The McKinsey Report: What does it mean for Southwest neighborhoods and Minneapolis city government?

Mayor R.T. Rybak calls it his franchise; other city leaders declare it will prove this City Council’s greatest economic legacy. But what is it? Just what does the highly touted McKinsey Report really mean for Downtown and Minneapolis citywide?

The wide-ranging study, unveiled June 14, proposes a massive reconfiguration of the city’s economic-development bureaucracy, setting government’s focus on two issues — affordable housing and new jobs.

To a person, councilmembers expressed enthusiasm for the report’s underlying ideals, which boil down to realizing the mayor’s campaign pledge to increase affordable housing — and, as the mayor points out, no housing is affordable if you don’t have a job.

Councilmembers say they are excited about the prospect of a smoother, more unified city development approach that de-emphasizes tall buildings in favor of "developing communities," as promised by the report’s authors.

But some cracks are showing through the unity.

Councilmember Natalie Johnson Lee (5th Ward) has expressed concern that the report does not directly address communities of color, and fails to tackle poverty head-on. Councilmember Robert Lilligren (8th Ward), worries that taking council attention away from transportation could defeat any other attempts to rebuild Minneapolis’ economic strength.

"Those kinds of questions have not yet been asked," Lilligren said. "One of my concerns is that there is a movement on the City Council to just go forward and implement the McKinsey recommendations without having the policy discussions."

Housing disappointments

The report prepared at no cost to the city by Minneapolis-based McKinsey & Co. consultants, says city spending on housing and jobs creation is far out of whack with results. The report states that in the past five years, the Minneapolis Community Development Agency, the Neighborhood Revitalization Program and the Planning Department have spent just short of $1 billion. MCDA alone spent $856.5 million in that time.

But the city gained only 52 net housing units in those five years, McKinsey says. Minneapolis is now 8,300 units short of meeting its immediate affordable housing needs. And its job growth rate has fallen significantly behind Twin Cities suburbs and the national average, according to the report.

These aren’t the only problems. State property-tax reform has depleted city tax-increment financing revenue — the main source of NRP’s $11 million annual funding. There have also been federal spending cuts, and the Legislature is mulling aid cuts to cities.

Report authors interviewed 311 business leaders, neighborhood association representatives, elected officials and city staff, among others. It also incorporated nearly 1,000 online surveys filled out by citizens and drew information from 125 city documents.

The Plan

The centerpiece of McKinsey’s recommendations is the combination of all Minneapolis economic development bodies into a single new oversight agency — the office of Community Planning and Economic Development (CPED).

The new body would oversee five new city sub-agencies (Neighborhood and Community Planning, Development Services, Housing Development, Business Development, and Human Development).

Neighborhood Community Planning would absorb functions of the Planning Department, part of Public Works, the MCDA and other offices. Regulatory Services, Health and Family Support and NRP employees would also be absorbed by new agencies.

With the new structure in place, CPED would be in charge of 400 to 600 city workers and would oversee all development and job-creation initiatives; its director would be held accountable.

Among its practical effects, McKinsey would whittle down the Byzantine process of applying for city development permits by bringing various agencies’ staffers together in one place, a "one-stop shop," where licensing applications and permit reviews would be expedited. That, in turn, would help developers launch needed new development, whether city-funded or otherwise, according to McKinsey proponents.

Where neighborhoods fit in

Paul Lohmann, president of the Lynnhurst Neighborhood Association, has been busy absorbing the McKinsey Report. For the most part, he said, he likes what he sees.

"I thought it was very comprehensive and I was impressed with it," he said. "The real concern is how it’s implemented. Whether it increases neighborhood activity or influence or decreases it, or how it directly affects NRP is really not spelled out."

The ambiguity demands that neighborhoods "need to really be active in this," Lohman said.

They should start, he said, by sending representatives to a pair of explanatory sessions officials plan for Wednesday June 26 at the North Regional Library, 1315 Lowry Ave. N., and Tuesday July 9 at the Zurah Shrine Center, 2450 Park Ave. S.

Initially, Lohman feels optimistic. "It’s going to consolidate some of the thinking and give neighborhoods better ideas about how to work (together), rather than all of us as individual little fiefdoms out here," he said.

Councilmember Scott Benson (11th Ward) said some neighborhoods may well feel their influence slipping under the McKinsey plan, but he doesn’t consider such worries warranted.

"My guess is that in living up with the real goals of what McKinsey is trying to accomplish, there would be a lot of incentives for neighborhoods to work toward the mains goals of the city, which is job creation and housing creation." Benson said. "I think there would be more of a carrot than a stick approach."

Holistic medicine

Councilmember Lisa Goodman (7th Ward) doesn’t like questions about what the McKinsey recommendations could do for specific areas of the city. It’s not just about Southwest, she said. The plan encompasses all neighborhoods, businesses, citizens, everything and everyone connected to economic development.

"I know my constituents living in Southwest Minneapolis see it that way," she said. "They’re paying a huge amount in taxes and they’re not getting it back through NRP. So I think the public is behind the idea of sharing resources and working collaboratively toward a greater goal."

But the plan also is about new priorities, and Goodman anticipates resistance. For one thing, she said, most city employees are union members, and the plan hints at big changes in many job descriptions. "I haven’t heard from them as to what their specific concerns are," Goodman said. "But I do expect there will be some."

