Minneapolis faces a $21.6 million budget gap

Minneapolis faces a $21.6 million budget gap next year — and that’s just to leave things as they are, officials revealed Monday.

The spending gap, the result of federal pandemic funds drying up due to soaring labor costs, threatens to lead to steep property tax increases that will likely be borne by residents, budget officials told City Council members Monday.

The idea of ​​a looming budget deficit was telegraphed by Mayor Jacob Frey earlier this month, when he said it seemed virtually impossible to stick to his planned property tax levy increase of 6.1% or less — and that the levy, the total amount of money raised through property taxes may have to increase by double digits. But Monday marked the first time Frey — or any city official — had publicly put a dollar figure on the city’s budget deficit.

“I want to make sure I heard correctly,” Councilmember Robin Wonsley said as she asked city budget director Jayne Discenza to repeat the numbers.

Discenza said it again: $21.6 million in 2025 and $38 million in 2026.

“It’s pretty scary stuff,” Wonsley noted.

The numbers may seem small in the context of the city’s total annual budget of $1.8 billion. But with Minneapolis still trying to claw its way back from a workforce exodus during the COVID-19 pandemic and following the killing of George Floyd, the city now faces its biggest fiscal challenge since the Great Recession.

Unlike during the pandemic, when wave after wave of massive federal stimulus checks held local governments back, “there’s nothing important enough in the short term that we can use to fill that void,” budget manager Justin Kohls told council members, noting that cities and school districts across the nation find themselves in similar situations.

It’s too early to say what impact a property tax increase will have on individual property taxes.

Big pay increases

The projected shortfall comes despite an expected increase in the city’s revenue from sales and entertainment taxes, which nearly reached pre-pandemic levels last year and is expected to surpass them this year.

But those increases are not enough to keep pace with pay increases for the more than 4,000 city workers. “It’s a different market,” Discenza said. Unionized municipal workers have managed to mobilize public employers for historic raises after a period of high inflation, while retired workers have dried up the workforce. Last month, the city reached an agreement with the union representing about 440 public works employees that achieved record wage increases.

The city is currently in closed-door discussions with the Minneapolis Police Federation, where Frey and others have publicly supported raising wages and providing hiring and retention incentives. At least 12 union contracts for about 1,125 workers, ranging from lawyers to building inspectors, will come up for renewal next year.

Frey told council members Monday he won’t consider layoffs and reiterated he doesn’t think the city can afford new programs.

New tenants?

The mayor’s comments during Monday’s City Council Budget Committee meeting came after councilors received a number of requests to increase spending.

For example, City Clerk Casey Carl presented a request from the Legislative Department that included $7.8 million in new spending, including 15 new full-time employees. Most of the proposed new jobs would be council workers; Some council members are advocating expanding their own district budgets so they can hire an additional hand-picked assistant.

It was not clear Monday whether that idea had enough support to pass, and council members agreed to postpone a vote on it.

Carl also said he needed about $1.5 million to run a mobile voting operation, including a vehicle equipped with election equipment and personnel “to take the ballot box to the people” and increase voter outreach.

The City Council and Frey must agree on a balanced budget before the end of the year.

Jayne Discenza, budget director, said city department heads will spend much of the summer sifting through their budgets looking for ways to reduce costs with minimal impact on public services.