OfficeofMayorBetsyHodges

350S.5thSt.Ste.331
Minneapolis,MN55415
TEL 612.673.2100

CouncilPresidentBarbaraJohnson
MembersoftheCityCouncil
MembersoftheBoardofEstimateandTaxation
350SouthFifthStreet
Minneapolis,Minnesota55415

DearCouncilPresidentJohnson,CouncilMembers,andMembersoftheBoardofEstimateandTaxation,

Thisletterconstitutesmy2018budgetmessagewithallthecomponentsrequiredbytheCityCharter(Sec.9.3.3).
TheinformationpresentedbelowwillallowtheBoardofEstimateandTaxationtomeetitsCharterresponsibilities.

Asacity,wehaveexperiencedtwomajorpublicsafetyincidentsinrecentweeksthathaverequiredagreatdealof
myattention,aswellasthatofmanyofyou.ThisistimethatIwouldhavespentcraftingmyfull2018budget
proposalandpreparingmybudgetspeech.Asyoualsoknow,inthecourseoftheseevents,Ihavealsonominated
MedariaArradondotoserveaspolicechief,forCouncilconsideration.IhavealsoaskedtheActingChieftosubmitto
mehisideasforthe2018MPDbudget.Iwanthimtohavethetoolsandresourcesheneedstosucceedassoonas
possible,anddonotwanthimtohavetowaitafullyearbeforehecanhaveanimpactontheMPDbudget.

Therefore,andasformerMayorsRybakandSaylesBeltonhavedoneinthepast,Iwilldelivermyfullbudgetaddress
andcompletebudgetbookonTuesday,September12,2017at12:00noon.Thebudgetsubcommitteewillbegin
hearingsforeachdepartmentonOctober3,andtheinterveningtimewillenableourstafftoprepareanddeliver
thoughtfulpresentationstotheCityCouncil.

PropertyTaxLeviesandFiveYearFinancialDirection

AsMayor,Iadheretoseveralbudgetingprinciples.Thefirstoftheseprinciplesisthatalllongtermimplicationsof
budgetdecisionsbeexpressedtoourcitizensinafiveyearfinancialdirection.Thismeansthatthecostimplications
ofnewdebt,newinitiatives,orchangesinrevenueassumptionsfortheCitysoperatingandcapitalshouldbe
reflectedinafiveyearforecastofrevenue,expenses,andpropertytaximpacts.Lastyearsfiveyearfinancial
direction,whichIproposedandtheCounciladopted,assumedapropertytaxlevyincreaseof5.50%for2018.
Consistentwiththatassumption,my2018budgetproposalincludesanoverallpropertytaxlevyincreaseof5.50%.

Thislevyincreasewillcontinuetofullyfundthehistoric20YearParks&StreetsInvestmentPlanthatwereached
withtheParkBoardin2016.Weallknewwhenweapprovedthisgenerationalinvestmentplanthatitwouldrequire
levyincreasesexceedinginflation,andweexplicitlydelineatedwhatthoseincreaseswouldneedtobeinour
ordinance.The2018levythatIproposecontinuestosolvetheproblemofourlongstandinginfrastructuredeficit,
whichwouldhavebeenleftunaddressedwithoutthislevelofinvestment.Anycuttomyproposedlevywillonly
drivefuturelevyincreaseshigherinordertofundtheobligationsthatwecodifiedinordinance.

BelowisachartwiththedetailsofthepropertytaxleviesIamrecommendingtotheBoardofEstimateand
Taxation.
 2018Mayor'sRecommended
MaximumPropertyTaxLevies