She predicted that because the McKinsey Report would make the NRP an official part of city development, neighborhood influence over city objectives should increase.

"Right now, you have all these disparate and individual plans, and they’re housed in a variety of different offices," she said. "Combining planners who do neighborhood planning from six different departments and having them all in the same space sharing information means they will act in a more coordinated way."

That could be both good and bad for neighborhoods, according to Gretchen Nicholls, executive director of the Minneapolis-based Center for Neighborhoods. Neighborhood groups have dealt with separate agencies like the MCDA, Planning Department and NRP — each with its own priorities — so they could lean on the agency most closely attuned to its own mission.

But that won’t be possible anymore because the departments will have toe the line on city-dictated priorities, Nicholls said.

"It means that we won’t be able to operate as autonomously anymore as we have in the past," Nicholls said, "and that the funding we get from the city will need to be in alignment with (overall) city needs."

Nicholls said her organization is still assessing McKinsey’s total impact. It doesn’t appear to threaten neighborhood goals, she said, even if it does mean more strings attached to future NRP funds.

"I think we need to think of it as an opportunity to get greater impact from the efforts that we’re trying to mount at the community level, in partnership with the city," she said.

How the game gets played

Like Lohman, several people interviewed feel the real impact of the McKinsey report lies not with the report itself, but in what the city does with it. McKinsey representatives suggested the plan could be fully implemented in 18 months, cautioning against adopting it in bits and pieces.

However, some like NRP Director Bob Miller don’t think the plan can be implemented wholesale.

Miller said there would be resistance to moving Public Works planners into NCP while shifting Public Works development reviewers into the new Development Services department, as McKinsey suggests. And he said the report would force legislative changes and city charter amendments that might be difficult to achieve.

On the other hand, Councilmember Dan Niziolek (10th Ward) thinks McKinsey is achievable, that the city could even do more. "We need to go further," he said.

Niziolek said McKinsey could have elevated three priorities given second-tier status: transportation, education and "community building." Had it done so, he said, quite likely a different picture of the city’s needs would have emerged.

"I think some people are hesitant to do it all at once," he said. "I’m under the guise that we need to be more bold about what this plan is offering."

But Goodman points out that there have been four attempts in 20 years to reform city government on a similar scale. For various reasons, all have failed. That begs the question: Can 13 politicians resist pressure from their home wards and remain committed to a preset slate of citywide priorities?

Councilmember Dean Zimmerman (Ward 6) is among those not convinced they can.

"We don’t know," he said. "This whole thing is so large and complex. If we’re able to step back a couple of paces for the broad perspective and get a handle on it, yes. If we spend our time nitpicking over every little detail, we probably won’t get anywhere."

Goodman, however, is confident the council can and will cooperate and implement the changes. The times dictate it, she said.

"This last election was clearly a mandate," Goodman said, "and anyone who doesn’t think so clearly wasn’t listening at all. … Either we change with the times or we stay entrenched in the way we’ve been doing things, and we run out of money."

Council Responses

Southwest-area councilmembers gave their reactions to McKinsey Report proposals. Following are excerpts of those conversations.

Dean Zimmerman, 6th Ward "Will there be a few individuals here and there in the neighborhood organizations [who] feel they will lose some kind of power base? Probably. But I think that those people are small minority. I think the vast majority of people that are involved in these organizations are in it for a better community, a better general good."

Lisa Goodman, 7th Ward "We’re not just sitting up here in City Hall trying to figure out how to make city government run better; this is about improving the city generally. I don’t think the neighborhoods will have any less say. The whole point of this is for the neighborhoods to have more say."

Robert Lilligren, 8th Ward "The elected officials are the ones that have constituencies. McKinsey people weren’t elected by anybody. …I’m very concerned that they present this as an all-or-nothing plan. I think it would be irresponsible as an elected official to accept this piece wholesale and just work toward implementation without a policy discussion and a deeper examination of some of the ramifications."

Dan Niziolek, 10th Ward "We need to change the way that NRP has been implemented because it’s been created as a parallel process and that was not the city’s intent. Financially we cannot afford that anymore. … The priorities are generally the same if you actually prioritize. But if the neighborhoods assume the city’s going to do all the large development and infrastructure and the residents are going to do all the small stuff, you have different priorities."

Scott Benson, 11th Ward "With the current system, if you wanted to prohibit job creation, you probably couldn’t develop a better system for it. So, if you take a look at what McKinsey recommends, I think the natural byproduct will be, if not direct job creation, then it will make it easier to do business in Minneapolis.

"…It’s not the employees’ fault that there’s a problem here, it’s misdirection from the City Council – either misdirection or lack of direction that’s resulted in the current system. I don’t think the employees stand in opposition to that."

Barrett Lane, 13th Ward "The issue of strategic leadership and setting real goals has always been an issue that has plagued the (MCDA) because the council, wearing their MCDA board of directors hats, has not operated in that fashion. A lot of people will complain about MCDA — what they’re really doing is complaining about the decisions that we have made or approved or consented to in some fashion, and the accountability for what happens in our development program. This is not an instance of a rogue agency. It’s the decisions made by the majority of the council in the past three and a half years that I’ve been here."