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Continued: Street repairs or rainy day fund?

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  • Last update: November 9, 2008 - 6:44 PM

Among the many budget balancing acts Minneapolis city leaders must address this year is how to finance much-needed road repairs.

Mayor R.T. Rybak proposes tapping a city development fund for $27.5 million over five years to catch up on street maintenance and other public works. Some council members agree that streets need attention, but they contend that the fund should be preserved for other development projects and as a reserve fund for budget shocks.

Working together, officials need to compromise. In recent years Minneapolis has neglected fixing potholes, resurfacing roads and repairing light poles. A 1997 study showed that the city was tens of millions of dollars behind on public works, and the council agreed to finance at least half of the bill. But that commitment only lasted two years, interrupted by budget cuts and other funding priorities that included paying down debt and improving public safety. Yet the longer infrastructure and basic livability problems are neglected, the more expensive they become to fix.

At the same time, the city needs to be prepared for the financial difficulties ahead. With the weak investment market, lower home values, expected state deficit and high pension obligations, Minneapolis must build in reserves to brace against sagging revenues.

The pot of money in question is the Legacy Fund, also known at the Hilton Fund. In 1999, the city sold its interest in the downtown Hilton hotel for $40 million. The proceeds were placed in an internal endowment, intended to be used for discretionary development.

Since early in the decade, about $3.7 million has been drawn from the fund annually to fix up business corridors, recycle industrial sites and create jobs. However, it is expected to be replenished next year through rent collections and repayment of a downtown development loan.

In August, Rybak proposed using the fund for additional public works projects including bridges, streets, sewers and water mains. But since then, city leaders have learned that they might have to pay as much as $38 million toward city pensions. With the depressed investment market, the city is on the hook to make up pension fund losses.

Because of the pension issue and other possible budget surprises next year, Council Member Paul Ostrow says it's important to hang onto the Legacy Fund. He would scale back street improvements, but pay for some of the projects with an increased bond redemption tax levy. That would push the mayor's proposed 6.8 percent tax increase up closer to 8 percent.

While the mayor believes his proposal is the best way to support enhanced public works, he says he's open to considering other funding sources. Because of the growing pension obligations, that kind of flexibility is essential at City Hall.

Before the final city budget is adopted next month, the council and the mayor should work toward a compromise that protects reserves, gives the city options for development and at least gets a start on street repairs without placing too great a burden on financially strapped homeowners.

  • DIFFERENT TAKES

    "I welcome ways to improve my budget proposal but continue to think this [Legacy Fund] is the best way to fund street and other infrastructure improvements.''

    R.T. Rybak, Minneapolis mayor

    •••

    "We've tapped down on reserves about as far as we can and need to hold on to some of the fund for future obligations.''

    Paul Ostrow,

    Minneapolis City Council member

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