The Blog from City Hall

There are several property tax bills being considered by the State Legislature that are of interest to citizens and city governments in Minnesota. I pleased to report that one of the bills that I talked about last week - a new economic development tool being considered to help subsidize a parking ramp for the new phase II development at the Mall of America - has been amended so that it is now revenue-neutral for Twin Cities commercial/industrial taxpayers. That’s good. In fact, the legislature is going to consider developing criteria and rules for the use of that particular tool in the future, which would also be good.

Another property tax development that is under consideration is the proposal outlined by the Star Tribune’s Lori Sturdevant in the story below that appeared in Saturday’s paper. Like many bills, it has its positive and negative sides. For places like Eden Prairie, I think it will impact our citizens greater than average because we have a higher proportion of our population with total family income of $200,000 or more.

One of its positive impacts is that it directs state property tax relief directly from the state to the individual. In the current property tax relief system, the state routes some (but not all) of its property tax relief through city governments. This is problematic for city governments because sometimes the state reimburses us for their property tax relief programs, and sometimes they don’t. I like the idea of getting city governments out of the middle of that transaction.

Read Ms. Sturdevant’s story:

As property taxes bear down, pair offers a leg up

By LORI STURDEVANT, Star Tribune

April 26, 2008

For the last few years, rising residential property taxes have been the weather issue at the Minnesota Legislature — the thing everybody talks about, but nobody does much about.

It’s not for lack of trying, or lack of ideas. But each party’s pet idea for controlling property taxes is anathema to the other, and this crowd tends to cling to its pets like toddlers to their favorite toys.

Against that backdrop last week came a new property tax relief idea from House DFL tax chair Ann Lenczewski and property tax division chair Paul Marquart. It came with a label not often attached to DFL tax proposals: “revenue neutral.”

The idea featured a few other surprises: It did not involve a state tax increase. (That was tried and vetoed last year.) It did not involve a huge increase in aid to local governments (never popular with Republicans, who tend to favor local control more in principle than in practice). It did not rely on unsustainable one-time money gimmicks (which are in vogue in both parties this year but are detested by fiscal prudes, including editorial writers).

Lenczewski and Marquart proposed to ease the property tax burden on homeowners least able to bear it, by putting the state’s property tax refund program, or “circuit breaker,” on steroids. It would bulk up state refunds to homeowners whose property tax burdens are disproportionately high relative to their incomes, making it big enough to block next year’s expected property tax increases for a majority of Minnesotans.

The circuit breaker’s growth would be funded by scaling down or eliminating the itemized state income tax deduction for property taxes and the market value homestead credit, which is unrelated to the size of either a homeowner’s tax bill or income.

That would mean higher taxes for homeowners with high incomes and comparatively low property taxes — particularly those with household incomes after deductions of more than $200,000. They’re only about 5 percent of Minnesotans. But their ranks may include more potential campaign donors than legislators and Gov. Tim Pawlenty are willing to afflict in an election year.

Yet the high-end earners who would lose a prized tax deduction under this plan should be advised that the existing state-plus-local tax structure in Minnesota grants them most-favored-taxpayer status. The tax cuts of 1999-2001 produced a fairness gap that favors the rich, and it’s growing. The latest calculations say top earners pay about 9 percent of their incomes in state and local taxes, compared with 12.5 percent for middle earners.

Lenczewski is a zealot about arresting that regressive trend. In that sense, her proposal is true to eight decades of emphasis by the DFL or its Farmer-Labor antecedent on basing taxation on ability to pay.

But in another sense, Lenczewski and Marquart are breaking with DFL orthodoxy. They favor direct aid to taxpayers over local governments. That’s an implicit acceptance of Republican arguments about the virtue of putting money into individual pockets and of exposing more taxpayers to the full impact of local government decisions.

That bow in the GOP direction ought to give their idea at least a remote chance to get through Gov. Tim Pawlenty’s “no new taxes” filter and become law. It should, that is, if easing property tax pain for those who are really hurting outweighs the election-year thrill of stomping on any idea that originates with the opposite team.

What ought to be clear to legislators is that the economic hurt in Minnesota is growing, and their election certificates oblige them to do something about it, no matter whether they sit in the majority or the minority caucus.