2017Council 2018Mayor's
Levies Adopted Recommendation $Change %Change
GeneralFund 176,851,895 189,442,884 12,590,990 7.12%
MinneapolisParkBoard 59,745,000 62,201,719 2,456,719 4.11%
Debt 37,800,000 39,350,000 1,550,000 4.10%
PermanentImprovement 500,000 (500,000) 100.00%
Pensions 22,310,000 22,310,000 0.00%
MunicipalBuildingCommission 4,954,300 5,102,929 148,629 3.00%
BoardofEstimate&Taxation 180,000 190,000 10,000 5.56%
TeachersRetirementAssociation 2,300,000 2,300,000 0.00%
LibraryDebt 9,300,000 10,300,000 1,000,000 10.75%
TotalPropertyTaxLevy 313,941,195 331,197,532 17,256,338 5.50%

StructuralBalance

AnotherguidingbudgetprincipleIfollowisthatallongoingcostswillbepaidwithongoingrevenues.Thereareno
shiftsorgimmicksintheCitysbudget,anditemsfundedwithonetimedollarsderivedfromcashbalancesare
intendedtobeonetimecosts.Inotherwords,thisisastructurallybalancedbudget.Weaspolicymakers,andthe
constituentswecollectivelyserve,canrestassuredthatwearepayingfortodaysneedswithoutleavingourchildren
orgrandchildrenwithlegacyfinancialburdens.

FinancialOutlook

Thisbalancedbudgetwithapropertytaxlevythatmeetsouragreedupontaxpolicyisaccomplisheddespitesome
headwinds.Whileourexpensesmeetinflationarypressureseachyear,therevenuessupportingtheCitysgeneral
fundbudgetincludemanysignificantlineitemsthatremainflat.Revenuesourcessuchaslicenses,permits,fines,
andparkingfundtransferswillnotmateriallyincreasefrom2017to2018.Thisrequirespropertytaxestoincreaseby
morethantherateofinflationtofillthegap.

AnothersuchrevenuesourceisLocalGovernmentAid(LGA)whichisacornerstoneoftherevenuesharing
agreementamongMinnesotacitieslargeandsmallandtheState.TheCityappreciatestheGovernorsandthe
LegislatureseffortstoslightlyincreaseLGAfortheStates201819biennium.However,aftersharingtheCitysLGA
withourpartnersattheParkBoardandMunicipalBuildingCommission,the2018recommendedbudgetreflects
onlya$1.3millionincreaseinlocalgovernmentaidforCityoperations.Evenwiththisincrease,westillfallover$10
millionshortofthe$90millioncertifiedLGAlevelof2010.WelookforwardtoworkingwiththeStateandour
partnercitiesacrossthestatetoincreaseLGA.

JustasMinneapolisisanetcontributorofrevenuestotheState,aportionofwhichisredistributedbacktocities
throughLGA,Minneapolisisalsooneofthetopcontributorsofcommercialpropertytaxbasetothemetropolitan
regionthroughthetaxbasesharingprogramknownasfiscaldisparities.Thissignificantincreasetoourregional
partnersmeansthereislesscommercialtaxbaseavailabletolowerpropertytaxratesforourcitysresidents.

OurassessorindicatesthattheCityspropertytaxbasewillgrowbyapproximately8.7%.Approximately20%ofthis
growthisrelatedtonewbuildingconstructionin2016,andthisgrowthconstitutesnewtaxablepropertyvalueof
justunder$750million.Thisnewvaluewillhelpsoftentheimpactofthelevyincrease.

Residentialpropertyvaluesareincreasingby7.7%,commercialby10%(beforethetaxbasesharingprogram)and
apartmentsareexpectedtoincreasebymorethan13%.Thewellbalancedgrowthinoureconomyisreflectedin
thesenumbers.Thisisgoodnews.Yetwemustalsobemindfulthatthevalueincreasesareputtingpressureson
rentsandhomeownerexpenses.




2

 FiscalHealth

TheCitysfiscalhealthisstrong.Thisisinlargepartthankstostrategicbudgetaryinvestmentsofthepast.
Specifically,pensionleviesareundercontrolthankstothegoodworkaccomplishedwhenIwasontheCounciland
withtherecentsupportoftheGovernorandourstatelegislatorstomaintainpensionaidfromtheState.Wemust
continuetobediligentinmonitoringthepensionsituationasinvestmentrateexpectationsforthestateinvestment
poolorfutureregulationsmaychange.

