Mayor R.T. Rybak
Budget Address to the City Council
August 16, 2010
Electricity in the Darkness
One morning during the height of the Great Depression, a young man named Earl Bakken went to a matinee at the Heights Theater on Central Avenue to see Boris Karloff in the movie “Frankenstein.”
Bakken remembered the movie as being about a creator who was misunderstood and tormented by society. “But what intrigued me the most,” he said, “was not the monster’s rampages but the creative spark of Dr. Frankenstein’s electricity. I was simply awestruck by the idea that electricity could do more than light up a room or ring a doorbell … I realized that electricity defines life.”
The idea stayed with Bakken. When he returned from WWII in 1941, he got a degree in electrical engineering from the University of Minnesota, then started a new company in a garage at 1818 19th Ave. in Northeast Minneapolis. The new company later marketed the first transistorized heart pacemaker.
Today, of course, we know that company as Medtronic, one of the world’s largest medical-technology firms with more than 40,000 employees and annual sales of $14 billion.
I don’t tell that story because I want to encourage teenagers to run electric currents through zipper-necked corpses in garages around town.
I tell that story because throughout the history of Minneapolis, so many people, like Earl Bakken, have not lowered their visions in tough times. On the contrary: sometimes the greatest ideas, the greatest innovations, the greatest ideas and the greatest reforms come out of times of great challenge. For Earl Bakken, the Great Depression and World War II were opportunities, not obstacles.
Challenges and advantages
In tough times, the tough people of Minneapolis have met great challenges by doing great things.
The people of Minneapolis don’t need to look far for another great challenge: we have one right here, right now in the middle of the Great Recession. When we look reality straight in the eye, we see two major challenges:
- a stagnant economy that won’t help us grow our tax base anytime soon,
- and a state budget in continual disarray, which jeopardizes our ability to keep our residents safe, maintain our roads and help put people to work
But we also see two major advantages:
Our first advantage is that our city is weathering the recession better than many other major cities. Our unemployment rate is routinely lower than that of our region or the state, a claim few other large cities can make. And our regional economy is strong relative to the rest of the country: Minneapolis–Saint Paul was one of only two regions to record year-on-year declines in unemployment, and we have been named the number-four region in the country where the recession is easing fastest.
Our second advantage is that our City budget is in better shape every year, and in much better shape this year than it has been in years, because we have managed taxpayers’ money responsibly. Notably, we have done three things.
- First, over the last eight years, we have paid down or avoided $130 million in debt.
- Second, we have won victories on pension reform, having successfully merged one of our three closed pension funds with the State. This will ensure the security of retirees and dramatically helps the City predict our contributions over time. We continue to seek a similar fair solution for two other closed pension funds, which I will address later.
- Third, we have lowered our fixed costs, especially for healthcare. Our Benefits Labor Management Committee helped us avoid $3.2 million dollars in healthcare costs this year. This savings comes on top of several million dollars in other healthcare savings in recent years that we have enacted with our employees. Our unions and our employees deserve our thanks for this hard work.
We are only able to meet the challenges and seize the opportunities of tough times, to think big and plan for the future now, because we have been responsible stewards of the public’s money for the past nine years.
But don’t take my word for it: Back in 2001, Minneapolis’ credit rating took a big hit when Moody’s, one of the independent firms that grade the financial performance of cities, downgraded the City’s bonds. But this year, nine years later — in spite of massive cuts from the state and in spite of managing through two major economic downturns — Moody’s has rewarded our hard work and fiscal responsibility by upgrading the city bonds. After almost a decade, Minneapolis now has all three AAA bond ratings.
Delivering the basics, delivering for the future
These challenges and advantages set the stage for the budget that I’m proposing today. This budget is based on the premise that while we are facing exceptionally difficult times, we must continue to dream big, like Earl Bakken did during a depression and a world war. This economy may be slow but Minneapolis isn’t slowing down. A great city doesn’t sleep.
In tough times, you focus on the basics, and this budget does that.
- We are going to manage your money responsibly with a long-term, five-year plan that doesn’t lurch from year to year.
- We are going to be honest about the problems and solutions, and not sweep problems under the rug.
- We are going to take care of the basics, starting with public safety and infrastructure.