People whose incomes are falling are particularly burdened by the 82 percent average increase in homeowners’ property taxes that’s come on Pawlenty’s watch. They can’t afford the 7.7 percent increase that’s forecast for next year. Helping people in tough circumstances stay in their homes is what Minnesotans looked to a Farmer-Labor governor and a Conservative Legislature to do 75 years ago, and they delivered. Today’s divided government owes its constituents no less.

Lori Sturdevant is a Star Tribune editorial writer and columnist. She is at lsturdevant@startribune.com.

Money Back for Minnesotans

How the House DFL plan might affect you, if you live in rural Minnesota (top set of numbers) or in the metro area (the bottom set of numbers):

If your household … and your home’s … your savings next year would be:

income after market value is …

deductions is …

$40,000 $106,900 $35

$60,000 $160,300 $101

$100,000 $213,700 $70

_________________________________________________

$60,000 $187,500 $110

$80,000 $281,100 $227

$110,000 $374,700 $365

$150,000 $374,700 $63

All savings are net of the project impact on all taxes, federal, state and local.

Source: House Research.

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According to Ms. Nina Manzi, an analyst with State House Research, the following groups/people will benefit most from this proposal:

1. High-income taxpayers (over $200K income/year) who itemize their federal deductions regardless of where they live.

2. Taxpayers who itemize their federal deductions with incomes over $100K who live in low-value homes (>$200K).

3. Taxpayers who itemize their federal deductions with incomes over $100K who live in average value homes, but have low taxes ($280,000 home, taxes of $2,300).

4. Taxpayers who itemize their federal deductions with incomes over $150K who live in average value homes ($200K) with average or high taxes ($3K and up)

5. Taxpayers who itemize their federal deductions with incomes over $100K and have average taxes (or higher). For example, an income of $100K in a home valued at $160K or more, with taxes of $1,500 or more.

Linking property tax relief to income is a new concept in Minnesota. I doubt this proposal will become law, but you never know.

I attended a big meeting yesterday at the headquarters of the Minnesota Department of Transportation (MnDOT) in St. Paul. The purpose of the meeting was to discuss the prospects for the future improvement of the I-494 - T.H.169 interchange given the State’s new transportation bill generated new funds for MnDOT. We wanted to see if the new money meant that the project might be accelerated, or if the new money might vault other area projects ahead of this one.

The meeting included the Mayors, City Managers and Public Works Directors of Eden Prairie, Edina and Bloomington. There were also City Council Members and other city staff from the respective cities. There were also a couple of representatives from Eden Prairie’s business community: Liberty Property Trust and SUPERVALU. Finally, there were also three State Representatives there: Rep. Maria Ruud from Eden Prairie; Rep. Ron Erhardt from Edina and Rep. Neil Peterson from Bloomington. MnDOT was represented by the Acting Director Bob McFarlin, Metro District Engineer Tom O’Keefe and several other high ranking MnDOT staff members. It was a large group of people with busy schedules who got together to talk about a very important project.

It was a productive meeting. MnDOT shared with us what they expect to receive in new revenue as a result of the new transportation bill. They will see new money, but a significant share of it will go toward the repair and replacement of bridges. That was a legislative mandate by the State Legislature. The second priority of the new money will be pavement preservation. Expansion projects, which is what they say the 494-169 project represents, are, at best, a third priority for MnDOT.

Nonetheless, Mr. McFarlin told us that the 494-169 project is a priority project for him. He has a long history with the project during his career at MnDOT. He told us that he would work with his staff and with the three cities to figure out a solution to get the project moving. He asked us to consider potential decreases to the scope of the previously approved improvement plan for the interchange. The message was that if we could decrease the cost of the project, which is estimated to be over $120,000,000, by decreasing the scope of the project, the project could be completed sooner rather than later. No surprise there. The cities said they would look at variations of the project scope proposed by MnDOT and get responses back to MnDOT this summer.

Meetings like this a necessary in order to set a path for creating a solution to a problem. We want the project to happen tomorrow. They don’t have enough money to do the project tomorrow. So what do we do? We talk. We compromise. We move the project forward by reassessing what’s important and what’s not. We’re going to get right to work on this. This project is too important to the traveling public and to the economic development prospects in Eden Prairie to wait another ten years. We need it sooner rather than later.

