Why one city government paid $15,000 to audit another

New city fees have Park, Library Boards crying foul

The Minneapolis Park and Library systems are in a financial tug of war with the city -- and how it plays out will determine whether parks and libraries get hit with a new round of cuts.

In 2003, the city began charging the Minneapolis Park and Recreation Board and the Minneapolis Library Board for a share of city management overhead -- such as the Assessor's Office, human resources, procurement, budgeting, technology and affirmative action efforts.

In 2003 and 2004, the city charged the Park Board $800,000 a year, roughly equivalent to the operating budgets for two recreation centers (or quadruple Mayor R.T. Rybak's 2004 tree-planting initiative.)

The city charged the Library Board $300,000 a year, or approximately half the annual budget of Uptown's Walker Library, 2880 Hennepin Ave. S.

To city leaders, it seemed only fair for the Park and Library Boards to share the costs of services that benefit them. Some independent Board officials say they feel the city is fixing its budget problems at their expense.

The Park Board questions whether the city is overcharging -- and voted to spend $15,000 to hire Price Waterhouse, a private accounting firm, to double-check the city's math.

The feud is the result of tough budget times for municipal government. The state has cut millions of dollars in Local Government Aid (LGA) and the Board of Estimates has imposed property tax caps on the city, Park and Library systems.

The city's new fees amount to 1 to 2 percent of the Park and Library budgets -- and could go higher. City staff said the fees do not cover the full overhead.

City Controller Charles Elliott said preliminary calculations show the Park Board should have paid $1.2 million in 2004, or a 50 percent increase, to fully cover costs. The Library Board should have paid $697,000, or more than a 130 percent increase.

City leaders will decide whether to raise fees during the next round of budget talks. The mayor typically makes a budget proposal in the fall, and the City Council approves it in the winter.

City Finance Officer Pat Born said the Council and the mayor realize that the fees shift costs to the Park and Library Boards. The city chose not to charge the full amount in 2004. "At some point, they may," Born said.

The independent Boards are not independent when it comes to ignoring city fees. If the Boards don't pay, the city would deduct the cost from their LGA share, Born said. (The state gives the city LGA, which the city distributes to the Park and Library Boards.)

Dueling bean counters

Don Siggelkow, the Park Board's assistant superintendent of finance, called the city's fee analysis flawed.

For instance, the Park Board does not believe it should have to pay for a share of the Assessor's Office, he said. (The Assessor's staff appraises individual properties for property tax purposes.) Further, the city charges the Park Board for payroll services when the Park Board has its own finance and payroll staff.

"We use the city's systems, but we do it with our own people," Siggelkow said. "It was obvious from the get-go they are charging us for services that they don't provide."

He expected Price Waterhouse to finish its report soon, Siggelkow said. From what he had seen of the report, he thought a fairer city fee would be $400,000-$500,000 a year, roughly half what the Park Board currently pays.

Born defended the city's decision to charge the Parks and Libraries for the Assessor's office. The Park Board receives property tax revenue, and the Assessor's Office helps administer the tax, he said.

If the city didn't charge the fees to the two Boards, it would face difficult budget choices, Born said. Does the Council cut the already depleted Police, Fire or street maintenance budgets -- or minimize cuts by charging fees to recoup service costs?

The park and library fees are "a way to allocate overhead costs that probably should have been allocated a long time ago," Born said.

Siggelkow said the Price Waterhouse report would help the Park Board decide whether to try to independently contract for services instead of paying the city $1.2 million a year.

"We would be irresponsible if didn't try to figure out how to get it done cheaper," he said.

Born said the city's charter requires the city, Park Board and Library Board to have a centralized payroll, accounting and treasury system. The city's Financial Officer is also the financial officer for the Park and Library Boards, he said.

Legally, "the Park and Library [Boards] couldn't go out and buy their own accounting system and have that replace the city's system," Born said.

A question of fairness

Library Board member Diane Hofstede said the fees allow the city to get money from the parks and libraries "in a way that is not very obvious to the citizens."

Library Director Kit Hadley called the city management analysis a good learning tool because it allowed the city to understand costs.

However, Hadley said the new fees avoided a bigger debate.

The city historically receives more property taxes and state aid than the parks and libraries, partly because it runs the Assessor's Office, procurement and other services that help independent boards, Hadley said. If the city wants to change the financial rules, it would be fairer to give the parks and libraries a corresponding state aid increase to cover the new costs, she said.