In other words, we’re focusing on the four Ps of police, potholes and paychecks — along with one more thing I’ll talk more about later: pensions.
But in tough times, you also think big and plan for the future, and this budget does that, too.
- We are going to keep our focus where Minneapolis needs it to be right now and where we’ve had considerable success, which is growing jobs and helping put more people to work.
- And we’re thinking big about the future of our city.
Minneapolis is not an island
If Minneapolis were an island, I could confidently say that the City’s fiscal future looks bright. But we are not an island: we are challenged by the stagnant economy and the State’s budget roller coaster. This makes developing our budget very complicated — and the most complicated factor is what the State returns to the City. Here’s some quick background.
Minneapolis sends money to the state, a lot of it — in property tax, income tax and sales tax. We get some back in the form of what’s called Local Government Aid, often abbreviated as LGA.
As it turns out, Minneapolis sends much more to the state than we get back.
- In 2008, Minneapolis sent $429 million in sales taxes and $74 million in commercial and property taxes to the State.
- In return for that $503 million, we got back $69 million in LGA.
Since 2003, the amount that we get back in LGA keeps shrinking. By one measure — the amount of LGA that we would have received if we had continued every year to receive what we were promised in 2003, with no increases over time — the State has shorted us $290 million.
We know how to put together responsible budgets when we have less money. What makes the even even more complicating, however, is not just that we’re getting less money back from the State: it’s that for the last three years in a row, the amount we’ve gotten back has been cut yet again, mid-year — after we’ve done the hard work of proposing and adopting the City’s budget, based on the State’s promises.
The only sure thing we know about LGA for 2011 is that on July 30, the State sent the City a letter certifying that we will receive $87.5 million in LGA next year. But what happens next year …
- with a new governor and Legislature…
- facing a multi-billion-dollar deficit …
- in an economy that is recovering slowly and unevenly …
… is, at this point, anyone’s guess.
Therefore, we have to be clear-eyed that it’s entirely possible that the State will break its promise and leave us holding the bag once again in 2011.
But the budget I am delivering today is based on the assumption that we will get back the entire $87.5 million in LGA that the State has committed to us — which, remember, is less than what we send to them. Let me be clear: we fully expect the state to fulfill its promise. Neither the City of Minneapolis nor the public should accept the State’s passing a budget, then saying they were only kidding.
Where we invest, or how we spend the money
The core of the budget is based on investing in
1) keeping people safe,
2) improving our roads,
3) and growing the economy.
1) Keeping people safe
We start every budget with public safety. It has been and will continue to be our top priority. This budget keeps putting our money where our mouth is.
Over these past nine years we have shifted more of our dollars to public safety. Next year, public safety — defined as Police, Fire, City Attorney and 911 — accounted for 55% of all general-fund spending.
We are all painfully aware that we have significant violence this year and it illustrates at budget time that we have to keep resources in keeping the city safe. We’re taking this problem very seriously. We are especially focused right now on holding accountable those who use and traffic in illegal guns: every time a crime is committed with a gun, the first question we are asking is, where did the gun come from? We are working in close partnership with the Hennepin County Attorney, the United States Attorney and especially with community. This violence must come to an end.
But the public safety efforts we have been funding in the past few years have also had many successes. They have not gotten the attention they deserve.
- For all the attention that high-profile violent crime has received, violent crime overall is up this year in Minneapolis — by 0.75% compared to last year.
- And remember: last year marked a 27-year low in violent crime in our city.
- Furthermore, violent crime is down this year in Minneapolis by 15% compared to two years ago.
There is more encouraging news, namely that youth violence continues to drop. We have now seen several years of double-digit declines in juvenile crime, and this year is no exception:
- Juvenile crime is down 21% this year compared to last year.
This decline in juvenile crime is, I believe, a direct result of the ground-breaking work that has been done around the Blueprint for Action: Preventing Youth Violence in Minneapolis.
Budget time always reminds us that there is no free lunch. If you make a make a decision to invest more in one area, as we have in the past several years with public safety, you have to spend less somewhere else — especially during a period when the State is shirking its obligation to Minneapolis.
I said a couple years ago that the story of Minneapolis over the past few years is that our streets are safer to walk down because they have more potholes. That’s what we had to do in a crisis but it wasn’t sustainable.
