Pension Problems Force Mpls. to Propose Budget Cut

If adopted, the $6.1 million cut would lower Minneapolis' property-tax increase for 2011 to 4.7 percent-down from previous year-over-year increases of up to 7.5 percent-which is needed to cover the city's pension obligations.

The City of Minneapolis is looking to cut about $6.1 million from its 2011 budget, lowering the property-tax increase that is needed to cover its obligations to three pension funds.

On Tuesday, Minneapolis Mayor R.T. Rybak, City Council President Barbara Johnson, and council member Betsy Hodges proposed the cuts.

The cuts, if approved, would lower the city's property-tax increase for 2011 to 4.7 percent. This figure is down significantly from the 6.5 percent increase Rybak proposed in August and the 7.5 percent maximum increase that was authorized in September by the Board of Estimate and Taxation. The tax increase is intended to cover the rising cost of obligations that the city has to closed pension funds.

“The city's elected leadership heard people's feedback about our budget, and we are working to bring down the proposed levy,” Hodges said in a statement. “But we have to make cuts responsibly: We can only make one-time cuts to next year at the same time as we make longer-term changes, or we're going to have an even bigger problem next year.”

According to a statement released by the city, Minneapolis' rising obligations to the three closed pension funds-which have overcharged Minneapolis taxpayers by at least $52 million over the last decade-have greatly affected the budget.

Minneapolis' required payments to its pension funds have continued to increase. Much of the increased costs can be attributed to the city's three “closed” plans-which are no longer accepting new members. The closed plans are the Minneapolis Police Relief Association (MPRA), the Minneapolis Fire Relief Association (MFRA), and the Minneapolis Employees Retirement Fund (MERF).

From 2009 to 2011, property tax-supported contributions to the three closed funds will total $45.6 million. When the funds' investment returns come in under 6 percent annually, there is an “unfunded liability” for which the city must make up the difference.

The city said that if it wasn't for these obligations, it would have been able to cut the property-tax rate in 2011.

The $6.1 million in proposed cuts are on top of two other initiatives that have been proposed by the city-one that would freeze the salaries of city employees for two years and a second that would end the old Neighborhood Revitalization Program.

The two largest cuts being proposed in order to lower the tax increase are $1.1 million for Target Center capital projects and $2 million for the Minneapolis Park and Recreation Board. The other cuts include $300,000 to meet future pension obligations, $1 million to pay down debt on internal-service funds, $1.4 million to the Minneapolis Public Housing Authority, and $300,000 to the Municipal Building Commission.