For the first time in his nearly 10 years in office, Minneapolis Mayor R.T. Rybak on Monday proposed a budget without a property tax increase. But armed with borrowing power, the city can still repair its crumbling streets, the mayor said.

The proposal surprised some who attended Rybak's budget presentation at the Minneapolis Grain Exchange, because the mayor last month called for a 2 percent tax increase. The mayor has felt the pressure to hold the line on property taxes since last December, when angry taxpayers persuaded the council to trim this year's tax hike to 4.7 percent.

"Our property taxes are simply too high," Rybak said Monday.

Some homeowners may still end up with higher tax bills, however. Owners of higher-value homes and commercial properties are expected to owe more because of the Legislature's elimination of a key tax credit.

Rybak's plan eliminates 90 city jobs, including at the middle to upper levels of city staff. No firefighters or police officers will be laid off, but which jobs will get cut hasn't been detailed because the mayor has yet to release an actual budget document, including examples of the tax impact on homes at various values.

"A zero-percent property tax increase does not come without some significant consequences," Rybak said. "This budget makes many, many, very, very difficult cuts."

The centerpiece of Rybak's proposal is borrowing $57 million over five years to repair city streets, atop the $93 million the city already had budgeted. Most of that increase will focus on improving major streets, but there will be some side street improvements as well, he said.

The condition of city streets has declined steadily since Rybak took office, despite his program to speed up spending on repairs. Drivers howled last spring when winter's freeze-thaw pattern left major potholes, and 60 percent of residents surveyed late last winter say they're unhappy with the condition of the streets, ranking them dead last among city services.

"Too many of our roads are just in lousy shape," Rybak said.

He said the city can afford his paving proposal because it has paid down $296 million in debt, restoring its AAA credit rating, as other levels of government were downgraded. That's freed $12 million annually.

Several council members reserved judgment on the budget until they see the full document. Cam Gordon, the council's only Green Party member, said he will be looking closely at the cuts, particularly the layoffs and those affecting smaller departments.

Gordon said he is "a little bit concerned about the zero tax levy, in terms of what kind of flexibility we might have and what will that mean next year," but is "very open" to the idea.

State changes

Although the overall amount of property tax revenue under the mayor's budget would stay the same, the experience of individual taxpayers will vary. The Legislature eliminated the market value homestead credit for homeowners this spring and replaced it with a program called the market value exclusion that benefits lower-value homes. As a result, owners of high-value homes and commercial properties will have to pay more.

"We can propose a zero-percent levy increase, but that doesn't mean the state action to eliminate that program won't have a huge effect on people's bills," said Betsy Hodges, chair of the council's budget committee. "They're going to see an increase. And I predict a sizeable one."

Finance officials said city spending actually will increase by about 1 percent in 2012, due in large part to the increased cost of health insurance for city employees. Rybak cited the city's human resources and health departments as places where job cuts will fall. But he said he doesn't want to merge the city's health operations with those of Hennepin County because they attract too much outside grant money.

To make his budget work, Rybak is counting on the Legislature-approved merger of two closed fire and police pension plans into a state fund. That saves the city $17 million in 2012 alone. He will find out Tuesday if police pensioners have voted for the merger, as fire pensioners have. If not, the pension savings vanish and the levy will jump.

The city's Board of Estimate and Taxation holds a hearing on the proposed levy on Tuesday at 5:05 p.m. in Room 317 before setting the maximum for 2012. • 612-673-1732