The New Austerity, Continued

Born: Minneapolis homeowners will see average property tax bills rise 14 percent in 2004. This is comparable to the double-digit increases for 2003. Recent surveys show that Minneapolis is not alone in this trend. Three factors are responsible:

fast-growing residential property values, and slow or no growth in commercial and industrial values; changes in state law lowering tax rates for commercial property and phasing out limited market value for residential homeowners, which means that a greater amount of the actual value of residential value is being taxed; and increases in property taxes levied by the Minneapolis Public Schools, the city of Minneapolis, and Hennepin County.

The first two factors have caused a significant shift in property tax burden from commercial to residential. If residential values slow their growth and commercial values begin to grow, then the exaggerated increases in taxes that homeowners have seen in 2003 and 2004 will begin to diminish.

CP:What are some of the drains on the city's bottom line?

Born: Health insurance is one of our fastest growing. We buy health insurance for our employees. Premiums have been rising on average 20 percent a year. It's huge--in the range of $42 million.

CP:What about pension payouts?

Born: Pensions are a recent but growingly significant pressure on our budgets. The city has to pay three [pension funds], as required by state law. Sixty to 65 percent of what's in these pension funds, much like any other public pension funds, is invested in the stock market. When the stock market drops 25 percent, it creates unfunded pension obligations. They've risen tremendously over the last several years. Our payments into [a Minneapolis police pension] went from $3 million to around $22 million in three years. We're quite concerned about that.

CP:Time to put a Citibank logo on top of City Hall?

Born:I hope not. I think we'll be looking at taking a page out of St. Paul's book about assessments, using assessments to pay for things that we do today. We may be looking at using some of our Convention Center-related taxes to the extent that they [might] grow faster than what it costs to run a convention center. They will only help deal with a portion of the lost revenues. It's very unlikely that we will find revenue sources that will replace lost LGA.