I would like to think that here in Eden Prairie we run a middle-of-the-road city government organization where conflict is generally addressed and resolved maturely and professionally. Those two attributes are displayed in our City Council meetings and by City staff as we do the business of city government here in Eden Prairie.

Other cities do business differently. Their choices about how they choose to resolve conflict in their cities comes with a cost. The story below comes from today’s St. Paul Pioneer Press. It talks about the costs about to be incurred by one Minnesota city based on the way its leaders have chosen to resolve their conflicts.

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Maplewood’s infighting raises insurance costs

City’s insurer, citing lawsuit expenses, boosts its rates and delivers a warning

By Elizabeth Mohr
emohr@pioneerpress.com

Article Last Updated: 04/08/2008 10:20:06 PM CDT

Fed up with the squabbling and rising cost to insure Maplewood, the League of Minnesota Cities gave the St. Paul suburb a stern and expensive reprimand Tuesday.

The league, which insures all but six Minnesota cities, had been considering dumping Maplewood’s policies. On Tuesday, the league’s board of directors agreed to offer a renewal to the city, but with stiff premium and deductible increases.

“The board’s concern is the contentious and divisive situation out there,” Pete Tritz, director of the League Insurance Trust, said, noting that the atmosphere at City Hall contributed to a spike in lawsuits.

The league fears that if the situation doesn’t change in Maplewood, there could be more litigation.

The city’s insurance agent, Arthur J. Gallagher Risk Management Services Inc., called a meeting Monday to spell out the league’s position. A representative of Gallagher, which acts as middleman between the city and the league, cited examples of troubling City Council behavior.

League attorneys are upset the council has disregarded their warnings on such things as talking to the media about lawsuits and the people involved when told not to, said VeNita Schnebele, a Gallagher representative.

“You’re all individuals; you’re going to speak your mind,” Schnebele said, “but at the same time we need to follow the attorney’s advice.”

Maplewood Mayor Diana Longrie took issue with the idea the city’s insurer was threatening to revoke coverage or penalize the city based on what it considered “uncooperative” behavior.

“A council member … expressed their opinion of somebody. Is that OK? I don’t know. Is that protected by the First Amendment? I don’t know,” Longrie said. “But they’re saying, ‘We won’t insure you if you speak your mind.’ What speech is allowed? I don’t know.”

Longrie said she wants more information on how the league handles similar scenarios with other cities to determine whether Maplewood is being “singled out.”

But league officials cite events of the past couple years as reason for concern. Four employment-related claims have been filed against the city since 2006; three have been settled. Former Human Resource Director Sherrie Le won her claim and a $185,000 award this year. And a land-use lawsuit is pending.

Litigation-related losses for the past year exceeded $1 million, Schnebele said.

That amount was big enough for the league to consider dropping Maplewood’s insurance coverage - an unprecedented move. In the past 20 years, the league hasn’t dropped any city, Schnebele said.

“And we don’t want to be a pioneer in this area,” she said.

The league’s insurance coverage is the best option for the city, in terms of price and breadth of coverage, compared with the “standard market,” Schnebele said. She urged the council to heed the league’s warning.

The city’s coverage is scheduled to expire June 30. Adjusted premiums under the new contract will be “123 percent of what the average city would be paying” and Maplewood’s deductible will increase from $50,000 per claim to $200,000, Tritz said.

The League of Minnesota Cities’ action is the latest blow to the city.

Last month, the Pioneer Press detailed financial problems facing Maplewood and its leaders, who have been engaged in a shifting power struggle. The city was behind on checking bank statements against city records, there was no way to weigh expenses because budget numbers hadn’t been entered into the city’s computers, and leaders did not know the current value of the city’s fixed assets.

Acting City Manager Chuck Ahl said he has added staff to address those issues and progress is being made.

He assured Maplewood residents in a letter last week that funds have not been misappropriated, but that the state of the finances was a result of “the process of reporting and monitoring” in the city.

The state auditor’s office responded to calls for an in-depth look into the city’s books by meeting with Ahl and Finance Director Bob Mittet last week.

