Budget Committee June 08, 2026   6/8/2026

Good afternoon.

My name is Aisha Chugtai and I'm the Chair of the Budget Committee.

I'm going to call to order our regular meeting for Monday, June 8, 2026.

Before we begin the meeting, I want to offer a friendly reminder to all members, staff, and the public that these meetings are broadcast live.

Council Member Payne is absent.

Wonsley?

Rainville?

Let the record reflect that we have a quorum.

I will also remind my colleagues that we are using speaker management today so please make sure to sign in.

Colleagues, the agenda for today's meeting is before us.

I have one walk-on related to a request by staff for a gift acceptance for Interim Deputy City Operations Officer Katie Topinka.

to attend the Strive Together 2026 Policy Summit and City Accelerator Cohort Meetings.

You have a copy of the RCA in front of you and staff are also available to answer questions.

I'll move to add this as part of our consent agenda.

Are there any questions or any other amendments related to the agenda?

I'll note that we've been joined by Councilmember Chaudry as well.

With that, may I have a motion to adopt the agenda as revised?

All those in favor, please signify by saying aye.

Aye.

Those opposed, say nay.

Any abstentions?

The ayes have it and that motion carries.

The one item on our consent agenda is the gift acceptance for Interim Deputy City Operations Officer Katie Topenka.

I'll move approval of this item.

Is there any discussion?

Hey, Chair.

Checked by, oh sorry, never mind.

Sounds good.

Seeing no further discussion on the consent item, on the motion to approve, please, all those in favor, please signify by saying aye.

Aye.

Those opposed say nay.

Any abstentions?

The ayes have it and that motion carries.

Our next item is discussion item number one on our printed agenda which approves a staff direction to research a potential payment in lieu of taxes or pilot program.

Thank you Chair Chok-Thay.

So many of you are aware that earlier this year, the council and the board of estimate and taxation received a pretty elaborate report and presentation regarding potential ways in which the city could increase revenue.

And the report was not only extensive, but it highlighted specifically that when compared to our peers, Minneapolis generates less revenue per capital.

It also highlighted

something that we already know and we're going to receive a presentation covering that in a bit but that our city is heavily dependent on property taxes which indicates that we do have the opportunity and a necessary opportunity to diversify how we generate and receive revenue

and the City Council.

showed that we could implement something called pilot which is voluntary payment in lieu of taxes and this particular revenue option will allow the city to increase revenues and focus on entities that receive a significant amount of city resources but do not pay property taxes.

The report also highlighted in terms of how much revenue could be generated from this program.

It showed that estimate

and the City Council.

and it's that sobering reality that should implore all of us to seriously look at how we can implement a multitude of initiatives that will help our city raise significant funds and revenue in a sustainable and equitable way and pilot could be one of those tools that we could potentially use.

So this legislative directive allows us

to get more clarity on the type of potential organizations or institutions that could participate in a pilot program and provide crucial information we would need if we opted to implement it.

So with that, I look forward to getting more information when this gets back and working with my colleagues on next steps.

We have a proper motion before us.

Is there any further discussion on this item

Thank you, Chair.

Councilmember Walts, just off the top of your head, what type of organizations do you think this might highlight to us?

Councilmember Rainville, I'm just looking up the report made by Guy House that we received and it gave a definition of some of those organizations that could participate.

They highlight

It could be higher ed institutions, healthcare institutions, educational, specifically educational, medical, and cultural sectors.

Wonderful.

Thank you, Chair.

May I also ask another question because I know this is a staff directive, so it's nothing that will take necessarily direct impact or what have you, but this, I mean, if we're looking at

higher education institutions and things like that.

I'm thinking about the lower to moderate income families that are paying into those institutions and what that may possibly do for the fees that families are paying to have their children to attend these different education institutions or what that does to the people that are eager to, you know,

If you have a student that's attending the University of Minnesota and the family is already struggling to pay that tuition, I know, because I just did it with my son graduating, then what is the cost then?

Does it change the cost?

Yes, I would.

Council Member Warren, I think one thing to emphasize is again, this is a voluntary program.

So any department or institution that will opt to participate, they're doing it under their own volition.

This is also not considered because of that voluntary status, a new tax.

it's essentially we already provide services to many of these institutions but we don't receive revenue because they don't pay property taxes so this is getting a sense of what are those services what would be the fiscal amount to them if we actually charge some of these institutions but I think it's important to highlight that

In the report, it does say we need to do further analysis.

This is what the legislative motion intends to do.

This is simply voluntary of a program.

It would not be leveraged as a new tax as a result of that.

And in the report, it does talk about University of Minnesota and the University of Boston as an example where this has been effective.

Okay, thank you for that.

Thank you.

Seeing no further discussion on the motion to approve this item, all those in favor please signify by saying aye.

Aye.

Those opposed say nay.

Any abstentions?

The ayes have it and that motion carries.

Our next item is a report regarding the estimated revenues and expenditures for the 2027 to 2028 budget.

We will have a presentation from the Budget Department.

I will invite Budget Manager Justin Carlson to join us and begin this presentation.

Good afternoon, Chair Chug Thai, Vice Chair Schaefer, and members of the Budget Committee.

My name is Justin Carlson.

I'm the Budget Manager in the Finance and Property Services Department.

I'm joined today by Deputy Chief Finance Officer Jane DeCenza and Principal Budget Evaluation Analyst Ben Zimmerman and we are here to present on the 2027 and 2028 Current Service Level or CSL budget calculations.

I'd also like to take this opportunity to thank the budget team who joins us today, Liam, Enos, Daniel, Bethlehem, and Margo for their tireless efforts to get to this point in the budget process that is coupled on top of implementing a new budget software platform, ClearGov, so it's been a very busy team and I'm grateful for all of their work.

