A funding roller coaster

Neighborhoods brace for more cuts to the Neighborhood Revitalization Program

Like struggling neighborhoods across Minneapolis, Whittier battled urban blight through the Neighborhood Revitalization Program (NRP).

"Particularly to a neighborhood like Whittier that was pretty desolate, pretty delinquent, NRP really gave it back its dignity," said Marian Biehn, executive director of the Whittier Alliance, a neighborhood organization.

Since the early ’90s, when the first NRP dollars flowed into neighborhoods, the program has funded home-improvement grant programs, extra police patrols, even million-dollar community centers — all planned by neighbors, for their neighborhoods.

Then, in September, it looked as if the NRP tap was running dry, two years before the program’s scheduled end date in 2009.

In September, funding for phase II — the 20-year program’s second half — was estimated at $66 million. Each neighborhood would receive less than half the money promised in 2004, when phase II began.

NRP Director Bob Miller warned neighborhoods years ago not to expect full funding. But new projections from the city meant a far larger shortfall.

The Whittier Alliance was already two years into phase II, spending NRP funds on local housing, safety and youth programs. With reduced funding — and a requirement to spend 70 percent of NRP funds on housing — there was almost nothing left.

"That leaves us with about $15,000," Biehn said then. "That’s for all the other initiatives we have planned."

In October, the city released a revised funding projection, all but eliminating those concerns. At $72.9 million, it was less than Miller hoped for, but enough to keep neighborhoods alive.

It was just another ride on the NRP rollercoaster, a ride that has left some neighborhoods feeling sick.


A ‘brick wall,’ then uncertainty

The program’s uncertain financial position has its roots in the omnibus tax bill passed by the state Legislature in 2001.

"In 2001, we hit a brick wall," Miller said. "The brick wall was the legislative changes in the tax law."

NRP is funded by revenue from the Common Project, a collection of the city’s oldest and largest tax-increment financing (TIF) districts located in and near Downtown. In a TIF district, the rise in property values due to redevelopment is funneled back into the district for further
development.

Tax law changes in 2001 dramatically reduced the Common Project revenue available to NRP (see: "NRP Primer" on the next page).

The city initially projected about $180 million would be available to fund NRP phase II. But with revenues from the Common Project in question, Miller ordered a halt to the neighborhoods’ phase II activity in 2001.

"It was kind of like we were going down the highway, and we just put the brakes on doing 60 mph," he said. "We couldn’t do anything until I could get some good numbers out of the city."

For neighborhoods still working to complete phase I projects, business went on as usual. But some of those working on phase II were suddenly "in limbo," Miller said.

"It killed participation," he said. "It really hurt the amount of activity that was going on in the neighborhoods."

Miller said the city’s Finance Department finally released a new projection in 2003 that estimated phase II funding at about $126 million. By 2004, when Miller gave the go-ahead for phase II, the estimate had dropped to just $85 million.

In 2005, as neighborhoods moved forward with phase II planning, the estimate was twice adjusted, landing at just above $70 million.

The rollercoaster ride continued into 2006, with the city’s estimate falling and rising again. The wild fluctuations in the estimates frustrated Miller.

"It has been a constant sense of consternation for us [the NRP Policy Board] as managers of … this program, to try and say, ‘What numbers are we working with?’" he said. "And it never really has been that clear."

Jack Kryst, Minneapolis’ development finance director, said his staff used "the best methods that were available" to make a very tricky prediction.

"It’s a volatile prediction to make," Kryst said.

He said three main factors influence the amount of tax-increment revenue the Common Project will produce: property values, appeals that could change those property values and the city’s tax rate. All three can change from year to year.

Kryst said he could "understand the difficulty" of planning for NRP when funding estimates kept changing.

"All I can say is the city made its best efforts to try and predict as closely as possible what we thought was going to happen in the future," he said. "Generally, we just weren’t able to get ahead of the reduction in revenues produced by the Common Project."


Proceeding with caution

Matt Perry, president of the East Harriet Neighborhood Association (EHFNA) board, got an inkling back in January the second round of NRP income might be lower than anticipated. A group of staff and volunteers met for six months to determine how to structure the group’s phase II plan with as little as 40 percent funding, Perry said.

"I feel it’s unfortunate that we are spending a lot of effort — we’re using the volunteer effort we have and the staff people — to deal with uncertainty that doesn’t need to be there," he said.

Unlike some neighborhoods, though, he said the EHFNA could maintain all of its programming with a significant reduction in funding.

The Armatage Neighborhood Association (ANA) could not.