TheCitysbondratingshaverecentlybeenaffirmedatanAAAlevelbytwoofthenationsleadingratingagencies.
ThisisthehighestpossiblecreditscoreandtheCitysratingfromStandard&Poorsishigherthanthefederal
government.ThehighcreditratingsallowtheCitytoaccesslowinterestratesforcapitalinvestments,whichmeans
ourinvestmentdollarsgofartherineachproject.

TheCityhassteadilyreduceddebtburdenstoreachsomeofthelowestdebtlevelsithasexperiencedinthepast
twodecades.ThisfiscaldisciplineenablestheCitytomakesmartinvestmentsininfrastructureandnewand
renovatedbuildingstobetterservethepublic.

BudgetaryPressures

WhiletheCitysfiscalhealthisexcellent,thereareincreasingpressuresonourbudgetanddemandsforCityservices
areincreasing.

i. Federalandstategovernmentshavereducedandwillcontinuetoreducespending,whichaffects
ourresidentsonmultiplefronts.

ii. Housingcostsareincreasing,causingstressesonrentersandhomeownersalike.

iii. Residentsincreasinglyexpectswiftimprovementsinpublictrustandpoliceaccountability,along
withinnovativestrategiestoaddressviolentcrimeupstreamanddownstream.

iv. Addressingandeliminatingpersistentracialinequitiesamongresidentswillcontinuetobeahigh
priorityCitygoal.

v. GrowthandagingofourpopulationputpressureontheFireDepartmentforincreasedmedical
calls.

vi. Thecontinuedgrowthofourregionandourcityputspressureontheabilityofourtransportation
systemtoaccommodateit,asdonewtechnologiesandtheongoingneedtocombat,adaptto,and
beresilientinthefaceofclimatechange.

vii. Residentswantbetterdataandfasterdisclosureofthatdata.

Finally,withmysupport,theCityistakingactiontoconvertto100%renewableelectricityusefarfasterthanour
2030goal,throughouruniqueCleanEnergyPartnershipwithXcelandCenterPoint.Thisimportantactionreflects
theCityspositionasaresponsibleleaderinthefightagainstclimatechange,butwemustalsorecognizethatit
comesatamodest,shorttermfinancialcost.

CurrentServiceLevelNeeds

Thefirstpriorityfundedinthisbudgetismaintenanceofthecurrentlevelofserviceprovidedbythediverse
departmentsacrossourEnterprise.Duetoinflationarypressuresinsalaries,healthcare,andinternalservicessuch
asIT,rent,andfleetservices,thecostofdoingbusinesstodaywillindeedincreasetomorrow.

Expenditureneedsforcurrentservicesfor2018aredetailedinthechartbelow.

 CityOperatingExpendituresbyService1
(InMillionsofDollars)

2017Adopted 2018Current
Ongoing2 ServiceLevel %Change $Change
Attorney 17.9 18.0 0.7% 0.1
Coordinator3 129.1 134.3 4.0% 5.2
CPED 86.0 89.3 3.8% 3.3
ConventionCenter 53.0 53.4 0.8% 0.4
Fire 64.9 66.4 2.3% 1.5
Health 20.4 21.5 5.6% 1.1
Police4 162.7 174.4 7.2% 11.8
RegulatoryServices 23.8 23.9 0.1% 0.0
PublicWorks 340.6 368.9 8.3% 28.2
OtherCityServices5 23.4 24.5 4.5% 1.1
Other6 59.9 59.3 1.1% 0.6
TotalCitySpending 981.8 1,033.8 5.3% 52.0