2) Improving our streets
That’s why in 2008 I announced the Infrastructure Acceleration Program, a five-year, $35 million program to improve our busiest streets, by resurfacing or sealcoating one-third of all City-maintained arterials.
In the first full year of the program, we got off to a great start: we resurfaced or sealcoated 41 miles of streets that last year, 27 miles of which would not have been done without the additional boost. What’s more, it worked: although last winter was an extremely bad one for potholes, not one of the arterials that was improved because of the Infrastructure Acceleration Program developed a pothole. In 2010, we are improving City-maintained arterials at a comparable pace because of the program.
Some recent examples of this work include:
- Hennepin Avenue South from Groveland to Franklin;
- Dowling Avenue North from Thomas to I-94;
- Nicollet Avenue South from 58th Street to Minnehaha Creek.
The budget I deliver today continues this promise and pays for the remaining three years of the program.
Now it’s time that we add residential streets to the mix as well. Today, I am proposing a five-year, $9-million-a-year companion effort to dramatically accelerate improvements on a wide range of City-maintained streets, including significant improvements to residential streets.
This year, we will spend approximately $5.8 million to improve City-maintained streets. But if, as I am proposing, we add $9 million to that amount next year, we will be able to leverage other dollars that will allow us to invest a total $18.5 million to improve a wide range of City-maintained streets, including residential streets.
Expand that number over five years, and you will see that instead of $29 million, we will be able to invest $92 million into making much-needed improvements to all kinds of City streets.
Translated into miles, this means that:
- Next year, we will improve 123 miles of streets, compared to 48 miles this year.
- At the accelerated pace, we will improve 615 miles of City streets over five years, instead of 240 miles at the current pace.
- In other words, at the accelerated pace, we will improve 63% of City streets, instead of 24% at the current pace.
Let’s be clear: this is not some optional fringe program. This is work that we simply must do to maintain the streets we use every day. And it’s work that we must accelerate in order to keep up with the needs of our aging infrastructure, which are growing faster than we can meet them. Every time people hit a pothole, I want them to think “debt,” because a pothole, or a street that needs maintenance, is a debt that we’re passing onto future generations. With this budget, we’re putting more resources into addressing the “pothole debt” and the street-maintenance debt that we had to let accumulate while we addressed our public-safety needs.
3) Growing the economy
This budget also keeps investing in jobs and our economy.
Many of you know this, but we can’t say it often enough: we’ve been through a tough time in Minneapolis, but we’ve weathered the recession better than many other cities and regions our size.
The numbers tell the story.
- In Minneapolis, we have closed the unemployment gap and are now one of the only big cities in the United States whose unemployment is routinely lower than the surrounding region and the state. This has been the case for 13 of the 21 months since the fall of 2008.
- The 6.7% unemployment rate for June is the lowest rate in a year and a half.
What does this mean for our residents?
- It means that a net 4,578 more Minneapolis residents are working today than were working in June 2009, when our unemployment rate hit a high of 8.5%.
There are some good reasons that we’ve weathered the recession well:
- a diversified economy,
- a highly-educated workforce,
- and civic-minded business leaders,
But there’s also compelling evidence that the job creation efforts of the City of Minneapolis — led by Mike Christenson and Cathy Polasky — have helped our residents do better than they would have had we just sat on the sidelines during the recession.
Here’s our record, which shows why this budget continues to invest in creating jobs:
In 2009, the City helped create or retain over 5,270 jobs in Minneapolis. That includes:
- 1,578 permanent jobs,
- 1,422 construction jobs
- and 2,270 summer jobs for youth.
City, State and County investments in brownfield remediation in 2009 are expected not only to remove contaminants from our city, but when the development projects are completed, they are projected to create:
- 484 permanent jobs
- and as many as 5,200 construction jobs.
This work has produced some great Minneapolis success stories, especially when we have invested in the sweet spot of our City’s economy, which is small business.
- Shortly after Tortilleria La Perla’s owners José and Noemi Payan expanded the Lake Street bakery by taking out a large mortgage and equipment loan, corn and wheat flour prices tripled. Suddenly, La Perla was short on cash to pay suppliers and nearly had to suspend operations. Using City dollars, the Latino Economic Development Corporation defined a restructuring strategy. As a result, last year they turned a $200,000 profit on sales of $2.8 million. Forty jobs were saved by this turnaround.