State Auditor Rebecca Otto said Tuesday the state will “be monitoring their current situation,” but won’t perform an audit.

Tritz said the league’s board weighed the city’s recent efforts to fix its problems.

“If all hope were lost, the board would not have offered renewal,” he said of the insurance coverage.

Elizabeth Mohr can be reached at 651-228-5162.

http://www.twincities.com/ci_8856996?IADID=Search-www.twincities.com-www.twincities.com

The Hennepin County Board of Commissioners approved the imposition of a new county-wide sales tax yesterday, as reported by the Star Tribune newspaper. The 0.25% sales tax, which would add one cent to a $4.00 purchase, will a dedicated source of future capital transit funding. For Eden Prairie, this means that the future Southwest Transitway LRT project is one step closer to reality. The Eden Prairie City Council is on record as supporting the LRT project, so whether you support the tax or not, the idea that the City can now move forward with a serious planning effort for this project is a good thing.

It has taken a few years, but the State Legislature has finally passed on new Transportation Bill. The new bill survived the Governor’s veto when both the House and the Senate voted to override the veto earlier this week. Among its many provisions, the ones that have received the most attention from the media are the following: a 0.25 cent increase in the general state sales tax in the seven-county metro area; an 8.5 cent/gallon gas tax increase phased in over the next five years; and an increase in license tab fees for new vehicles. Together, these three measures will create $6.5 billion of new money for transportation - both roads and transit - in Minnesota.

The new Transportation Bill has created the possibility of a major road project moving ahead of its current plan. The intersection of 494 & 169 is woefully inadequate for the traffic volumes it handles on a daily basis. There is a major plan to fix it. In the current funding scenario, the contract award for that project is not scheduled until 2016 - at the earliest. The new transportation dollars create a new situation in which this project can be re-prioritized and moved to an earlier date. I am going to meet with my city manager colleagues from Edina and Bloomington today to talk about that issue.

What did you do for the Presidents Day holiday? I helped my wife clean the house. I did some laundry. And I helped my son with an essay he is writing about Bolivia.

And I also testified at the a meeting of the Minnesota House Higher Education and Workforce Development Finance and Policy Committee meeting last night in St. Paul. That’s Rep. Ruud and I at the witness desk next to the display board. This is the first committee to take up House File 2842 which is the bill introduced by Rep. Maria Ruud in the Minnesota House of Representatives seeking $6.8 million dollars of state funds to do a complete renovation of Camp Eden Wood. There has been a companion bill prepared in the Senate, but it has not been introduced yet.

The committee hearing started at 6:00 pm. Our bill was heard at around 8:20pm. Not bad, actually. I was expecting 10pm. The committee heard about thirty bills last night, all of them seeking state bonding bill funds for local projects. Mora wants a new senior center. Walker wants a new water line. Austin wants better flood protection. Rochester wants state financial assistance to expand the Mayo Civic Center. Duluth wants state money to expand their civic center.

Our project received a good reception. After exchanging a few opening greetings in Croatian with the chair of the committee, Rep. Tom Rukavina, Representative Ruud introduced the bill. She said a few words about the project and then turned the microphone over to me to tell the committee members what we want and why we want it. We took a few questions from the the committee. Nothing too deep or difficult. Then the committee voted our bill out of their committee and on to the House Capital Investments Committee. I don’t know when we will appear at that committee, but I bet that it will be soon. This is supposed to be a short session so time frames are compressed.

Presidents Day was a good day for the Camp Eden Wood project.

One aspect of the aftermath of the shootings in the Kirkwood, Missouri Council Chambers is that it has reminded city officials everywhere to review their processes and procedures for managing unhappy citizens, thinly veiled threats, overt threats, citizen input at Council meetings and safety & security of public meetings - among many things. We have reviewed our policies and procedures here in Eden Prairie. While it is difficult to predict this kind of tragic event, I believe we have put in place reasonable safety and security measures that does not eliminate an open dialog between citizens and their elected officials at our public meetings.