I'm also pleased to introduce the city's new budget director, Sean Green, who joins us in chambers today.

Sean most recently was leading a team at the National Geospatial Intelligence Agency in Washington, DC.

I know I and the rest of the budget team are very grateful that he will be here to share his expertise and lead our team.

He just finished week one here at the city and I know he looks forward to presenting to you all in the near future.

This presentation covers the estimate revenues and expenses for next year's start to the biennial budget, which includes the 27 budget, which will be adopted this December, as well as a plan for 2028, which will form the starting point for the 2028 budget process.

Mr. Carlson, do you have a presentation that you want to have?

We do, yeah.

Never mind.

Getting to the agenda here.

Perfect.

is required by city financial policies and the charter to show revenues and expenses where policymakers to take no action to increase or decrease the budget.

This presentation will also be given to the Board of Estimate Taxation later this week on Wednesday.

So to the chair's point, this is a brief walkthrough here on the agenda and our plan for today.

So we want to take you through the budget building blocks so that you understand the journey of the budget process from December 2026 to now.

We will review expense drivers and why we're seeing the numbers that we're seeing, specifically within the General Fund.

We'll close things out with a revenue forecast and next steps in the budgeting process.

While this is a technical presentation narrowly focused on the 2027 and 2028 CSL, you can expect to hear more information on department programs as part of the Budget Committee's work later this fall.

Throughout these slides, you'll see bar charts that show prior year actual spending as well as projections.

Historical actuals were included as a reference, but they're not the focus of our presentation.

This is a forward-looking discussion as we move through the 2027 budget process.

Good afternoon.

Jane DeCenza, Deputy CFO.

With many decision points to come in this budget process, this presentation is one stop along the way to a balanced budget in August.

Finance will be working throughout the summer to refine the data that you're seeing today and also to incorporate any mayoral recommendations before transmitting that budget to all of you.

Today's presentation does not include any new decisions, so this is a transparency measure indicating a starting point before policymaker input.

And it's important to provide some guardrails around this information.

As is typical, at this point in the year, not all funds are completed.

Notably, our capital budget, which constitutes hundreds of millions of dollars, is still under committee review.

So you will notice that exclusion of that fund from the overall data.

It will be added in the August recommended budget along with our enterprise funds as well.

So again we continue to refine all of that data with stakeholders across the enterprise.

Today we should think of these numbers that we're providing to you as estimates and please know that there is a focus on the general fund.

As Justin noted, implementation of the new budget software has impacted our work this past spring, including our timelines for analyzing the data that we've presented.

So as always, we'll continue to refine throughout the summer.

So far, though, when we look at all funds, we are seeing modest increases in both revenues and expenditures.

If we look at all funds, expenses are increasing about 3.1%, while revenues are increasing at about 2.6%.

As we narrow down into the general fund, we see a sharper contrast with the same trend.

Expenses in the general fund are increasing at a rate of 5.1%, with general fund revenues only increasing at 1.9%.

And that does not reflect any updates to the property tax levy.

It is typical at this point in the year to show a gap between expenses and revenues.

Due to the nature of the current service level methodology, our expenses in many categories grow from one year to the next, but our revenues do not inflate in the same manner.

So this year, we entered decision-making with an estimated gap between expenses and revenues of between $28 and $33 million.

That becomes the problem to solve throughout the summer as part of the mayor's budget process alongside consideration of any other funding needs.

Again, this problem will be addressed with a balanced budget recommendation to this body in August.

The reforecasting process, which began in January, revealed cost increases in several categories, which will all be explored in future slides.

In short, though, the cost of providing internal services to all city departments is impacted by broader economic factors, so we are experiencing increases across our internal service funds.

and that's driven primarily by inflationary impacts on fuel, utilities, parts supplies and maintenance costs.

It's also important to note that the city's fund balance decline, which you've heard about from the city controller, has an impact on future revenues.

So as we have fewer dollars in our accounts, we are generating less interest for the city.

We are forecasting reduced interest earnings that equate to about one point on the property tax levy.

As noted, this presentation is largely focused on the General Fund.

However, there are many levies that comprise the overall property tax levy that we discuss and that the city adopts in December every year.

So this slide is meant to show you all of those levies that combine to the overall property tax levy.

And this is with no changes as adopted in December of last year.

We are most often referencing that total property tax levy line towards the bottom of this table.

But you can see at the orange arrow at the top is the general fund portion of that levy.

There are also levies for the park board and the BET in this table, among others.

So the levy represents the percent change in the dollars collected from one year to the next.

In short, how much more money does the city need to bring in from the prior year?

We anticipate many increases to our expenses year to year, and those are reflected in this table.

We plan on consistent pay raises for personnel to keep up with steps, COLAs, and bargaining unit negotiations.

We plan on health insurance becoming more expensive year to year, and we also assume some inflation in our internal service charges.

So as you can see, we had already planned for the property tax levy to increase by 5.4% in 2027.

But we know that we have to revisit our assumptions annually to make sure that we have captured any changes that need to be made.

So that is the objective of this presentation.

Informing you of those changes so that you understand the updates to our cost drivers, our revenues, and how that might impact your future decision making.

As we talk about the general fund, this slide gives you a sense of the scale of general fund as it relates to other funds.

So the general fund is the blue portion there.

So we're looking at $744 million or about 40% of the overall budget as we've calculated it thus far.

The General Fund is the focus because it is predominantly property tax supported.

Fund descriptions for the other areas are included in the budget books as well as the quarterly financial reports.

If you need help understanding or navigating any of those, please just reach out to finance.

This slide gives an indication of our reliance on property taxes over the years.

