dolan, we are proposing elimination of $1.5 million in non personnel costs, including overtime.
Second the federal Recovery Act’s one time public safety grants arrived just in time. President Obama said he would help cities keep police officers on the job and he has delivered. Because of this funding I will be proposing no personnel cuts in the Police Department. Next time someone asks you what the Recovery Act will do, start by telling them it will keep 57 police officers working on the streets of Minneapolis.
There is a catch, and it is a very, very big catch. The money we are using to avoid those public safety cuts are one time dollars. They can be stretched over 18 months but then they are done. In the 2010 budget and beyond we have to make up the funding for these officers and, as you will see in a moment, the 2010 cuts the Governor is proposing would lead to even deeper cuts in public safety funding. I am extremely concerned about our long term ability to continue to keep our police force at its currently level, a level that has played a significant role in the dramatic fall in crime in Minneapolis. Immediately after passing this budget we have to get to work to deal with other strategies to keep our police on the job. There is no easy solution. The Governor’s proposed cuts would equal $13.5 million less every year for our Police Department. We will continue to keep Public Safety our top priority but in the past few years we have dramatically shifted more of our spending to the police department at the expense of everything else we do, especially Public Works and the basic maintenance of our city. We cannot go much further.
It is very important to say here that this proposal in police is a departure from a strategy that I have used in every budget I have delivered since I became Mayor. Every budget I have delivered has been structurally balanced over five years. I have never made a major personnel move where I didn’t show how we could fund it for five straight years….until today. We do not know how we will fund 57 police officers in 2010, or the additional police positions that will be cut if the Governor’s proposal stands. I am only proposing taking this action because of the extraordinary economic times we are in, and because it is so critical to keep our city safe.
Now let’s turn to Public Works. If the Governor’s cuts were passed on directly to Public Works it would lead to the elimination of $2.2 million in transportation.
As you may remember from the earlier slides, we have already moved a significant amount out of Public Works to fund our fight for public safety. We simply cannot keep delaying the critical repairs we need in our infrastructure, the common ground we share every day. That’s why I proposed the Infrastructure Acceleration program and we cannot undo that crucial work. So today I am proposing we impose the Streetlight Fee, to help create an ongoing source of revenue for maintaining our infrastructure.
I’m not one of those people who want to play word games to pretend a fee isn’t a tax. It is. We are asking more from people, pure and simple. But the dollars are limited to about $8 this year per parcel, and because of the way they are collected they are spread more fairly across the city.
Along with the changes in our three largest departments, we are making significant, strategic cuts in all other parts of the enterprise. The most significant part of those cuts will be in the management of the city. These cuts are falling harder on upper and upper-middle management of the city. Overall we are cutting 27 management positions, valuable people doing valuable work, but very tough choices we have to make to keep as many people providing direct services to the city as we can.
In total, we are eliminating 59 positions and about half of them (27) are management. Twenty six are vacant; thirty three positions are filled and those employees will be eligible for our job bank. This job bank has been very effective and was responsible for having almost all people whose positions were eliminated in the 2003 cuts retain their jobs.
We are also imposing a series of additional immediate money-saving strategies that may take some time to see real savings, but are promising:
- We will develop a new way to asses our departments for their computers, creating more of an incentive for the departments to see more direct, faster savings if they cut back.
- We are working with bargaining units and employees on unpaid furloughs where employees can each do their part to help generate more savings.
- Effective immediately we will begin an immediate review of the top users of overtime. There are times when overtime is essential. If a loved one is critically hurt you want the Homicide Detective to work overtime it if means delivering justice. But it is clear to me, and to the many employees who contacted me about this, that we can save money with less overtime. If you have been using overtime for necessary use, you have nothing to worry about. But in these times we cannot afford a single dollar misspent on overtime. If you abuse it, you are jeopardizing someone else’s job and we will not stand for it.
Overall this is a very difficult budget, but far less difficult because we have been
- Using the $7.6 million a year freed up by paying down debt
- Disproportionately focusing cuts on more expensive management positions.
- Eliminating services
- Developing new revenue options
- Using the federal stimulus funds.
Now the hard part starts. The 2010 budget faces is down like a train coming through the tunnel. We will have to make very tough and very painful cuts that will have an impact on every part of the city. How painful depends in large part on the economy, and the state, neither of which have been very helpful lately.
We need your help, especially with the state. Work with our legislators on three fronts:
1. Limit the local government aid cuts in the Governor’s budget. These are tough times, and everyone has to make their share of sacrifice. This city, which generates far more for the state than the state returns, deserves to only have their fair share of cuts, which is far less than the Governor proposed.
2. Free the city to be able to use our own resources. Specifically, most of the sales tax collected in Minneapolis goes to the state. The only part we keep is dedicated to the convention center. We want more flexibility to use the relatively small part of the sales tax that stays in Minneapolis for needs we see, especially public safety. The growth of the Warehouse District as an entertainment center is a good thing but it requires significant public safety resources and we believe we should be able to use our sales tax to help pay for it.
3. We need pension reform now. Right now the closed Police and Fire retirement funds get all the upsides in good times, but in down times all city property payers get the bill. That’s not fair because the widow who pays property taxes should have the same protection as the widow who receives a pension check. The solution is to merge the city’s three closed pension funds into the statewide plan, where all our active employees already are.
Three charts today show you the problem visually. I won’t review them one by one but they are available online. What you need to know is this: The property taxpayers of Minneapolis are being overcharged and that is making it harder for us to deliver basic services.
We need our Minneapolis legislators, who have been such strong and consistent allies on every other issue, to help us here as well.
With that I turn over my recommendations for the 2009 budget to the City Council. I will join you as you deliberate these issues. At the same time, I will begin work on what promises to be an extremely difficult 2010 budget.
It’s tough to do this work, but the budget we are delivering is far better than it could have been had this body not been doing the good, tough financial stewardship that has brought this city back to financial health. Thank you.
Last updated Sep. 27, 2011