Earlier this week, city officials in Minnesota received the following advice from League of Minnesota Cities executive director Mr. Jim Miller. We will be reviewing Mr. Miller’s advice on this matter with our City Council at the March 4 Council meeting. Here’s what he had to say:

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February 13, 2008

To: LMC Members

From : Jim Miller, Executive Director

Last week’s tragedy in Kirkwood, Missouri, reminds us that at times our public service as mayors, council members and administrative staff can take on serious overtones. Fortunately, such tragedies are rare. It is, however, advisable for city officials to consider their own options for dealing with the rare constituent who may cross the line from expressing democratic views-to actual disruptive, threatening and potentially physically violent behavior. Rachel Carlson, one of our LMC research attorneys who has advised member cities in this matter, offers the following:

Disruptive or Threatening Behavior at Public Meetings

A city council is authorized to preserve order at its meetings. The mayor, as the presiding officer, is also vested with some authority to prevent disturbances.

While council meetings must be open to the public under the Open Meeting Law, no individual who is noisy or unruly has a right to remain in the council chambers. When the council decides that a disorderly person should not remain in the meeting hall, law enforcement officers may be called to execute the orders of the presiding officer or the council. In addition, the disruptive individual may be charged with the crime of disorderly conduct.

Perhaps the most effective way to prevent or mitigate disturbances or disruptive behavior is to plan for citizen commentary, by providing a public comment period and exclusively limiting comments to this period. Additionally, many cities find it helpful to impose time limits on individual speakers. A number of cities have adopted written meeting rules governing the public comment period. Failure to follow the rules can be grounds for removing an individual from the council chambers.

If the city anticipates that an upcoming issue is particularly contentious, the city should discuss ahead of time its procedures for dealing with disruptive behavior. In particular, the city may wish to have law enforcement on hand or standing by. The city may also wish to consider in advance its procedures for recessing or adjourning a meeting if the meeting becomes too disruptive for public business to occur.

These issues and more tips for public meetings can be found in the LMC Governing & Managing Information Memo “Meetings of City Councils” available at http://www.lmnc.org/pdfs/LMCResearchMemos/Meetings_of_City_Councils.pdf on the LMC web site.

Disruptive or Threatening Behavior at City Hall or Worksites

Many city officials maintain office hours and encourage constituents to approach them with concerns. Additionally, city staff may have frequent, regular interactions with the public while at the front desk of city hall, or-as in the case of the public works employee-as they go about their day fixing streets or maintaining city property. In these situations, it is also possible to encounter the constituent who crosses the line from voicing his or her concerns to more troubling behavior.

Dealing with these types of situations can be even more problematic (and potentially frightening) than behavior that occurs at a public meeting. Often city officials and staff are scrupulous about allowing their constituents to exercise their free speech rights. They are deeply concerned that citizens be afforded an opportunity to speak and be heard, and often simply try to overlook abusive behavior.

However, free speech rights do not justify harassing, threatening, abusive or noisy conduct.

When confronted by a constituent who is acting inappropriately, cities have options available to them. Cities should discuss with their individual officials and staff any safety concerns they may have. Those concerns may easily be mitigated by making sure more than one person (or law enforcement officer) is present when the constituent interacts with city staff or officials. If this is not practically possible (for example, a small office where normally only one person is working on site), it may be necessary to require the constituent to set appointment times, so that additional staff may be on hand during those times. If the constituent will not comply with appointment times, he or she should be asked to leave.

In more extreme instances, the constituent can be charged with the criminal offense of disorderly conduct. Under the Minnesota criminal code it is a crime to “. . . in a public or private place . . . alarm, anger or disturb others or provoke an assault or breach of peace . . . [through] fighting . . . or abusive language tending reasonably to arouse alarm, anger or resentment by others.”

In the alternative, individual officials or city staff may pursue a civil restraining order against the constituent. Restraining orders are available after a single incident of physical assault or after repeated incidents of “intrusive or unwanted acts, words, or gestures that have a substantial adverse effect . . . on the safety, security and privacy of another.” A restraining order may prevent the harasser from visiting city worksites or attending public meetings where the city staff or official may be present.

In most instances, the city official or staff will need to individually petition the courts for the order. Once a restraining order has been granted, local law enforcement officers are able to arrest, without a warrant, any person that they reasonably believe is violating a restraining order. Violation of the order itself becomes a crime with significant criminal penalties.