- Sadia Hot Sauce Solutions brings organic African hot sauce to the mainstream Minnesota market. Founder Korad Abdi started with a family recipe in Somalia, refined it in a Kenyan refugee camp, and perfected the taste here in Minneapolis as Sadia’s Gourmet. Korad launched her business on Central Avenue using City dollars, with the help of the African Development Center. With marketing and product-development help from North-Minneapolis-based Alden Group, the company now sells its products at seven farmers’ markets and at the Seward, Wedge and East Side Co-Ops, and was featured in the June 2010 Minnesota Monthly magazine. My family loves this sauce!
And this work doesn’t just pay off in the short term with new jobs and businesses, it pays off in the long term, especially in two ways:
First, in private investment:
- For every $1 million invested in grants for façade investments, business and marketing assistance, we can leverage an additional $2.5 million from private and foundation sources for small businesses.
Second, in our tax base.
- For every $1 million invested, we expect our tax base to rise by $1.6 million.
- From 2008–2010, when the recession took $1 billion from the city’s tax base, properties with City commercial investments added nearly $300 million to the tax base. And the value of these properties continues to rise.
This is very encouraging work — and the even better part is, we’re not doing it alone: we have a great partner in the Obama administration.
Until recently, the Federal government was not an aggressive player in helping the City Minneapolis serve our residents. But that changed dramatically with the passing of President Obama’s Recovery Act last year and a series of other federal programs that helped Minneapolis and cities across the country weather the economic crisis. As a result of the leadership of President Obama and those in Congress who supported the Recovery Act, Minneapolis has been awarded over $63.3 million dollars, with which we have put 2,027 people to work already.
Some of the work we are doing or will soon start with Recovery Act dollars includes:
- $10 million to rehabilitate the Camden Bridge.
- $7.4 million for job training and employment programs for dislocated workers, youth and hard-to-place adults, including for clean-energy jobs.
- $8 million for police officers and public-safety programs.
- $26.5 for housing and community development.
- $3 million for public-health prevention, including childhood obesity
- $7.2 million in energy-efficiency for government buildings, businesses and residences.
It should go without saying that the federal government’s partnership in job creation and economic growth is a huge advantage to us in Minneapolis, but I’m going to say it anyway: it is perhaps the most significant government intervention in boosting the economy and putting people to work since the Great Depression.
Because of the momentum that the City has fueled in helping create and retain jobs, including in partnership with the federal government, I am not cutting one dollar from job creation, job retention, job training and business support in this budget.
Paying for our investments, and paying for bad decisions
We will be able to pay for the first three investments that this budget makes — keeping people safe, improving our roads and growing the economy — along with all the other services and operations that the City provides with no increase in the property tax.
We are able to pay for these core functions with no property-tax increase because we have been fiscally responsible:
- we have paid off debt,
- we have managed costs,
- we have matched spending to revenue five years out, and
- we have improved the City’s credit rating — which saves us more money.
We are able to pay for these core functions with no property-tax increase because even in these tough times — or rather, precisely because of these tough times — we have aggressively helped create and retain jobs and helped businesses start, survive and expand. These activities not only put people to work and help them build wealth, they grow our tax base — which then helps us pay for these core functions.
I would like that to be the end of the story, but it’s not — and the reason it’s not is our pension funds, and in particular our closed pension funds. We must spend $17.7 million more next year to meet pension obligations. Of that amount, nearly 90% must go to the closed pension funds the Minneapolis Police Relief Association and the Minneapolis Fire Relief Association.
Although we can pay for the core functions of keeping people safe, improving our streets and creating jobs with no property-tax increase, I cannot say the same of our pension funds. Therefore, I must propose a 6.5% pension levy for 2011.
Were it not for the $17.7 million jump in pension obligations, I would be proposing a 0.1% decrease in property taxes for next year. That’s how well we’ve managed the costs we can control.
Why, then, are Minneapolis taxpayers are stuck with this pension-levy increase? Largely because of bad decisions made decades ago by people who are no longer in this room, and in particular because of mismanagement by the attorneys and managers of the closed funds.