So we've broken out our general fund revenue in this visual to three categories.

The blue line on the top represents property taxes.

Below it is the red line for non-levy revenues, so things like fines and fees.

Green shows intergovernmental revenues, like local government aid.

So as you can see here, the red and green lines have remained relatively stagnant.

As expenses increase, that means that a greater share of those costs are being shouldered by the property tax levy.

And while we're not talking about the capital improvement program today, it is an important part of the city's budget and is the function within our budget that has the most public engagement.

So our capital long-range improvement committee does really excellent work vetting the capital budget requests with the city park board and the MBC.

That work is ongoing, so what we're showing you today is what was adopted in December of last year.

You could consider the 2027 planned column as the current service level for the capital budget.

So $343 million of planned capital spending is already included in the CIP for 2027.

And we have over the six-year plan about $1.7 billion of capital projects.

And with that, I will turn things back to Justin.

Alright, so diving into the CSL.

I'll first note the CSL does not bind the council to any action regarding the budget in the future, rather it explains where the budget would sit if we made no changes for 2027.

It indicates what the city would have to spend to maintain programs at current levels with current revenue estimates and known expenditure growth, such as changing wage levels and inflationary pressures on internal service costs.

It is a calculation and budget methodology.

It is not a great tool for retroactive analysis, but rather it provides a framework for what eventually becomes the adopted budget following policymaker decisions this summer and fall.

Without this baseline of the CSL, it can be hard to trace the impact of the decisions you all make.

So again, this is a snapshot in time, but the figures do help us understand the impact of policy choices, especially around the property tax levy.

There are three components that make up the CSL, as you can see on the slide.

These are personnel, internal service charges, such as fleet, rent, IT, and general liability, as well as non-personnel, such as professional services and training and office supplies.

The non-personnel-based budgets are held flat, so the only adjustments made to this component is the removal of one-time new budget proposals from the prior year that are not appropriate into the following year.

Throughout, you'll see references to our city financial policies, those were adopted in December, and we provide those as references so you can dig in further if you'd like.

This is all informed by industry best practices, such as the Government Finance Officers Association, or GFOA, and generally accepted accounting principles, or GAP, as well as city and state ordinances.

This slide shows you the roadmap and how we developed the CSL.

On the far left, our starting point is the 2026 adopted budget.

You can see the three expense components, as well as revenue forecasts, which are updated and compiled to complete the 2027 CSL.

At the start of each biennial budget, we host a budget kickoff for departments where we provide a training

about the specifics of the budget process and discuss budget capacity for the next year.

To develop the CSL, we are running many processes concurrently as we update personnel, allocation models, revenue forecasts, and we place a lot of demand on city departments, especially this year with the implementation of ClearGov.

So we're grateful for their partnership and the time it takes to develop the budget.

The processes are guided by financial policies, again, that you all review and adopt.

So looking at the General Fund, over the next few slides we'll be diving into a snapshot of the CSL expense budget for 2027.

While this is just one side of the equation, it is prudent to understand the current costs of the 2026 adopted budget when rolled forward before turning to how to fund these expenses.

This slide is focused on the General Fund, which is where a majority of our programs are budgeted, is heavily funded by the property tax, and it is where strategic decisions are made by policymakers to get us to an adopted budget in December.

It's important to note here that this is the cost of last year's budget today.

This does not include any new spending or reductions to existing programs.

Collectively, we see that salaries and fringe costs are increasing nearly $36 million from the 2026 adopted budget.

and internal service charges are increasing 9.2 million within the general fund.

Policy allows for growth in the budget for personnel and internal service costs while, as I mentioned, the non-personnel or discretionary base is held flat.

This ensures that policymakers are able to weigh requests against each other.

We'll now take a closer look at personnel and internal service charges, those components of the CSL starting with personnel.

With over 4,000 FTEs budgeted for the City, personnel is a significant portion of the total City operating costs.

We work closely with our partners in Human Resources and departments to complete our annual review of personnel expenses in accordance with our financial policies, finalizing budget FTE counts and salary infringe for each permanent position to develop a comprehensive budget position-by-position plan that drives that budget amount for the following year.

Looking at positions within the General Fund, salary and fringe expenses have both increased in the 2027 CSL over what was included in the 2026 adopted budget.

Growth in fringe expenses is outpacing growth in salary expenses with growing healthcare employer costs driven by a rise in the cost of medical care.

as well as budgeting for costs associated with the state's paid family medical leave program.

The city has seen effective management of its medical self-insurance fund, which has allowed for more modest growth and premiums than was previously planned and that fund remains healthy.

But this year we are seeing a reversion to the mean as we join other entities in experiencing growing medical care costs.

The budget division plans for annual increases in personnel costs based on growth assumptions that we revisit annually in collaboration with human resources.

The 2027 CSL General Fund budget for salaries, wages and fringes higher than planned, which can be attributed to those growing medical care costs as well as administrative ads and reclassifications of positions that, while budget neutral, do increase the budget within this expense category in personnel and job and class maintenance studies as well.

Additionally, we are more accurately calculating and budgeting for personnel expenses as implementing our new budgeting software has allowed for us to correct for known limitations in our previous system.

You may note, because this slide shows two years of historical actuals alongside the budget amounts, there are some differences in the categorization of expenses.

We currently budget all salaries and wages under base compensation, which you can see in the blue.

And then as employees elect to use various leave and absence types, such as vacation or sick leave, those are coded under leave and absences category.

Another note per financial policies, inflationary growth for agreed upon cost of living adjustment step increases and the full cost of fringe benefits is accounted for within department budgets.

An exception to this is overtime, which per financial policy 1.5.5 is not inflated and requires mayor and council approval for departments requesting an increase to their overtime budgets so they can provide rationale to support their overtime needs.