If you have any questions about how to safely deal with potentially threatening constituent behavior, please feel free to contact our LMC Research Services by phone at (651) 281-1200 or (800) 925-1122 or through our online inquiry form at http://www.lmnc.org/researchanalysis/question.cfm.

The Minnesota State Legislature is back in session. It started today. 2008 is supposed to be a “short session”. The traditional objective of the short session is to address the capital improvement needs of the state, pass a bill that provides capital funding for those needs and then to adjourn.

Eden Prairie has an interest in several issues at stake in the legislature this year. Our City needs the state to proceed with the planned improvements for the intersection of I-494 and T.H. 169. We need this project. We need the transportation improvements this project will bring to our Golden Triangle Office Park. There are businesses in that office park that are considering expansion. They are concerned about transportation issues for the future of the office park. Their concerns would be addressed by the 494-169 project - that’s why we need it.

We also have a project under consideration in the legislature’s capital bonding bill: the Camp Eden Wood project. We have asked the state legislature for $6.8 million to make improvements to Camp Eden Wood. The camp is leased by the City to Friendship Ventures. Friendship Ventures uses the camp facilities for its programs for physically and mentally disabled children. They do great work and make great use of this camp. The kids that go to Camp Eden Wood come from all over the state of Minnesota. We believe the legislature should provide funds to this project because it benefits a constituency that needs our help and because the project has statewide impact.

The session is off an running. Hang on. With a negative economic forecast in the foreground and election year politics in the background, it could be a very messy session indeed.

What’s your #1 public concern in the Twin Cities metropolitan area? The Metropolitan Council believes it is (no surprise): transportation. Below is a story from yesterday’s Star Tribune reporting on the annual State of the Region address by Met Council chair Peter Bell. Community Development Director Janet Jeremiah and I attended the event. Bell is an excellent speaker. He has a very good grasp of his organization and its accomplishments, and also where it’s heading in the future.

Here’s the story:

Our No. 1 metro worry? Transportation

By MARIA ELENA BACA, Star Tribune

February 4, 2008

In a year that saw the collapse of the Interstate 35W bridge over the Mississippi River, conspicuous construction that has snarled sections of metro roads and constant debate over funding, it may not come as a surprise that transportation emerged as the top concern of metro-area residents.

Released Monday at the Metropolitan Council’s State of the Region event at the Minneapolis Central Library, a recent survey it commissioned found that 37 percent of Twin Cities metro-area residents identified “traffic congestion, road conditions, limited transit options and other transportation challenges” as the region’s top problem.

Finishing a close second, 32 percent of residents listed crime as the most important issue facing the region.

The survey had a 3 percentage point margin of error.

Still, in his State of the Region address, Metropolitan Council Chairman Peter Bell focused on transportation and natural resources while also mentioning development and infrastructure among the council’s priorities.

Bell touted progress on the North Star rail line to link outlying northern suburbs with downtown Minneapolis.

He also touted the expansion of the Hiawatha light rail to the new Twins ball park and construction of the Central Corridor LRT between the downtowns of Minneapolis and St. Paul. In addition, he highlighted bus line developments made possible by a $133 million federal grant.

Bell received enthusiastic applause from the audience of elected officials, municipal employees, residents and other stakeholders when he indicated that the Central Corridor LRT was his “No. 1 priority.”

“Let me be clear on this point,” he said. “We at the council are strongly committed to securing the necessary federal funds to move forward with this project.”

Still, there were skeptics in the audience.

“There was nothing bold in this vision, no plan to fund a real, robust transit system in our region,” said Rep. Frank Hornstein, DFL-Minneapolis, who said he was offering the “Democratic response” to Republican Bell’s address.

“Without that, it’s just rhetoric. Unfortunately, the Pawlenty administration and the Met Council really have not taken the steps needed to adequately build a transit system in our region. … We have been proposing for years a regional sales tax to fund expansion of transit.”

‘Green’ priorities

Bell also addressed ways regional government is trying to become greener as part of an effort to meet the metro area’s needs in 2039. Part of his immediate goal is to acquire land for what would become seven new regional parks and seven new trails for the metro area.

