City of Minneapolis is in ‘dire financial position’

Minneapolis is currently in a “dire financial position,” according to Mayor Jacob Frey, with the city’s external revenue expected to drop this year between 7% and 15% — by roughly $100 million to $200 million. 

The city has imposed wage and hiring freezes and is delaying large purchases in an attempt to forestall layoffs and keep providing core city services, such as responding to 911 calls and repairing roads, during the coronavirus pandemic. 

“While we hope and expect the COVID-19 crisis to ease in the months ahead, the negative impact on our local and national economy will be felt long after our public life returns to normal,” Frey wrote in an email to city staff. “These cost containment measures will help keep hundreds of our staff employed for as long as possible.”

Limited data is available so far to city budget forecasters, but the pandemic is expected to deliver a one-two punch to the city’s fiscal health. 

The first pains are already being felt, with the governor’s stay-at-home keeping out-of-towners from coming into Minneapolis, which means no taxes collected off of sports games, concerts and conventions; fewer people paying to park in city ramps; and less revenue from utilities, like water and sewer, used during events. The cost of social distancing is estimated at between $45 million and $120 million.

Other troubles will persist even after the worst of the pandemic is over. The city is forecasting that it will spark a recession lasting months to years, further depressing revenue from local taxes and fees and leading to $20 million to $30 million in delinquent property taxes for 2020, though next year residents could pay back some of that money.   

Micah Intermill, the city’s budget director, noted that “there’s a large caveat” around all of these estimates. Right now, the city is relying primarily on proxy figures, such as drops in hotel room sales and freeway traffic, and won’t get clear data about tax collection for March — the first month the pandemic impacted Minneapolis — until early May.

“The place we’re at is question mark times question mark equals question mark,” Intermill said, paraphrasing a state official. “Our city revenues outside of property taxes are dependent on consumption.”

Intermill said one bright spot is that the city was already planning for a recession during the 2020 budget development process. “The indication that we might see a slowdown soon was [already] with us,” he said.

At a March 24 meeting, City Council Member Lisa Goodman (Ward 7) cast doubt that the city would be able to make it through the crisis without major reductions in service. 

“I want to remind everyone without being Debbie Downer or alarmist that 70% of all of the money we spend in the city is on people,” she told her colleagues. “When we’re looking at a reduction in service level, we’re talking about laying off people. … It’s going to be scary and I’m not sure you really realize the amount of trauma that potentially could come from this.”

In an April 10 interview, Frey said he was determined to try to prevent layoffs, but the city is facing much uncertainty.

“We are putting cost controls in place today because we are committed to doing everything in our power to preserve jobs,” he said. “It’s impossible to know the full scope of how the recession will impact Minneapolis, but we do know that the impact will be significant.”