Millions at stake for city in special session

The 2005 Legislature approved borrowing money for a new Planetarium and a few other notable items for Minneapolis but adjourned with major tax legislation, pension fixes and education, transportation, health care and environmental spending unresolved.

The Legislature passed a few big bills May 23, the last day of the regular session, including a public safety funding bill. Among other things, it increased sex crime penalties and extended trespass timelines. (It allows property owners to bar people from their premises for up to one year instead of the current 30 days.)

Yet multimillion questions loom for the city in the special session.

The Local Government Aid (LGA) issue alone poses a $33.1 million annual swing between the House version (an $18.3 million cut) and the Senate version (a $14.8 million increase), said Gene Ranieri, the city's chief lobbyist.

For a city desperate to increase public safety spending, $33.1 million represents 441 officers and firefighters, (assuming $75,000 each for salary and benefits.)

The harsher House plan does allow Minneapolis to impose a 0.5 percent local option sales tax for public safety, Ranieri said. If approved, it would raise an estimated $26.8 million - or a net $8.4 million gain (or 112 officers).

The city had asked the Legislature for a local option sales tax as a last resort to boost public safety. However, the House plan would be a bitter political pill to swallow given that most of the new money would offset state cuts.

Rep. Margaret Anderson Kelliher (DFL-Minneapolis) said going into special session allows the opportunity to negotiate what she called "punitive" LGA and school funding proposals for Minneapolis.

A full plate

Here are some of the issues Minneapolis leaders are tracking as the Legislature heads into special session. The timing is unpredictable, and issues could be resolved by the time you read this.

– Property taxes: Minneapolis lobbyist Ranieri said proposals would make it tougher to raise the property taxes the city might need to fund services. Some initiatives freeze property tax levies or require a referendum for any levy increase.

– City schools: The Minneapolis School District faces a $4.6 million swing in public school funding between the House and Senate proposals. That is approximately 1 percent of 2005 state education aid or 66 city teachers (assuming approximately $70,000 for wages and benefits.)

The House Republican K-12 proposal overhauls the pupil aid formula.

Rep. Jim Davnie (DFL-Minneapolis), a teacher, said the state currently pays school districts $4,601 per pupil. Districts get additional "categorical aid" for kids from poor families or for schools with high concentrations of such students.

Minneapolis received 22 percent of the state categorical aid in 2005, according to the state. Historically, if per-pupil aid goes up 2 percent, categorical aid goes up 2 percent. The House freezes categorical aid.

The governor's latest proposal is closer to the Senate plan that provides more money, said Jim Grathwol, school district lobbyist.

Pensions

Four pension issues remain unresolved that have significant financial implications for the city. They are contained in two pension omnibus bills.

– Minneapolis Police Retirement Association (MPRA): After years of bitter wrangling, the city and MPRA cut a deal to restructure city pension debt, which would free up cash flow to pay for current services. The deal needs legislative approval.

The issue became a flashpoint in the mayoral race, with challenger Peter McLaughlin charging that Mayor R.T. Rybak last year turned his back on an MPRA bill that would have saved the city money to hire more cops.

The compromise, signed May 18, is similar to last year's bill in several ways. It buys the city 10 more years to fully fund the ailing pension fund, from 2010 to 2020, thereby reducing annual payments. It also allows the city to capture 10 more years of state aid.

MPRA attorney Brian Rice said the change would save the city $18 million in today's dollars over the fund's life, and reduce 2006 borrowing needs by $15 million. Pat Born, city finance officer, said he did not know yet how much money the deal would free up in the short term, if the Legislature approved it.

– Public Employee Retirement Association (PERA): PERA is a state-run pension fund covering local government employees, including city workers. Hurt by stock declines and generous 1990s benefit increases, it does not have adequate long-term funding.

For Minneapolis, the change would mean a $2.2 million increase in 2006 withholding costs, Born said. (That translates to 29 police officers.) The withholding increases would rise to $8.9 million over current costs in 2010, given the same number of employees.

Minneapolis Teachers Retirement Fund Association (MTRFA): The MTRFA has the lowest funding level of any public pension fund in Minnesota, with slightly more than 50 percent of the money it needs to pay for future pensions.

The state already contributes annually to fix the MTRFA shortfall: $16.8 million in 2004. The city of Minneapolis and Minneapolis School Board make annual contributions of $2.2 million each. To fund a merger with the stronger state teacher's fund, the city, state and Minneapolis School Board would each kick in $2.9 million more in 2006 and continue for the next 30 years, said Rep. Paul Thissen, DFL-Minneapolis.

Minneapolis Employees Retirement Fund (MERF): The least controversial pension issue would allow the city to extend its payment schedule for MERF, another closed fund. It would save the city approximately $1 million a year, Born said.

Born said if all four pension provisions pass the Legislature, he expects the city will take a net financial hit.