Neighborhoods, taxes become adversaries in budget climate

Fully funding a 2008-approved neighborhood revitalization plan could mean a 22.2 percent property tax increase in 2011

Funding for neighborhood revitalization, which for two decades has been on a seemingly constant up-and-down trip, might just have run into its biggest wall yet: the economy.

Mayor R.T. Rybak’s proposed 2010 city budget is filled with cuts, with every department set to take a hit. City programs faced similar scrutiny, and the mayor proposed that Minneapolis spend no more than $6.5 million per year on neighborhood revitalization from 2011 to 2020.

That’s a $1.5 million drop-off from last year, when Rybak proposed a $8 million-per-year plan. It’s also a much smaller number when compared to what the City Council approved at the end of 2008: $12 million per year, with $8.5 million for so-called general neighborhood revitalization purposes and $3.5 million for community revitalization.

Why such a steep drop just one year later? The simple explanation, as offered by city Finance Director Patrick Born, pits neighborhoods’ funding source against citywide property taxes. If one goes up, the other comes down — and right now, property taxes aren’t dropping.

In fact, Finance Department projections show, if the city were to finance neighborhood revitalization the way it said it would last December, the average homeowner could be faced with a 22.2 percent property tax increase for 2011. If instead it followed the mayor’s $6.5 million-per-year proposal, the average homeowner could see a 15.7 percent property tax increase.

Both numbers, council members said, carry some significant sticker shock. The impact of Rybak’s proposed 2010 budget, after all, is a 6.6 percent property tax increase.

The TIF-tax connection

The property tax and neighborhood revitalization issues are connected through what the city chose as neighborhoods’ funding source through 2020: a tax-increment finance (TIF) district.

Within the geographical boundaries of a TIF district, any rise in property values due to redevelopment is funneled toward a specific purpose, in this case neighborhood revitalization and Target Center debt relief. Because of that funneling, properties within a TIF district don’t produce the same amount of property taxes that they would if they weren’t in the district. More properties within a TIF district mean a heavier property tax load for the rest of the city to carry.

A TIF district that has funded the Neighborhood Revitalization Program (NRP) since 1991 is about to come to a state-mandated end. The city wants to retain a NRP-like program, so it last year lobbied the state Legislature to let Minneapolis certify a new TIF district. That effort succeeded; now it’s time for the City Council to decide how many of the allowed properties will be included in the district.

Certify 100 percent, and the city can follow its 2008-approved neighborhood revitalization plan. The mayor’s proposal calls for 50 percent certification.

‘No single answer’

For now, council members are unsure about where they want to see all of this end up. Early indications point to a final outcome with anywhere from zero to 100 percent certification.

Council Member Betsy Hodges (13th Ward) said that for her, it comes down to the context of the overall budget.

“I think everybody in this city, not just council members, has to ask themselves, what other city service would you have cut to maintain the funding level?” Hodges said. “How much higher should property taxes be? How many services should we cut from other parts of the city? We have to weigh these choices against one another. There’s no single answer.”

Barring an unexpected influx of money, though, the funding situation could provide ammunition for those who last year opposed the city’s new direction for neighborhood revitalization. One of their main arguments was that under the city’s wing, neighborhoods could get lost as just another piece in a jumble of priorities. Some might classify the $12 million to $6.5 million drop as a prime example.

But Hodges said people shouldn’t see the mayor’s proposal — or any future decisions on neighborhoods’ funding — in a vacuum.

“I’m guessing that by the time we’re done with the entire budget, no one will have been singled out, but everyone will be feeling pain,” she said.