Notes:
1
ExcludesIndependentBoards,Transfers,Debt,andCapitalImprovement
2
Excludes$17.6milliononetimesexpendituresfrom2017CouncilAdopted
3
Includes311,911,Communications,EmergencyPreparedness,FinanceandPropertyServices,HumanResources,IT,
IntergovernmentalRelations,andNeighborhoodandCommunityRelations
4
Expendituresmadein2017forsettledcontractshowninotherlineitems
5
IncludesAssessor,Benefits,CityClerk/Elections/Council,CivilRights,Contingency,InternalAudit,Liability,Mayor,
6
IncludesNondepartmental,HealthandWelfare,Liability,ContingencyandPensions

 InvestinginourFuture

RevenuebyCategory1
(InMillionofDollars)

2018Mayor's
RevenueCategory 2017Adopted Recommended %Change $Change
ChargesForServices/Sales 499.9 546.3 9.3% 46.4
FederalGovernment 27.7 32.9 18.7% 5.2
FinesAndForfeits 7.0 6.9 0.7% 0.0
FranchiseFees 30.9 33.5 8.3% 2.6
LicenseAndPermits 43.7 44.5 1.8% 0.8
LocalGovernment 7.3 12.2 67.4% 4.9
LongTermLiabilitiesProceeds 103.8 93.2 10.2% 10.6
UseOfFundBalance 53.2 27.8 47.7% 25.4
OtherMisc.Revenues 27.5 32.2 17.2% 4.7
PropertyTaxesGeneral 254.0 268.8 5.8% 14.8
PropertyTaxesOther 51.8 55.0 6.2% 3.2
SalesAndOtherUserTaxes 83.8 89.4 6.7% 5.6
SpecialAssessments 41.0 52.0 26.9% 11.0
LocalGovernmentAid 78.0 79.3 1.7% 1.3
OtherStateGovernment 22.9 30.1 31.8% 7.3
TotalRevenue $1,332.5 $1,404.2 5.4% 71.7

Notes:
1
ExcludesIndependentBoards,includingParkBoardLevy,andTransfers.

Thechartabovereflectsallrevenuesourcescurrentlyforecastedin2018fortheCity.OneofthelineitemsIwould
liketohighlightistheCitysnaturalgasandelectricityfranchisefees.IamaskingtheCounciltobegintheordinance
processimmediatelytoincreasethefranchisefeeby0.5%.Thechartabovereflectsanassumptionthatmorethan
$2millionwillbegeneratedbythisfeeincrease.ThisactionwillberesponsivetotheCleanEnergyPartnershipscall
toraisepredictable,ongoingadditionalresourcestoimproveoureffortstoreducegreenhousegasemissions,
implementmoreofourClimateActionPlanmorequickly,andpayforrenewableenergyeffortsundertakenbythe
City,itsresidents,andbusinesses.Theresilienceworkwehavebegunthankstoathreeyear100ResilientCities
grantfromtheRockefellerFoundationwillultimatelyalsoprotecttheCitysfinancialpositionforourresidents.

 CombinedUtilityBill
MonthlyandAnnualCostforAverageResidentialCustomer
2018Monthly 2018Annual 2018monthly
2017 2018%change
Average* Average dollarchange
Water1 $28.71 $29.56 $355 $0.85 3.00%
SanitarySewer $26.10 $28.58 $343 $2.48 9.50%
Stormwater $12.36 $12.71 $153 $0.35 2.80%
SolidWaste/Recycling2 $28.47 $28.99 $348 $0.52 1.80%
Total $95.64 $99.84 $1,199 $4.20 4.40%
1
Theaveragehouseholdrateforwaterisbasedon7unitsofconsumptionat$3.58perunitplusa$4.50fixedcharge.Sanitaryrates
arebasedon6unitsofwaterconsumptionat$3.88perunitplusafixedchargeof$5.30.Stormwaterratesarebasedon1equivalent
Stormwaterunitof1,530squarefeetonimpervioussurface.

2
Thesolidwasterateisbasedona$23.99monthlychargewithalargerecyclingcartfeeof$5.00.Customerscansubstituteasmall
cartwitha$2.00fee.Theincreaseinthemonthlychargeisduetoroutineinflationaryincreasesinoperationcosts,newvendor
contracts,carts,andvehiclereplacementcosts.

