December is crunch time at City Hall, when the Minneapolis City Council puts the finishing touches on a budget for the next year. For 2005, most department managers had expected a third consecutive lean year, but the Minneapolis Police Department's financial situation has been especially vexing. Since June, when Chief William McManus laid out a bleak five-year budget proposal that would reduce the number of cops on the force to 40-year lows, city leaders and neighborhood activists had been wringing their hands over how to prevent this attrition.
At the Truth in Taxation hearing two weeks ago--an annual ritual in which the council turns the mic over to the taxpayers--speaker after speaker from some of the city's rougher neighborhoods pleaded with council members to find a way to stave off the layoffs. Then last Monday, the council convened to adopt a 2005 budget. Barb Johnson, chair of the council's Ways and Means/Budget Committee, came armed with nine penny-pinching amendments--a third of which were designed to shift money into the MPD's coffers. They were, as the 13th Ward's Barret Lane repeatedly argued, onetime fixes that would not solve future shortfalls.
"This might get us through the election," said Lane, who is not seeking office again, while noting that 10 of his colleagues and the mayor will be campaigning in 2005. "But at some point we're going to have to look this thing in the eye. This gives the impression of doing something we're not."
What the council did was easily pass three amendments dedicating more cash for cops, wrapping up the entire meeting in just over an hour. (The imposing John Delmonico, head of the Minneapolis Police Officers Federation, sat in the front row in full uniform until the amendments had passed.) The MPD's $101 million budget grew by $650,000, saving the jobs of eight full-time sworn officers. Two money transfers of $75,000 each from the Regulatory Services Department and the City Coordinator's office were straightforward enough, at least on paper. But the remaining half a million came from a relatively fancy accounting plan to, as the amendment said, "Draw down the General Fund reserve by $5 million; add $500,000 to police department."
Yet Minneapolis is still mired in a historic budget crisis--the kind that would suggest there's not a spare $5 million in the kitty to throw around. What gives?
The answer, according to Johnson and the city's CFO, Pat Born, has to do with money that departments didn't spend in 2004. Normally, these budget "excesses" are carried over into the next year by, say, the Department of Civil Rights or the Office of the Mayor or, ironically, the Minneapolis Police Department. But this year, department heads across the board were told that they could kiss any unspent money goodbye. That meant that the city was suddenly looking at a relatively healthy reserve fund.
"Every quarter we get a report, and the third quarter showed that we are going to end 2004 with $5 million more to maintain a proper reserve," Born explains. "We like to have a minimum of $40 million in reserve, and we're confident that with reduced spending and as-expected revenue, that will be $45 million."
One of the major drains on the city's $1.24 billion budget for next year is debt service, which accounts for roughly 12 percent, or $143 million, of the city's total spending. The city's basic services--police, fire, public works--come out of the city's general fund, which will be about $280 million next year. The general fund comes mainly from property taxes (which keep rising) and state-funded Local Government Aid (which keeps falling, by some $37 million next year). The general fund also pays three pension funds: the Municipal Employee Retirement Fund, Minneapolis Police Relief Association, and Minneapolis Fire Relief Association. These pensions, by state law, have to be fully funded, though their investment holdings have dropped precipitously since 2001.
So, the city has taken out some $117 million in bonds to prop up those retirement funds, and pays as much as $13 million annually on principal and interest. By applying $5 million cash to the debt of one, two, or all three funds (the city, Born says, hasn't decided yet how to spread the money), Minneapolis's budget brain trust figured it could save $500,000 in annual payments. In another climate, one devoid of election-season politics and a fetish for public safety, that money likely would have been distributed to the Convention Center, or the City Attorney's Office, or even the Fire Department. But in this case, the MPD comes out the big winner. (And the city finally pays down some of its massive debt.)
The council seemed relieved when the budget passed 12 to 1 (Dan Niziolek of the 10th Ward, who also is not seeking reelection, voted nay). Yet there's hardly reason to think all's well with the city's fiscal standing. For starters, Born notes, using bonds to pay for pension funds is more an act of desperation than of innovative financial planning. "Normally we only put bonds toward financing buildings and tangible things," he cautions. "This is not something we want to be doing."
Second, there's no reason to assume that departments will come in under budget next year. Already, council members are talking about finding different ways to fund the police department--perhaps by raiding some of the $51 million earmarked for the Neighborhood Revitalization Program. But that will be next year, after the elections.
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