Now that the Minneapolis municipal elections are over, I am officially worried about the Minneapolis budget, given that costs are up and revenue is down. Mayor Frey recently proposed a 2026 budget of about $ 2 billion, a 7.4% increase over 2025’s budget and a 24% increase from 2023.
The city’s largest source of unrestricted revenue is property taxes, and the burden has increasingly shifted to homeowners and renters due to the declining value of commercial property, especially in downtown and other commercial corridors like Uptown. Most of the rest of the city’s revenue sources are restricted. This means the funds must be spent in defined areas or on specific programs or projects, limiting the city’s ability to raise additional funds and apply the revenue to other departments or programs. For example, the city charges fees for services such as water, sewer, and trash pickup, but state law requires that these fees be no higher than the cost of providing the services. Because these revenues are restricted, the city cannot raise water bills to pay for police services. Similarly, funds from the federal government and other units of government are usually designated for specific purposes. If the city does not spend these resources for their designated purpose, the city will not receive the grants. Bond proceeds must go to purposes for which the debt was incurred.
The various campaigns this past cycle did not focus on saving money; in fact, they mainly concentrated on spending more and finding new revenue streams.
The budget will be a big news story over the next several weeks as the lame duck city council needs to approve the mayor’s 2026 proposed budget. Last year, the city council made many 2025 budget changes, mainly by shifting funds to fund various pet projects. The mayor vetoed those changes, but the council was able to override the veto, given the DSA/progressive supermajority on the council (which remains in place until new council members are sworn in in January).
So what am I worried about?
- First, the upward trajectory of expenses that primarily fall on homeowners and renters2 seems unsustainable.
- Second, I assume federal and state revenue sources for the city will reduce.
- Third, as the federal government downsizes and stops providing services, it will fall to cities, counties, and states to pick up the slack (an added local expense that may or may not be offset by a smaller federal tax bill for the average citizen).
- Finally, I lack faith that the city is competently managing its business.
Regarding this last point, roughly a third of the city’s expenses are paid to third parties for a wide variety of city functions, ranging from parking to public safety. I recently went down a rabbit hole about city-owned parking lots and ramps to understand this money-maker for the city. City-owned parking lots and ramps appear profitable, but fully understanding that enterprise has been challenging, requiring a game of 20 questions via the city’s data portal, which has about a 2-month turnaround time to answer your questions. I worry that there is adequate oversight of these contracts – there have been plenty of scandals documented in the press to fuel my skepticism.
Local TV news and newspapers are a dying business, and their ability to hold local governments accountable is in decline. There are plenty of amature journalists like me writing about government, but most of us are more opinion writers than journalists. We tend to have an ax to grind. Further, none of us has the time to attend every city council, park board, and school board meeting. Nor do we have the skills and resources to do investigative journalism. So it feels like local government is unsupervised.
My concern is that the city will tax and spend to the point that it drives its citizens out and that it goes into a bankruptcy-freefall like Detroit did.
I plan to spend much of my time on this blog over the next year understanding the city’s finances. At the moment, most of my concerns are based on intuition, and I want to replace my hunches with facts.
This article originally appeared in Catchgroove Gets Political
Thank you, James, for your research, deep dive and willingness to help keep our city law-makers accountable.
Given the shortage in housing stock in the metro, are valuations increasing to reflect sales price increases… and thereby creating additional property tax revenue? Would be interesting to see how the total value of residential housing has changed over the past few years.
Nancy — residential prices in Minneapolis are starting to drop, because of lower demand — people aren’t o eager to live in the city anymore. Property tax valuations are still going up, because they lag by a year or two, but they will start coming down, too. And the overall city tax capacity has decreased, due to the great drop in commercial property valuation.