ANA president Jennifer Swanson said the organization could lose its community life and safety programs if NRP funding takes a big hit. She said Armatage, one of the first neighborhoods to have a phase II plan approved, counts on NRP dollars.

"I don’t think it’s fair for the money to be withdrawn," she said.

The ANA plans to send a letter to City Council Member Betsy Hodges (13th Ward) asking her to support NRP and find a way for the program to get funding.

The Kingfield Neighborhood Association (KFNA) is also in danger of losing programs if NRP dollars are cut.

A discussion about the future of NRP funding was a top priority at the organization’s regular meeting in October. The group planned to meet again soon to start prioritizing initiatives in case money for its approved phase II plan doesn’t materialize.

The KFNA already contracted $275,000 for housing programs, its farmers market, park events and environmental activities.

"Our charge as a board is to figure out what really matters," said KFNA board president David Brauer, who was on the board before it had any NRP funding.

Brauer’s personal thoughts on the program differed from those of many other neighborhood leaders. Though he believed some financial support from the city was necessary to maintain a viable neighborhood group, he wasn’t confident NRP was the best way to go about it.

"I’ve never been convinced that the city’s best use of its marginal dollars is NRP," Brauer said.

Neighborhoods must spend at least 70 percent of their NRP funds on housing. Brauer said that rule made sense in the mid-1990s when much of the city’s housing stock needed major renovation, but it is now outdated.

"In this neighborhood, frankly, we’re looking for housing programs to meet the requirement," he said. "Whatever happens, we need more flexibility."

Brauer said he’d rather see the neighborhood put more dollars toward crime prevention and safety. He said a big issue is whether the city could put the cash it doles out for NRP to better use itself.

"In tight financial times, nothing is sacred," Brauer said. "Including NRP."

Funding Solutions

In October, Miller pushed the City Council to consider a plan he said could funnel more dollars into NRP.

Miller said the city could divert up to $14.5 million from a development reserve known as the Legacy Fund. The city fund was created with the intention of investing its earnings in housing and commercial development.

The plan would require the support of the City Council, but several members said such a funding strategy might not be necessary.

New Oct. 1 projections estimate there will be $72.9 million available for phase II, a number that comes just $95,000 short of funding program dollars at 70 percent — the amount neighborhoods were planning on for years.

"The crisis isn’t as dramatic as it was a few weeks ago," Council President Barb Johnson (4th Ward) said.

Council Member Robert Lilligren (6th Ward) said the most recent fluctuation in projections made the City Council aware more security is needed in those numbers. The Council could consider a plan that would guarantee NRP a certain amount of funding for its second phase, Lilligren suggested.

"It really isn’t fair to the NRP neighborhoods to have the numbers changing," Lilligren said.

Council Member Paul Ostrow (1st Ward) agreed, but Council Member Lisa Goodman (7th Ward) said the city must make hard choices about spending decisions.

"So if it means taking money from debt repayment for the shortfall at the Target Center or … programs like mortgage foreclosure prevention and commercial corridor revitalization, I would not support a diversion of funds from those priorities to NRP," Goodman said.

‘Something to rely on’

To date, all but one of the city’s neighborhoods has participated in NRP. At the very least, Miller argued, neighborhoods need reliable funding predictions to plan for their futures.

Biehn, the Whittier Alliance executive director, knows that all too well. The September funding estimate not only put neighborhood initiatives at risk, but also her job and the jobs of two Whittier staff members.

"If you don’t fund the jobs, who does the other stuff?" she asked, referring to the other neighborhood initiatives.

She said neighborhood leaders never expected NRP to be around forever.

The Alliance, founded in 1977, predated NRP by more than a decade, and was making plans to survive beyond the program’s 20-year lifespan.

"We’ve always been watching our budget very, very carefully," Biehn said.

The Alliance set up a revolving-loan fund as a revenue source independent of NRP, ramped-up fundraising efforts and looked for possible grant sources. Biehn said they expected to have a few more years to secure funding for the neighborhood.

That’s what made Miller’s Sept. 20 letter to the neighborhoods such a shock. Suddenly, the window to achieve financial independence was shrunk dramatically.

The new phase II estimate release Oct. 1 grants Biehn, her co-workers and the neighborhood a reprieve.

"It would keep us in business," she said. "It extends our ability to find alternative funding and to make different plans."

Still, Biehn said the city failed to make a "good-faith effort" to provide neighborhoods with solid funding projections.

"Maybe solid numbers are never possible when you’re talking about city budgets," she said. "But at least (give us) reasonable estimates that are something to rely on."