Rybak wants to use development money to fix Minneapolis streets

A debate is brewing at Minneapolis City Hall over whether the city's largest pot of no-strings development money should continue to be used for that purpose, to repair potholed streets or be saved as a budgetary shock absorber.

At issue is use of the Legacy Fund, an internal endowment created in 1999 with the $40 million the city realized when it sold its investment in the downtown Hilton hotel.

Some argue that the fund ought to continue to provide development funding. Instead, Mayor R.T. Rybak has proposed tapping it for $27.5 million over the next five years to do some catch-up on the city's lagging investment in streets and other infrastructure.

But Council Member Paul Ostrow, who chairs the council's deliberations on the mayor's budget proposal, is starting to lobby for holding onto much of the fund to offset future budget shocks.

Ostrow, Community Development Chairwoman Lisa Goodman and Rybak huddled last week to discuss the issue. That spilled over into a council budget discussion Thursday involving the city's development agency.

The issue arises because next year is the last year that the city's development agency can draw an annual $3.7 million from the fund under a deal devised earlier this decade. In recent years, that money mostly has gone toward revitalizing major business avenues, increasing employment and recycling industrial sites.

Without it, the city largely will be reduced to following the priorities set by grants offered by outside funders, development finance specialist Jack Kryst told the council Thursday. That gives the city little capacity to set a development agenda responding to local needs, Kryst said.

Rybak said in a statement Thursday that he's always intended to address post-2009 development funding and welcomes efforts to improve his proposal.

Infrastructure is a potentially critical issue for the city because of repeated failures to meet ongoing needs. When a 1997 study found the city was tens of millions of dollars behind in keeping up its public works -- streets, bridges, sewers and water mains -- the council resolved to try to finance half the gap. That resolve lasted just two years, until the city ran into heavy budgetary weather.

"Roads wear away gradually until they suddenly have a failure," said Sandra Colvin Roy, the lead council member for public works issues. Most of Rybak's proposal would be devoted to improving the condition of the city's major streets and parkways.

The Legacy Fund has been steadily drawn down, but it is expected to be replenished next year by the repayment to the city of a key downtown development loan to Brookfield Development and by annual rent payments on its development. That would leave the fund with a balance of more than $31 million in 2010, when the current city withdrawals from it for discretionary development expire.

But Rybak's proposal would draw the fund down to about $5 million by the end of 2013. Ostrow said he's worried that won't be enough to handle increasing pressure on the city budget beginning in 2010. One big factor is sharply increased payments for the city's closed pension fund obligations, resulting from changes in mortality assumptions and decreased investment earnings. That means the city bill could rise by $17 million. That would reduce the amount available to other city departments. Ostrow said the Legacy Fund needs to be reserved as a rainy day hedge against such budget shocks.