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Continued: City rolled up its sleeves and scrubbed off the red ink

  • Article by: STEVE BRANDT , Star Tribune
  • Last update: June 10, 2008 - 11:46 PM

To understand how far Minneapolis has come financially, it helps to think in terms of your own household.

Let's say you took out a different credit card for each of your major expenses. One for buying and keeping up the house. Another for your car and its expenses. Maybe another for groceries or utilities or your kid's college tuition, and so on.

Then you ran up charges on each of them, but made only partial payments each month. Do it long enough and you'd have built yourself a financial headache. Your credit score would plunge.

That's roughly what Minneapolis did in the 1990s with several of its internal revolving funds collectively known as the internal service fund. They finance the city's insurance costs, lawsuit settlements, computers, vehicles and the like. They sell their goods or services to the city's departments, which are supposed to pay them what each good or service is worth.

But things got badly out of whack in the '90s. The city's self-insurance fund, which pays for lawsuits and insurance among other things, fell $49 million in the hole. The intergovernmental services fund, which covers computing needs, amassed nearly $41 million in red ink. Some of the six accounts in the internal service fund stayed in the black, but it ran a cumulative deficit of $68 million.

And Wall Street noticed. Moody's Investor Services reduced its AAA rating of the city's credit. Fitch slapped a negative outlook on its AAA rating for several years. This raised the city's cost of borrowing.

By the waning years of the administration of Mayor Sharon Sayles Belton, Council President Jackie Cherryhomes and Joan Campbell, who chaired the council's money committee, City Hall finally got the message. But so had voters. None of the three returned for another term in 2001.

Since then, the city has worked to recover by both erasing the accumulated deficit and making sure that city departments paid the full costs of goods and services going forward. Departments resisted the higher charges needed to get current, and resisted even more paying for their past sins.

But the results are showing. The first of what Chief Finance Officer Patrick Born calls "hurrah moments" came when the internal service fund stopped using cash from other accounts.

The latest came when the city closed its books on 2007. The funds in the internal service fund now have a net worth of more than $13 million, according to unaudited financials. That's the first time in a long time that's happened, "perhaps in their collective histories," Born said.

The next hurrah comes in 2013, when there will be a noticeable drop in the city's subsidy from property taxes to build up several funds. By 2018, the city should have $21 million more in its general fund for discretionary spending than it has today.

"We could use it to increase street maintenance, to reduce the amount of property tax increases, to increase services -- police, fire and infrastructure maintenance," Born said.

That's welcome news in a city still reeling from a cut of more than $30 million in state aid back in 2003, and trying to manage its pension obligations. And it may eventually lead Moody's to restore the city to its top credit rank.

Besides Born, former Council Member Barret Lane deserves much of the credit for helping to get the city's charge accounts in better order. Mayor R.T. Rybak, and Campbell's successors as chairpeople of the Ways and Means Committee, Barbara Johnson and now Paul Ostrow, stuck to the plans crafted to erase the mess. At a time when residents were clamoring for more cops and complaining about deteriorating streets, that's taken resolve.

Now the payoff is right around the corner.

Outtakes:

"If we live in Longfellow, it's sort of because we're practical." -- Resident Cathy Swope.

She said people buy there because they want good value for their money, and aren't apt to pay up to $650,000 for condos in an area where development has stalled.

Steve Brandt • 612-673-4438

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