To better illustrate how budget positions are adjusted as part of the CSL, we have a simple scenario to walk through.

In this example, a position that is budgeted at a salary of $120,000 with 48,000 infringed benefits for a total compensation of $168,000 in 2026 could experience the following adjustments within the CSL.

The position is covered by a collective bargaining agreement that receives a 3% cost of living adjustment in 2027.

The current incumbent employee will move from Step 2 to Step 3 in the wage schedule.

These two adjustments have led to an $8,400 or 7% increase in salaries from 2026 to 2027.

Fringe benefits driven by salary increases such as FICA, Medicare, PARA, long-term disability, sick leave severance, and paid family medical leave grow proportionately with the increase to salary.

In this example, health insurance premiums are projected to increase 5%, and dental insurance premiums are projected to increase 3%, and the rate of paid family medical leave is projected to increase by 0.1%, leading to a second increase in the budget for PFML.

These adjustments to fringe have led to a $1,845 or 3.8% increase in fringe from 2026 to 2027.

This annual growth in salaries and fringe has led to an increase in the budget for this position of $10,245, or 6.1% overall.

Applying this increase across over 4,000 budget positions is the main cause of increased personnel costs year over year.

As a reminder, this is just a simplified example.

Many factors influence these adjustments.

For example, if the health insurance premium is projected to increase 10% instead of 5%, that will double the premium increases for this position to $2,300 and raise the total fringe growth to 6.2% year over year.

Changes at the individual employee level can also have an impact, such as an employee who celebrated a life event that shifted them from individual coverage to family coverage can result in an increase of over $16,000 in the budget health insurance cost for that specific position.

Other changes may lower the budget amount for the following year, such as when a tenured employee who is at the top step of a wage schedule separates from the city and a new employee is hired at a lower step in the wage schedule.

This is all to note

that while there is predictability to annual changes in personnel expenses, they're highly variable and change frequently at the individual position level.

Financial policies guide our team to budgeting for these increases to ensure departments have sufficient resources to cover known personnel expenses in the following year.

Since 2023, the total budget FTE count has grown by nearly 270 FTEs across all funds and 166 FTEs in the General Fund.

As we look at the change in FTEs from the 2026 adopted budget to the 2027 CSL, we see an increase of 18.77 FTEs within the General Fund.

The table shows these changes by department for those that have planned changes in general fund FTE counts from the 2026 adopted budget as well as administrative FTE changes made this year.

For example, two positions in the 311 Service Center are planned to start in 2027 to align with the opening of the South Minneapolis Community Safety Center.

These positions were included in the five-year financial direction of the 2026 adopted budget and are now reflected in the 2027 CSL.

Administrative FTE ads that were approved this year are also reflected, such as the Arts and Cultural Affairs increase of one position that was presented to this committee in the Quarter 1 update on administrative ads.

Additional administrative FTE changes reflected in this table will be presented in the Quarter 2 report.

There are also planned funding shifts for positions that are moving on to the General Fund.

For example, as the federal SAFER grant funding ended after Q1 of this year, those positions are now fully on the General Fund.

In 2026, those 15 positions had 25% of their time budgeted to this grant, and starting in 2027, they will now be fully budgeted in the General Fund.

that leads to a 3.75 FTE increase to the General Fund from 2026 to 2027.

These changes to budget positions lead to these increases in the General Fund personnel expense budgets for 2027.

I'll now turn to Internal Service Charges.

Internal service departments are those that provide goods and services to other departments within the enterprise on a cost recovery basis.

The primary purpose of internal service funds is to enhance the efficiency and effectiveness of city services by centralizing shared resources across departments, which is an approach that is considered a best practice.

Property services, IT, fleet, and general liability are the ones that we mention here because they are allocation model driven to distribute their costs to departments.

We ask the departments who provide these services to generate an expense budget that maintains current service levels.

This process begins in January.

We then review those expense budgets and their proposals alongside the controller and the CFO and decide what is a current service level that is appropriate to fund for the following year.

This is the same process that was followed last year.

There are no changes to methodology.

Those budgets are then allocated out to departments according to each internal service department's allocation model.

These cost models are determined using considerations like department FTE counts, historical actuals, identified department-specific projects and needs, and for general liability and actuarial report we receive annually helps inform the numbers we see there.

These charges are about 14% of the total operating expense budget, and the charges have increased across all funds by $16.8 million and $9.2 million within the general fund in the 2027 CSL, compared to the 2026 adopted budget.

Increases are primarily driven by those inflationary pressures to service delivery and supplies, growth in the total square footage of facilities managed by property services, and higher general liability projections to account for the financial risk of future claims.

This is a visual of the four allocation model changes, and they're charges within the General Fund as we look at year-over-year impacts.

It's also important to note that changes in personnel costs feed into growth in internal service charges.

As we add positions, we probably need to add workspace, or technology, or perhaps a vehicle.

Another example is when buildings come online, there are increased needs for custodial and security services.

General fund departments are provided the budget to pay for their internal service charges each year for financial policy 1.5.6.

That concludes our portion on expenses.

All right.

Thank you, Justin.

Good afternoon, Budget Committee.

My name is Ben Zimmerman.

I'm a principal budget and evaluation analyst in the budget division.

To this point in the presentation, we have largely focused on the city's current service level expenses, and now we'll transition to hear about how we're paying for those through our revenue forecasts.

We will first briefly be looking at all funds, then diving a bit more into local option sales taxes and downtown assets, and then ultimately the general fund.

as has been noted several times previously we will largely focus on the general fund and some key revenues there because broadly speaking that is where funds are most flexible and most decision-making is made.