Thereareotherstepswecantaketodaytoprovideforourfuture.Modestgrowthinenterprisefundexpenditures
supportedbymoderateutilityrateincreasesreflectsnewinfrastructureinvestmentssuchaswaterfiltrationplant
improvements,replacing100yearoldpipesunderstreets,andinvestmentstomitigatestormwaterflooding.The
investmenttodaywillpaydividendsinbetterenvironmentaloutcomes,morereliableinfrastructure,andless
potentialforemergencycatastrophicinterruptiontoservicedelivery,whichoftencomeswithhigherrepaircosts
thanproactivereplacement.

BelowisachartthatdemonstratestheCitysoverallspendingbytypeoffund.

RevenueByFundType1
InMillions

2018Mayor's
2017Adopted Recommended %Change $Change
Revenue:
General $485.3 $421.4 13.2% $63.9
SpecialRevenue $187.8 $270.2 43.8% $82.3
CapitalProject $90.3 $121.0 33.9% $30.6
DebtService $70.1 $70.3 0.4% $0.3
InternalService $132.5 $141.2 6.6% $8.7
Enterprise $366.5 $380.1 3.7% $13.6
Total $1,332.5 $1,404.2 5.4% $71.7

Notes:
1
ExcludesIndependentBoardsandTransfers.

YoucanseeinthechartthattheCitysgeneralfundisdecreasingwhilethespecialrevenuefundisincreasing.During
budgetadoptionlastDecember,CouncildirectedCitystafftoexplorenewwaysformanagingtheCitysdowntown
assets.ThatstaffworkyieldedarecommendationthattheCityadoptanewmethodofaccountingforourlocalsales
andentertainmenttaxes.

Iamrecommendingthatwecreateanewumbrellaspecialrevenuefund,calledtheDowntownAssetsFundwithin
theConventionCenter.Thisfundwillclarifythatmorethan$30millionofourlocalsalesandentertainmenttaxesgo
topayforgeneralfundexpensesandthereforereducepressureonpropertytaxes.TheDowntownAssetsFundwill
alsopoolresourcesandmanagementofresourcestobetterintegratetheTargetCenter,DowntownEastCommons,
andConventionCenter,andpayfora$4millioninvestmentinrevitalizingPeaveyPlazathatwillmatchprivate
fundraising,underasingledepartment.Justasinvestinginourenvironmentalfuturewillyielddividends,this
combinedapproachtomanagingourDowntownassetsisintendedtoensurethatinvestmentsinourpublic
amenitiesyieldthehighestreturntotheCity.


Finally,theCityisinvestinginthefuturetaxbasebypreparingforredevelopmentofkeyareasoftheCitysuchasthe
Lake/NicolletintersectionandtheUpperHarborTerminal.Thesedevelopmentswillrevitalizeareasofourcityripe
forgrowth,whichwillimprovethedailylivesofneighborhoodresidentsaswellastheCitysfinancialposition.

CapitalImprovements

ThisbudgetfullyfundstheCitysobligationsunderthehistoric20YearParks&StreetsInvestmentPlanmade
betweentheCityandtheParkBoard.Thisgenerationalpackageofinvestmentsisthecornerstoneofmy2018
capitalimprovementproposal.Ionceagainexpressmygratitudeforthepartnershipthatweallforgedtomakeup
foryearsofunderinvestmentandneglectacrossourcity,andtodosowithafocusonracialequityinhowand
wherethoseinvestmentsaremade.

Inadditiontotheseprojects,Iamproposingimprovementstosidewalks,bridges,parkways,trafficcontrol,street
lighting,bikewaysandpedestrianimprovements,publicgroundsandfacilities,andartinpublicplaces.Allofthese
infrastructureinvestmentswillprovideimmediatebenefitforcurrentresidentsandalsoleavealastingblueprintfor
futuregrowth.

RecommendedLegislationfor2018

ThereareseveraleffortsthatIrecommendtheCitypursueforlegislativechangesthatwillhelpourbudgetary
situation.

