Minneapolis dodges the bullet: City finances fine for now

The effects of the global economic recession have edged into daily life, in ways as small as a television commercial urging viewers to stay in and cook (and buy salmon fillets) instead of going out to dinner. On a grander scale, several Wisconsin school districts invested in securities that crashed, costing them millions, and now face dire budget decisions. In Minneapolis, city government has not yet been faced with the need to make significant cuts, but some small changes have been made and more may be around the corner.

“I would say that [Minneapolis is] doing relatively better than our big city counterparts around the country,” said Patrick Born, Minneapolis city finance officer.

This is because the city has not made investments in the stock market. The only exceptions to this are some pension plans that belong to fire or police officers who began working for the city before 1980, Born said.

Other cities, both in Minnesota and across the nation, have not been as fortunate. St. Paul, for example, made an investment in a money market security which has defaulted.

“On Aug. 7, 2007 the city purchased a piece of commercial paper called Golden Key. The security has not performed and is now in arbitration,” said Todd Hurley, St. Paul’s city treasurer.

The security was for $1 million, Hurley said, but could not further comment because they have entered into arbitration.

In Minneapolis, however, there are areas of revenue for the city that are sensitive to economic changes. The city collects fees for both construction activity and business licenses. During a recession, businesses are not as likely to expand, so there will not be as much income from these areas.

Parking fees, both on-street and off, also are a source of revenue. If people lose their jobs in the city, they no longer need to park their car while at work, so this revenue also drops.

The Minneapolis Convention Center is another source of income for the city. Events draw smaller crowds in recessions, so the city does not receive as much revenue from rent and other service fees incurred when the center is booked. This also means less people visit the city to eat out, shop and stay in hotels around the area. Sales taxes from these businesses in Minneapolis go towards funding the convention center, Born said.

The city of Minneapolis receives money from the state for the general fund, which finances the fire and police departments, street maintenance and other services provided by the city. In 2009, the city expects $88.2 million in state aids (also called local government aids) to put into the fund. Programs paid for with money from the general fund usually cost about $360 million a year, Born said.

“To what extent state aid gets hit will determine if other services get cut,” Born said.

There is also an increase in the number of abandoned homes and buildings around Minneapolis.

“People are just walking away,” said Burt Osborne, director of regulatory services for Minneapolis. He said that people can’t pay their bills and are deciding to leave.

Osborne said that his staff in the housing and problem properties divisions spends most of their time patrolling these vacant homes, making sure they do not become a haven for drug use or prostitution. They no longer have much time to respond to calls of “livability concerns,” such as long grass or excessive barking from a neighbor’s dog.

So far, the city has not proposed any budget cuts and is continuing to work on the 2009 budget, which is scheduled to be completed in December, Born said.

“I would not be surprised to see a significant budget cut in the next few years,” Osborne said.

Kristen Anderson is a journalism student at the University of Minnesota and an intern at the Twin Cities Daily Planet.