Revenue forecasts are developed through extensive collaboration with subject matter experts throughout the city so I do want to give a quick thank you to the dozens of individuals citywide who've furthered this work.

Before getting into local option sales taxes and the general fund, we will first walk through one brief slide on enterprise-wide revenues into all funds.

As with all revenue slides we will be presenting today, two revenue categories are omitted, transfers and use of fund balance.

This is because it is more instructive to look at revenues from operations as opposed to revenues from decision points, like using existing funds or transferring funds.

As was stated earlier, revenue forecasts for enterprise and capital funds, as well as certain special revenue funds like grants and the downtown assets, are still under development.

When finalized in the coming month or so, the 2027 and 28 revenue forecasts will be updated.

The inclusion of that revenue data will shift these outlooks higher, correcting what is currently showing this visual as a contraction.

That's just the reality of data availability and the timing of the budget process.

All right, and now we have a few more slides before getting to the general fund.

First, we're going to have a slide on local option sales taxes or lost revenue, which is the primary revenue into the downtown assets fund.

Second, we have a slide showing the fund balance outlook for the downtown assets fund.

And third, we have a slide unpacking the downtown assets transfer to the general fund.

I know I previously stated that no transfers would be included in these visuals.

This transfer is the loan exception because it's an increasingly noteworthy expense to the Downtown Assets Fund as well as an important revenue to the General Fund.

It is important to grapple with these slides collectively because the health of the lost revenues and the health of the Downtown Assets Fund have direct implications on the ability to do that transfer to the General Fund.

With that, let's first take a look at this visual of net lost revenues.

Generally speaking, it can be easier to talk about gross lost revenues because that makes for more of an apples-to-apples comparison year over year.

This is because in the past five years or so, there have been substantive shifts in what is withheld annually for things like the U.S. Bank Stadium debt or the State of Minnesota Department of Revenue admin costs over these funds.

and with that said, to set the stage for our 2027 Lost Outlook, I think it can be useful to pause and briefly talk through the gross revenue trajectory since 2020 because this was a revenue hardest hit by COVID in the city.

The period from 2021 to 2025 can be characterized in three phases, following 2020 gross revenues falling off sharply, contracting 45 percent, down from 92 million down to 50 million.

We first had phase one recovery, where there was rapid growth, largely in 2022, when our gross revenues got back to near pre-COVID levels.

In Phase 2, in 23 and 24, we still saw heightened or elevated annual growth of these revenues, about 9%.

And then Phase 3 is where we find ourselves today.

In a post-recovery leveling out, our 2025 revenues came in largely flat, and the outlook moving forward is much lower and more moderate growth for these revenues.

To move into 2026, our Q1 gross revenues were nearly 2% ahead of 2025 Q1, which is surprising given Operation Metro Surge.

But what we're seeing in the reporting is that while certain sectors like food service were significantly impacted during Q1, sales tax collections and aggregate across all industries actually remained relatively strong.

Looking ahead to 2027, we are presenting right now the planned growth of 2.9% in the 2026 adopted budget.

We're still in the process of developing the lost forecast because it's best to give ourselves an additional month or so to continue observing current year performance before we lock in our budget for next year.

But tentatively speaking, given what we're currently seeing in 2026 and alongside the forecast data we leverage for our work, we do not anticipate the 2027 to 2032 forecast to shift substantively.

And again, that's annual growth in the two and a half to three percent range.

now that we've talked through the downtown assets revenue let's move to another slide to talk more holistically about the the fund balance outlook in the downtown assets fund as a note the convention center downtown assets and target center finance plans are still under development so here again we're looking at data corresponding with the 2026 adopted budget despite this the data is still quite informative

Looking at our six-year outlook for the fund balance, we have it forecasted at $81 million in the downtown assets fund in 2026, dropping to $48 million in 2031.

Since this outlook, again, coincides with the 2016 adopted budget, there are no further updates from the current year, so no current or revised actuals.

So, for example, the $7 million transfer for the Small Business Resiliency Fund, again, in response to Operation Metrosurge, is not reflected, including that would bump the line graph down.

So lastly, I do want to note that we've included the financial policy language relevant to downtown assets fund balance requirements here on this slide.

Okay, now that we've talked about, again, the revenues and the downtown assets fund balance outlook, let's move on to one final slide on this topic to explain more about the downtown assets transfer to the general fund.

Before the lost revenue can be considered for transfer, it first supports debt service obligations, operations and maintenance, and reserve requirements of downtown assets.

Again, these downtown assets include the Convention Center, the Target Center, withholding for U.S. Bank Stadium debt, PV Plaza, and the Kohl Center.

Once those costs are accounted for, the general fund transfer is determined in accordance with the fund balance outlook.

Any fund balance requirements in financial policy And again taking into consideration eligible spending in the mayor's recommended budget So the transfer determination is a matter of balancing the health of the fund balance and eligible uses in the general fund namely speaking economic development

So for an entirely theoretic example, if we're able to find $100 of eligible uses, that doesn't necessarily mean the entire $100 would be recommended for the transfer because we need to ensure that the transfer is fiscally prudent given all the financials of the city.

In recent years, the general fund transfer has been amended through the budget process as well as outside.

And so just to talk through the 2026 example, finance recommended a transfer for the 2026 budget of $47.4 million through amendments to the budget.

That transfer increased to $49.8 million, and that was for eligible uses being allocated in the general fund.

and then more recently again, outside of the budget process in response to Operation Metro Surge, the transfer was further increased to 56.8 to support the Small Business Resiliency Fund.

The bottom line we're just trying to reiterate through these three slides together is that moderating lost revenue growth and the outlook for the fund balance means the downtown assets to general fund transfer will not be as sustainable moving forward as a tool to support the current service level.