IrecommendweasktheStateLegislatureandtheGovernortomaintainpensionaidandlibraryaidfortheCity.And
Irecommendthatonceagain,incooperationwithourlocalgovernmentpartners,weadvocateforanincreasein
LGA.

TheCitysbudgetfor2018hasbeenimpactedbyanunintendedconsequenceoftherecentincreaseinHennepin
Countyssalestaxtopayfortransitandroadimprovements.Duetoalegislativecapof13%forallstateandlocal
salestaxesonMinneapolishotelsonly,theCityslodgingtaxwilldecreaseby0.5%.ThisreductionwilloccurOctober
1,2017.Therevenuenumbersofmy2018budgetreflectthisdecrease,whichunfortunatelycomesrightduringthe
SuperBowl.IrecommendweasktheStatetoaddressthisissueasquicklyaspossible.

Thelackofaccesstoaffordablehousingisacriticalissueforourcityandcitiesthroughoutthestate.Irecommend
thatwerequestfundingandpolicychangesthathelpprovidemoreaffordablehousingandthepreservationof
naturallyoccurringaffordablehousing(NOAH).

TheCityisgratefulfortheStatescapitaldollarsthatwillhelpwiththeCitys10thAvenueBridgerehabilitationandto
buildtheI35W&LakeTransit/AccessProject.IsupporttheCouncilsprioritiesofcapitalfundingforparkand
infrastructureredevelopmentadjacenttotheMississippiRiverattheUpperHarborTerminalinnorthMinneapolis.
7

 IalsosupporttherequestforfundingtoimprovethemajorstormwatertunnelsunderdowntownMinneapolis,the
EmergencyOperationTrainingCenter,andthedevelopmentneartheUpperSt.AnthonyLockandDam.

EstimatedImpactofPropertyTaxIncreases

Whileitisyettooearlytoknowthepreciseimpactoftheseincreasesonanyindividualtaxpayer,itisimportantto
considerhowtheproposedchangesoutlinedabovewillbefeltacrossthecity.Belowaresamplebillsbasedona
varietyofestimatedmarketvalues.

CityPortionofPropertyTaxBillwith5.5%LevyIncrease

NonHomesteadResidential
MarketValue TaxIn2017 Taxin2018 $Change %Change
166,500 985 1,036 51 5.2%
225,500 1,334 1,404 70 5.2%
310,500 1,837 1,933 96 5.2%
Assumesresidentialpropertyaveragemarketvalueincreaseby7.7%

HomesteadResidential
MarketValue TaxIn2017 Taxin2018 $Change %Change
166,500 841 902 61 7.3%
225,500 1,221 1,302 81 6.6%
310,500 1,767 1,877 110 6.2%
Assumesresidentialpropertyaveragemarketvalueincreaseby7.7%

Apartment
MarketValue TaxIn2017 Taxin2018 $Change %Change
1,000,000 7,258 7,727 469 6.5%
5,000,000 36,291 38,637 2,346 6.5%
Assumesapartmentpropertyincreaseby9%(notincludingnewconstructionvalue)

Commercial
MarketValue TaxIn2017 Taxin2018 $Change %Change
1,000,000 8,082 8,509 427 5.3%
5,000,000 40,409 42,543 2,134 5.3%
Assumescommercialpropertyincreaseby7.8%(notincludingnewconstructionvalue)

Again,thefiscalhealthofourCityisstrong,butwehavemoreworktodoinordertofulfillthepromiseofOne
Minneapolisforallofourneighbors.Ibelievethetargetedinvestmentsoutlinedinthisbudgetmessageputus
squarelyonthepathtowardsfulfillingthatpromise.Ilookforwardtosharingmoreofmyvisionwithyouandthe
highlightsofmyfull2018budgetproposalduringmybudgetaddressonTuesday,September12at12:00noonin
CouncilChambers.

Sincerely,

MayorBetsyHodges
CityofMinneapolis