Now let me be clear: our retirees and their survivors have worked hard and deserve their pensions. In particular, the police and fire retirees and survivors of the closed pensions are heroes: they and their loved ones put their lives on the line for the City.
But courts have ruled several times that the closed funds have overcharged City taxpayers tens of millions of dollars over the last several years. So while retirees and survivors of these funds deserve every cent they have earned, they do not deserve more than they have earned. No one does.
As mayor, it is my job to continue to balance:
- our obligation to the widow who collects a police or fire survivor pension and is living on a fixed income, trying to keep her home …
- against our obligation to the widow who does not collect one of those pensions and is living on a fixed income, trying to keep her home and struggling to afford higher property taxes because of bad decisions made in the past and the mismanagement of the closed pension funds.
Now we are pursuing reform. We’re fighting in court, where we’ve won several important victories and are fighting the closed pension funds’ appeals of judgments in taxpayers’ favor. As I said earlier, we won a victory at the Legislature this year when we merged one of our closed pension funds into the State system, but we need the Legislature for to also do the same for the remaining closed funds, and will ask them again to do so.
In particular, I want to acknowledge the very hard work of Council Member Betsy Hodges, chair of the Ways and Means Committee, as well as City Attorney Susan Segal and her staff, in protecting the interests of taxpayers and pension-fund beneficiaries.
Finally, I must point out that pensions will continue to cost taxpayers more.
- This year, pensions consume 11.8% of the general fund.
- Next year, pensions will consume 13.2% of the general fund.
- In 2015, pensions will consume 15.7% of the general fund.
This is not an issue only for Minneapolis: in Los Angeles, pensions will consume 1/3 of that city’s general fund within three years. We’re in better shape than that here because we’ve continuously paid down debt over time.
But while we keep fighting for reform, make no mistake: for our taxpayers, this pension levy feels just like a property-tax increase. However, it’s a levy that is almost entirely due to our need to pay bad decisions that we inherited and mismanagement of the closed funds.
As I said earlier, if Minneapolis were an island, our financial future would be sound. But our finances are tied directly to
- the slowly-recovering economy,
- bad decisions that we inherited,
- and the State of Minnesota. Because of the State’s budget rollercoaster, it has been an uncertain and unreliable partner.
The State has committed $87.5 million to Minneapolis for next year, and even though that amount is less than we send to the State, this budget holds them to that promise. We fully expect them to deliver on it, as all Minneapolis residents should.
However, because of our experience over the last three years with the State’s mid-year cuts to their commitment, we have already done significant work on a multitude of scenarios if they should not fully deliver yet again next year. I look forward to fully engaging the Ways and Means Committee and the entire Council on this work as we go through the process of adopting the budget together.
Electricity in the darkness
So today I am delivering a budget that
- continues to invest in our first priority: public safety,
- continues our five-year plan to aggressively repair busy commercial streets and accelerates the maintenance of many more streets, including residential ones;
- invests even more in the proven job-creation strategies that have cushioned the blow of the economic collapse and helped businesses create jobs and new wealth.
This marks the ninth year when I have spent the summer with some of the most talented people who have ever worked for the city — pouring over spreadsheets and business plans — so I could deliver a budget in mid-August. We have many reasons to be proud of that work. We’ve:
- restored our AAA bond rating,
- paid off debt,
- took on pension reform,
- invested in public safety,
- restructured healthcare,
- launched programs to increase paving of commercial streets, and now more residential streets,
- funded national models in housing and job creation,
- redesigned the city’s transportation system,
- and much, much more …
- … all while we were facing huge funding cuts.
But I have to honestly say to you that it’s increasingly clear to me that all that is not enough. I’ve seen enough now to know what it take to run this city and I know our needs aren’t going away, especially with our infrastructure. I know our families and businesses already struggle to pay what we ask, and it’s clear the state is not going to be in an position to be an aggressive partner.
If we want to live in the kind of neighborhoods we want, if we want Minneapolis to be the kind of city that we know it can be, there is one more thing we have to do: We have to grow.