It's something we need to continue to monitor.

With that, we can now transition to focus fully on the general fund revenues.

And as I noted earlier, this visual excludes transfers and use of fund balance to focus on external revenues.

The outlook for 2027 remains slightly positive, though lower growth than prior years.

Specifically, we're forecasting 2.4% year-over-year growth in 2027.

Per the five-year financial direction, the general fund levy has planned growth of 4.8%.

and the remaining general fund revenues here aggregated as non-levy revenues are forecasted to actually contract 0.6 percent.

For clarity, I will note that the levy revenue is included in the taxes revenue category on this slide, so that's the blue bar, and it is the majority of that revenue, and we'll unpack that briefly in an upcoming slide.

In terms of the non-levy revenue, that's everything else on this slide.

and the modest forecasted contraction is different than what we've seen in prior years where non-levy revenues were typically growing closer to 2 to 3% a year.

One notable increasing revenue category is intergovernmental revenues, which are forecasted to grow 3.5%.

This is due to an increase to a few state aides, notably in the police and fire departments.

Broadly speaking, the growth is attributed to increased officer counts in MPD, because officer count factors into the level of state aid, and new revenue in fire, which is meant to offset PTSD leave.

In terms of notable decreasing revenues, interest revenue is forecasted to contract nearly 30% year-over-year, or $5 million.

This is, again, largely due to reduced fund balance, but also worsening rates and yields for investments.

And so the year-over-year decrease in revenue outlook for the non-levy revenues, that's far and away the most noteworthy change here that's driving this contraction.

Franchise fees are also forecasted to contract about 3%.

In 2024 and 2025, franchise fees revenues came in about three million dollars under each year.

This forecast does take into consideration the increased revenue from the recent rate increases approved by council last fall for implementation in the current year.

The modest contraction is a right sizing just for the under collection the last two years.

Lastly, non-business license and permit revenues are forecasted to contract about 2%.

This is largely a dampening of expectations for revenues related to development activity in the city, specifically reduced permitting revenue and plan review revenue in CPED and less fire inspection revenue and reg services.

Those revenues did underperform in 2025 as well by three and a half million and 2026 is off to a sluggish start.

Staying within the General Fund, we have two final revenue slides just to drill down into the two largest revenue categories, taxes and intergovernmental revenues.

First, taxes, which is the largest one into the General Fund.

The property taxes or levy revenue accounts for the vast majority of this.

In 2025, levy revenue was roughly 54% of General Fund revenue.

The property tax revenue forecast shown here does follow the five-year financial direction as documented in the 2026 adopted budget.

One final note that the plan levy presented here does not take into consideration new or reduced spending.

Again, it is directly from the five-year financial direction in the 2026 adopted budget.

And lastly, intergovernmental revenues are the second largest revenue in the general fund, and local government aid, or LGA, accounts for the majority of this.

LGA is about 10% of the general fund revenue and roughly 80% of intergovernmental revenues.

2027 LGA is forecasted to hold flat from 2026 and which is essentially on par with this revenue level before COVID.

And total expected LGA from the city in 2027 is 71.7 million.

And lastly, I will note that the total city of Minneapolis LGA certification is forecasted closer to 82 million, but per ordinance, nearly 12% of that is shared with NPRB and a smaller amount with NBC.

Okay, thank you all for your attention.

We've given you a lot of information today about the budget process and the trends identified in the data.

So we started with that estimated gap between expenses and revenues and then we explored more deeply why that gap exists even with a planned levy increase.

On the expense side, we walked through the three main expense categories and then covered the revenue trends as well.

The General Fund, as we've said, is the portion of the city's budget where you all spend the most of your time in decision making, and it is that most flexible portion of our budget.

Despite that, there are elements of the General Fund budget where we have less control.

Some non-personnel expenses are impacted by inflation and tariff policies.

personnel costs are subject to collective bargaining and state requirements like paid family leave.

And so all of these factors influence the budget context that we find ourselves in.

Part of our charge in finance as we're going forward in this biennial budget process is to limit risk and to make sure that the city remains an affordable place to live.

So we will be spending our summer looking at all possible levers within our control to maximize revenues and thoughtfully prioritize spending needs.

And I will wrap up today with just a brief reminder of some of the timeline that's coming our way.

So in May, we had departments submit reviews, budget proposals for submission to the mayor.

Throughout June and July, we are here presenting to you Wednesday to the BET.

and we're also making presentations to the mayor for his consideration for budget items for 27 and 28.

In August we'll have the mayor's speech and concurrent with that our budget book will go live.

In September the budget is really formally transmitted to this body and so there will be some form of budget overview presentation from the budget division as well as department reviews.

In September, the BET will set that maximum property tax levy, which sets the ceiling of what we can spend for 2027.

And then throughout the fall, of course, we'll have public hearings in a format to be determined by the budget chair, along with final budget markup in mid-December.

I have a few questions, so I'll just maybe go from the top of the presentation down.

Page 4, it's kind of alarming to see this $28 to $33 million gap between revenue and expenses.

I did go back and look at past presentations and it looks pretty standard that there is this mismatch at this stage, but in the other presentations we don't have a real sense of the scale of that gap.

So as an example, the general fund gap here, well it's not one to one, but it's

5% expense increase to roughly 2% revenue increase but then in previous years it was 3.89% expense increase 3.64 revenue increase which is pretty close

a decrease of 0.48 and a decrease of 3.64 in 2024, and then we only had the total fund delta 2.1 increase expense, 4.3 increase in revenue.

I didn't get a sense of the actual dollar amount in those past presentations, so it was like an administrative follow-up.

Through the Chair, Council President Payne, the one that I have on the top of my head, I think in the 2024 budget process, we had about a $20 million delta.

