The New Austerity, Continued
For two years, Minneapolis has faced serious financial distress, as soaring debts and costs have threatened to outpace the city's revenues. A year ago, things went from bad to worse as Governor Tim Pawlenty vowed to make serious cuts to Local Government Aid, a funding mechanism that infuses city budgets statewide. Minneapolis was suddenly facing the worst budget crunch in memory.
Though city leaders reacted with efficacy rarely found in any level of government, it wasn't lost on anyone that the mayor and as many as eight City Council members were barely into their first term. They often turned to finance director Patrick Born. In short, Born played a key role in steering the city away from any number of fiscal disasters, and has been integral in planning the city's long-term budget policies.
Born was named the city's chief financial officer in November 2000 after 20 years with Evensen Dodge, a Minneapolis firm that advises state and local governments on fiscal issues. Before that, Born, 52, did six years with the State of Minnesota's finance department. He and his wife, who have three grown children, have lived in southwest Minneapolis for 28 years.
Since August, the City Council has been mulling over Mayor R.T. Rybak's proposed budget for 2004, and again Born has repeatedly been called to the council chambers for questioning. Pending the council's approval Monday of the $1.24 billion budget, I sat down with Born last week.
City Pages: Do you think the city is on more solid financial ground than it was a year ago?
Patrick Born: I do. It's been a very traumatic year financially for us, but our overall financial picture is quite good. It has not deteriorated during this time. I'd attribute that to the speed with which we made our decisions. Once we knew that local government aids were going to be cut this year--even before the final decision was made by the state legislature--we acted very promptly. It allowed us to make fewer cuts this year.
CP: There was at the time, especially with regard to firefighters and police officers, an attitude that you reacted too quickly, that you were ahead of the curve on the LGA cuts, and that layoffs may have been unnecessary.
Born: I think that criticism was born out of the hope that the legislature was not going to agree with the governor's 2003 proposals. We felt confident that the legislature was going to agree and the debate would be over 2004 cuts. In hindsight, our position turned out to be a very good one.
CP: It seems budget talks this year have been a little less contentious. Is that because there's an acceptance that we've got to make these cuts and we've simply got to live with them?
Born: I would say this is the fourth budget this group of elected officials has done in the last years [because of impending state cuts]. They know these issues very well. Because of that, there is less debate among them that comes out of just being new to the process.
CP: What did the LGA cuts really mean for Minneapolis?
Born: Lower levels of service overall. The primary services that we deliver: police, fire, street maintenance, parks, and libraries. Those five services rely heavily on LGA and property taxes. There is no question that we are going to see libraries open fewer hours, park buildings not being staffed like they had been, potholes filled more slowly.
We are also challenging our managers and employees to help decide what are the most critical and high-priority services that we do. And to better manage the resources that we have. Our elected officials are going to demand that of us.
Wal-Mart asks that of its suppliers: How can you deliver me children's pajamas at a lower price than you gave me yesterday? And those vendors figure out a way to do it or they don't survive. Now, that's not exactly the environment we're in ...
CP: Well, there's the notion that government, city governments, should be run like corporations. But cities don't function like corporations, do they?
Born: They don't. We don't have the same kind of incentives or the same kind of tools, and we're not delivering the same kind of services. Certain aspects of running our police department and our fire department are not as production-oriented as making children's pajamas for Wal-Mart. But the question is still a legitimate one to ask: How can we deliver the highest-priority services for the least cost? The areas we'll probably do better than we've been doing are some of the back-office kinds of things.
CP: We talk about austerity, but there's also a lot of lip service given to funding public safety. It seems directly contradictory.
Born: It is. I'm not going to say that we won't see some service delivery reductions. We will. I don't want to put a sugarcoating on this at all. And that, frankly, is a public cost to this kind of thing. If our public services fall, it's inevitable that the attraction of Minneapolis will diminish. That's true for all of Minnesota.
CP: Much is made of residential property taxes increasing every year in Minneapolis. Why does this have to happen?
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:
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.
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