The more new people and businesses we attract to Minneapolis, the more they share the cost of running a great city. The bigger the tax base, the more we can do, and the less falls on each of us. The long-term financial health of Minneapolis depends on us growing the city, and if we’re going to get bigger we can’t think smaller
So over these next few months you will see me taking the bold steps we need to position Minneapolis for a new era of growth: That work will fall into three areas:
The first place we can grow is by opening new areas for development. Minneapolis is a fully-developed city, but there are still tremendous opportunities to grow, especially along transit corridors. That’s what happened on the Central Riverfront, where public investments in parkways helped convert an underused rail yard into some of the most valuable land in the city.
That’s the tip of the iceberg. Sweeping opportunities for significant development — and significant new tax base — exist in every part of Minneapolis: Basset Creek Valley, the Upper River Terminal, Shoreham Yards, the West Bank, Lyndale Avenue at the Crosstown … and the list goes on. Our greatest opportunities are waiting where land is ready for growth along new transit corridors: 38th St. on the Hiawatha Line, Linden Yards and the Farmer’s Market area on the Southwest Corridor, the West Bank between the Hiawatha and Central Corridor light-rail stop stops, and the granddaddy of them all: Lake and Nicollet, where new freeway access can come together with bus rapid transit, new streetcars and a reopened Nicollet Avenue to create one of the best single development opportunities in the Upper Midwest.
We have spent years laying the groundwork for these areas to grow: now we have to step it up a notch. To that end, this budget creates a new position, a high-level coordinator of transit-oriented development who will produce results by bringing together all arms of the City with the private sector, our public partners like Hennepin County and the Metropolitan Council, and the local and national foundation community. It is a significant sign of this potential that the foundation community is helping to fund this position, because they see Minneapolis as a possible national model for transit-oriented development.
The second area where we can grow, and grow the tax base, is by making strategic investments that will spur new development when the economy recovers.
Four decades ago, then-City Coordinator Tommy Thompson laid out a plan for attracting the new Hennepin County Government Center to downtown. Bringing those jobs downtown instead of letting them to go the suburbs was important enough, but Thompson’s vision didn’t stop there.
Thompson fought hard to make sure that the new Government Center featured a plaza and a park to act as gathering spaces in what was then a non-descript part of town filled with surface parking lots. He believed that a plaza and park would attract new development that would grow the City’s tax base.
Boy, was he right! One by one, every block around the Government Center was filled with office towers: Capella Tower, Ameriprise, Accenture, U.S. Bank Plaza, 701 Building, Thrivent. As good as this part of downtown now looks, our bottom lines look even better.
- Those buildings surrounding the park and plaza are now valued at more than $520 million.
- This year, they’re contributing close to $23 million to our general fund, help us keep people safe, improve our roads and create jobs.
- Since 1994, they’ve contributed nearly $400 million.
Where else should we be making public investment to spur development? We will be asking that question as part of Downtown 2025, the visioning process we are about to begin with the Downtown Council. About every 15 years for the past half-century, the city and the business community have laid out these long-term visions in a planning document that has been the foundation for new growth.
Here’s where we will ask whether an additional park on the block north of the Central Library could grow property values on surrounding blocks, just like the park around the Government Center that Tommy Thomson so wisely advocated has done.
The third way we will grow tax base is to realize we aren’t in this alone. When a job comes to the metro area it helps Minneapolis, whether the job is created here or whether the person who holds it is likely to shop or live here. The same is true of Saint Paul and the suburbs. We aren’t competing with each other. We’re in this together.
That has been the spirit of some exceptionally promising partnerships that have brought us together with the region’s top business leaders and mayors from across the region. Our goal has been to map out an aggressive job-growth strategy for the region, and this work is now so promising it has attracted grants from national foundations and promised investment from all the region’s top employers. A major step will be to recreate a regional economic-growth organization. This budget follows through on the commitment that Mayor Coleman and I have made to help start this new organization that brings public and private partners across the region together to make growing jobs Job One.
It is important to have finished this speech by talking about these long-term growth strategies that won’t pay off for many years. We have been prudent stewards of public money and this Council deserves great credit for making one tough decision after the other that has gotten us onto solid financial ground. We need to keep that up, but now more than ever we need to look many years down the road; to not just imagine a great city, but take the aggressive steps right now to make it happen.
We need to do that, not in spite of the fact that we are in tough times, but because that’s the only way out of them. Like Earl Bakken in that movie theater so long ago, times like these need people of vision who see electricity in the darkness.
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