So it is typical.

I think we are seeing, I think the revenue is a key part of this story, where we are not seeing that natural growth in revenue anymore that has sort of picked up the tab.

Chair Chogtai, Council President, this is a large gap.

I won't sugarcoat that.

and then on page 16 for internal service charge allocation model, I don't feel like I've ever seen our allocation model before and I don't know if I have a really strong sense of it.

I'm assuming it's based on activity-based accounting.

I'm assuming that there's things like interest and depreciation baked in.

I don't know.

I haven't seen the model before.

Chair Chug Thai, Council President, there are different models for each of these four elements and they're all very complex, but yes, you're right.

They're based on Property Services, for example, takes a look at where everybody is sitting in the enterprise and figures out what it costs to provide.

that level of service for each of those desks.

So as departments are growing, their head counts, those costs are going up as well.

Technology is similar by FTE.

While not every city employee has a laptop, everybody uses our city IT infrastructure to some degree.

So it's based on inputs like that as well as specific software systems that those departments use.

Let's connect offline and maybe do both.

And then, I'm not sure that overtime is accounted for in the CSL.

That's correct.

I believe Justin spoke to that.

So overtime is not part of the personnel complement that inflates year to year.

So in financial policies, it's treated separately with the idea that this body is getting an explanation of what the overtime ought to be.

We were in the habit for many years of bringing you an annual overtime proposal.

Through the Chair, Council President, the two main departments, of course, that use overtime in a significant way are police and fire departments, and we look to those departments to get us an estimate of what they would need year to year, which then finance would vet against prior year performance.

What becomes difficult, I think, when we're just looking at prior year actuals is, of course, those contracts have changed quite a bit, so the hourly rates have gone way up, so you do have to do some analysis to figure out what that might be.

This is what I'm going to be the most direct on.

Absolutely not possible to accurately predict down to the second what overtime is going to be and you can never guess that

a massive school shooting is going to happen, elected leaders are going to get assassinated, and the federal government is going to invade your city.

These are not things that you build into your model typically.

So I want to give the caveat that there's no way we would have guessed the right amount of overtime this last year, but at the same time a 5x delta is like

you need to be within an order of magnitude in your forecasting as well and so my expectation is that either we're managing that overtime so it doesn't get so out of control or we're accurately forecasting it so we're not left holding the bag when we fall short of the amount of money that we were allocating for that and so I really want to encourage us to take a very realistic lens at overtime

All we can do is approve the budget.

We cannot make departments manage to their budget.

And so if we're going to be approving a budget, I want that number to be accurate and real and not off by orders of magnitude.

But that's just kind of a comment.

And then my last question.

The downtown asset fund was continuously decreasing.

I know we had a robust conversation about transfer, but I didn't necessarily walk away from the driver of that.

I'm sure Chuck's high council president is both so we had because of that rapid return to normal that that Ben talked about the rapid recovery the downtown assets fund balance grew to quite a high level several years ago and so the finance department recommended that we

ramp up that transfer.

The general fund needed support coming out of ARPA, and there was excess fund balance.

And so we have drastically increased the transfer, so that is part of it.

This body has also increased the transfer above finance's recommendation for several years, so that's also part of it.

and we're also seeing this sort of plateau in revenues.

I guess one other factor that we should acknowledge is we added the Kohl Center to the suite of downtown assets, so we increased our responsibilities with those dollars before they can come to the General Fund.

So what we're looking at on that graph, and I don't remember, that's the one slide I didn't write the page number down.

Because the timeline starts in 2024, we don't see the big Taylor Swift spike, essentially, and the giant cliff drop from COVID.

Thank you.

Thank you, Chair Chuk-Thai.

So, back in April, Director Dezenza, my office reached out to you about an update regarding the fee study that council passed nearly two years ago.

and you shared that the fee study changes would be incorporated in today's presentation.

And just for some clarity for some of my newer colleagues, Council passed a legislative directive two years ago asking for the administration to complete a comprehensive fee study.

So that we can have a better understanding of areas where fees are not being fully optimized to cover the full cost of various city services I know I advocated for this because fees are currently a tool that the city can leverage to make city services

It's also not clear what departments will be impacted and if the projections that we were told about or are looking at in this presentation take into account

Chair Chogtai, Councilmember Wonsley, I did promise your office an update, which is in my notes and I forgot to say.

We are still underway with the fee study.

It's a massive endeavor with upwards of 600 fees and probably four or five departments with perhaps dozens of city staff involved in the analysis.

And so we are continuing to do that work.

Do you have a timeline?

Because again, this has been nearly two years that we've been trying to troubleshoot the completion of this.

Yes, through the Chair, I don't believe I promised to incorporate any findings in our email.

Great, thank you.

I anticipate that we should have something in the next two months.

And so if there is an ability to incorporate anything in the fall, we can discuss it.

I would caution this body, I don't know, we don't have any conclusive proof that that will mean revenues can go up.

Yeah, and I think, again, the intent of the legislative directive, because we have not gotten consistent understanding of what our fees are either being optimized or being underutilized, which also comes with their various amounts of risk.

But also many taxpayers are then shouldering the burden for some services, like off duty, for instance, that could be transitioned off of the general fund and into an actual fee to cover the cost of that program.

So we do know that could have an impact when we're looking going forward on the actual numbers.

But I will name in the email we were told by you we would get an update in this presentation.

We've been trying to get that for some time.

Thank you.

Wonderful, thank you.

And then I'll recognize Vice Chair Schaefer.

I had some questions around, just to kind of set the table.

