Rybak calls for 6.5% property tax hike

Staring at escalating city pension costs, Minneapolis Mayor R.T. Rybak on Monday proposed a 6.5 percent increase in property tax revenues for 2011 -- the ninth straight year he's asked for an increase, although it's smaller this time than in the past.

As he laid out his budget plan, Rybak also said he wants to broaden the city's investment in street repairs to include residential streets and more arterials.

But perhaps his most ambitious long-term goal is to boost the city's tax base, which has shrunk this year in the face of the recession. Rybak said he sees development prospects across Minneapolis, and he's beefing up the city's transit planning staff to try to take advantage of growth opportunities related to developments like the Central Corridor light-rail project.

Without such investments, Rybak said, the cost of providing basic city services like street repair will outstrip the ability of the tax base to shoulder them.

"I'm a mayor for the next generation," he said, explaining why he's seeking long-term growth when the city's budget is balanced -- at least in theory -- for the next five years. The city's development finances are projected to shrink after next year, however.

Pension costs for retired city workers and future retirees are putting ever-greater pressure on city finances. They'll gobble up $17 million more next year because of the need to offset stock market losses incurred in 2008 by pension funds, higher pension contributions mandated by the state, and Minneapolis' share of costs for a city-state pension fund merger.

Without the rising pension costs, there would be no tax hike next year, Rybak said. And without the city's victory in a court fight with two closed police and fire pension funds, the pension tab would be $10 million higher.

Council reaction

Council Budget Chairwoman Betsy Hodges said she has no major concerns about Rybak's $1.36 billion budget proposal. Sandra Colvin Roy, who has said her constituents are sensitive to property tax increases, said she's grateful that, pensions aside, city spending is flat.

Rybak said his proposal, which would increase general fund spending by 5.9 percent, has been his most complicated. One big factor is that the city is re-establishing so-called tax-increment districts to finance Target Center debt and neighborhood programs, meaning that some of the property tax revenue that helped to balance this year's budget won't be available for general government next year.

Also hanging over Rybak's plan is whether the state will fork over $87.5 million that is due to the city in local government aid. A cash-strapped state government has trimmed local aid four times during Rybak's tenure, including three years straight, forcing cuts in already adopted city budgets. Rybak said that the city's staff has mapped scenarios for possible cuts.

The mayor's budget doesn't call for layoffs, but it wouldn't replace 80 positions if they are vacated. The City Council already has approved retirement incentives for up to 20 people each in the police and fire departments.

Rybak said growing the tax base is crucial.

One thing he envisions is a new park on the site of the old Nicollet Hotel, with the hope that it will stimulate redevelopment of vacant or underused downtown parcels nearby. He recalled that the Hennepin County Government Center's footprint was expanded in the 1970s with a park and a plaza that have attracted such corporations as Thrivent and Ameriprise Financial.

The mayor also is putting renewed emphasis on development opportunities along transit corridors, as the Central Corridor light-rail project between Minneapolis and St. Paul takes shape and the city seeks new connections with Interstate 35W downtown and at Lake Street.

Rybak cited the Cedar Riverside and Nicollet-Lake areas in particular. He said he wants to take back some of the land lost to freeways in Cedar Riverside. He said that outside foundation funding is helping the city to beef up its transit planning.

One headache Rybak faced in crafting this year's budget is that some tax-increment districts that lapsed last year, allowing the city to buffer a 7.3 percent property tax hike, are being re-formed to finance Target Center and neighborhoods. That removes their property value growth from helping to balance the city's general fund.

His proposal now goes to the City Council's budget committee for extensive discussion before scheduled council adoption on Dec. 13.