With this gap of $28 to $33 million, with the 5.4% already baked in, are we sitting roughly then, if we were to go directly from property taxes, only without any efficiencies or

Through the Chair, Vice Chair Schaefer, I've made a pledge to never do math at the podium, but you can see the total property tax amount that we have projected to collect is $574 million, and so 1% of that you could consider a point on the levy.

Okay, about $6 instead of $7.

Okay.

All right.

That's helpful.

And then

You know, as we head into these discussions individually in our wards with Mayor, obviously that's all to be happening, but is there a high level from the staff's perspective?

Are you leaning into efficiencies?

Are you leaning into revenue?

Are you leaving into the levy?

Through the Chair, Vice Chair Schaefer, I'm always careful not to get ahead of any decisions, but I think it's clear, and this body's already had many conversations about the overtime picture for our safety department, so I think you should anticipate that we are very much interested in finance, and not continuing to see the fund balance decline, so that's a primary focus of our department.

the budget process was set up to allow departments to make asks of the mayor and so that is important I think as having that method for departments to get feedback from the executive I think is a valuable exercise even if he has to say no to many of the requests revenues are we have little we can control there we will of course if there are fees that can be

increase that would be before this body in September typically.

And I should say there is also a high-level efficiencies effort to look at services that we might be able to trim back on or consider how we coordinate with other jurisdictions.

Great.

And how would it be most helpful for staff to hear from council members around their ideas around those buckets?

Would it be defeated through the mayor's one-on-one short meeting?

Is it to maybe give you a list of ideas?

I think those one-to-ones with the mayor are really the best way for you to share that direct feedback with the mayor.

You know, staff tries to not be advocating for one policymaker over another, but I think that's a great area to dig in and share your thoughts

We have robust interactions with the mayor's office over the summer as we're building the budget.

And those conversations that you all have with the mayor do typically wind up in our decision meetings, so they do matter.

So I would start there.

I'm, of course, always happy to hear if there are things that you all want to prioritize and you can feel free to email me with those.

Thank you.

I'll just want to say thank you for this presentation.

It's very interesting and I'll look forward to looking into it more carefully.

And then just anecdotally,

I've heard our parking fee ramp, our city parking ramps are very low in price to compare.

I've heard from competitors, you know that we, you guys are undercutting us all the time.

These questions may or may not be for staff.

I think they're probably for my colleagues, but they were just brought up questions that I had based on what I heard in the presentation.

So maybe you, Chair, might be the first person to take a stab at these.

It was mentioned that departments have to ask for additional overtime.

That's not been my experience on my short experience.

I don't think that's what staff was sharing.

What staff was sharing is overtime costs are not built into the current service level's assumptions about growth year after year and that financial policies dictate that changes to overtime budgeted costs

must be brought before decision makers as part of the budget process every year.

So we have to reassess them in a way that doesn't assume growth over time.

I agree with that assessment.

Yeah, that's funny.

Generally speaking, I think our financial policies outline the levers of control that are

that different actors are empowered to utilize, whether that's the council, whether that is finance staff, budget staff, etc.

Chapter 9 of the city's charter outlines all of the different financial responsibilities of the city and gives most of those to the City Council with the significant exception of the proposing of the annual budget that lies with the mayor.

Council adopts the annual budget every year and budgets are managed by departments.

I appreciate that.

Could I actually ask the same question to the attorney?

Correct.

Through the Chair, that's just kind of an impossible question to answer in general.

You know, each time there's a budget amendment that comes in, you know, that's something in the budget process.

The City Attorney's Office, along with staff, along with policy makers, evaluates.

And we determine, you know, on a case-by-case basis, you know, how that's going to work.

OK. All right.

Thank you.

I just really wanted somebody to tell me that there are no rules out in public.

Lots of rules, actually.

OK.

Sounds good.

I'm not seeing any further discussion.

No, we are seeing further discussion.

Council President Payne.

Thank you, Madam Chair.

I actually was just going to take an attempt at answering Councilmember Stevenson's question and do it in a very simple way.

I think the only thing that stops this institution from overspending is the public.

and their relative engagement on what we do here and whether or not they are outraged or supportive of it.

That political pressure drives everything else, right?

So the authority to make sure that a department doesn't overspend is solely with the mayor.

It's delegated down through the hierarchy.

It's the department head that's responsible for managing that budget.

It's individual frontline workers to manage their schedules and the supervisors to manage their schedules.

But when things are out of

out of control that all is under the authority of the mayor and it is the outrage of the people at whether or not that is under control or not under control that leads to behavior change and consequences.

Oftentimes those consequences are electoral

we have just had an election so it's just a matter of if people are upset about the way the money is being day-to-day managed we need to hear about it and specifically the mayor needs to hear about it when it comes to managing to that budget we get to set the budget we are the authority that sets that budget but it when it comes to the day-to-day management of that budget the ultimate authority is with the mayor and the only thing that can affect that is

Council Member Wansley.

Thank you, Chair Chigtai.

I would speak to what's within our wheelhouse.

I would say looking at financial policies, that's actually an area where myself, I know Council Member Chigtai, we have brought forward financial policy changes to really deepen oversight over what feels to be continued

just mismanagement

and the City Council.

a denial, essentially, because what we have seen far too often is we will make budget amendments and then they would not be implemented and then they would be routed towards other city programs.

I can think of several examples, one being sidewalk planning.

We allocated two years of funding for that back in 2023 and then learned that money for that was taken to another program and that was not in alignment with the budget amendment.

We had to do another one to save that.

Same with safety ambassadors.

It took a while to get that.

budget amendment.

they're actually being enacted.

And I would just want to highlight that as an example.

Wonderful.

With that, I'll ask the clerk to file that presentation.

Thank you again to staff for bringing that forward today.

And with that, we've concluded all business to come before the committee today.

And without objection, we stand adjourned.