In all, the Met Council’s goal would be to add more than 17,000 acres of park land and 700 miles of trails by 2030. Currently, the metro area has a 53,000-acre park system.

Bell touted the Metro Transit system’s 19 hybrid electric buses, the first of 169 to be delivered over the next five years, and the drive to increase buses’ use of biodiesel and other renewable alternative fuel sources.

The annual Residents Survey results were based on interviews with more than 1,300 residents who were polled during October, November and December 2007.

Maria Elena Baca • 612-673-4409

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Transportation is a tough nut to crack in this state. Most of the state’s verified transportation needs are in the seven county metro area, but most of the transportation money flows to areas outside the Twin Cities. State Legislators may agree to increase the state’s gas tax to produce new money for transportation projects, but only if most of the new money can stay in the Twin Cities. And don’t even get me started on the inflexibility of political positions on the split of this money between roads vs. mass transit.

The real transportation problem in our state is the failure of the parties in power to reach a compromise. Maybe this is the year that’ll get done. Maybe.

Here’s a Star Tribune story from today’s paper that is meaningful to those of us in the government business in Minnesota:

State budget gap ‘likely to grow’

By PAT DOYLE, Star Tribune

January 30, 2008

State Economist Tom Stinson said Tuesday that a predicted $373 million state government budget gap is “likely to grow” because early indications are that future revenues will be less than predicted in November.

While Stinson cautioned that the state won’t be able to make a good prediction until it releases its new economic forecast in late February, he added, “Almost certainly we’re going to have less in the forecast than we had in November. And the question really is, just how much?”

Stinson made his remarks at a talk sponsored by Minnesota Council of Nonprofits in St. Paul. He pointed to slumping housing starts in the fourth quarter of 2007 and other measures in describing a state economy less healthy than the national economy.

He said Global Insight, the firm the state uses in putting together economic forecasts, was less optimistic in its January outlook than it had been in its November forecast. Even after the Federal Reserve cut a key interest rate by three-fourths of a percentage point to stimulate the economy, Global “reiterated their pessimistic outlook,” Stinson said.

Gov. Tim Pawlenty’s office did not respond immediately to the remarks. But in response to a Stinson assertion earlier this month that the state is in a recession, Pawlenty said Stinson “tends to be a bit on the pessimistic side of things,” according to Minnesota Public Radio.

Sen. Tarryl Clark, DFL-St. Cloud, the assistant majority leader, said Tuesday that Democrats would reconsider advocating tax breaks, targeted use of state bonds and other measures to build projects quickly and create jobs that in turn produce tax revenue. “What we’ll be looking to do is have the projects get going sooner than we would have,” she said.

Stinson expressed skepticism that such plans would work. He said bond money provides no significant stimulus to an ailing economy because little of it is spent in the first year, when an infusion of money is needed to jump-start the economy.

“There really isn’t a lot that state governments can do in terms of stimulus,” he said.

The next economic forecast will be released Feb. 28, though Stinson said some better hints might emerge after December sales tax revenue — including holiday spending — and some January income tax figures become available in a few days.

He noted that while Minnesota’s December unemployment rate of 4.9 percent was slightly lower than the national rate, “The problem is that, historically, Minnesota hasn’t done just a little bit better than the U.S., Minnesota’s done a lot better than the U.S.”

Loss of construction jobs in Minnesota appears worse than elsewhere in the nation, he said, and the state ranks 36th in job growth.

Pat Doyle • 651-222-1210

© 2008 Star Tribune. All rights reserved.

http://www.startribune.com/local/14856826.html

When the economy sours for the state government in an election year, it usually means some kind of trickle down unhappiness for those of us in city government. If the state government decides that it must pull back state financial support from cities in order to improve its own financial condition, the legislature will likely look for some way to make cities like Eden Prairie (i.e. - cities that receive very little, if any, state financial assistance) feel some kind of financial pain too out of a misplaced feeling of “fairness”. This has never made much sense to me, but people do strange things sometimes in the interest of fairness.

The state legislature still has a couple of weeks before it goes back into session. Get ready. It’s not looking too good right now.

Mayor Young, Council Member Aho and I joined a group of 20+ other members of the Eden Prairie Chamber of Commerce Business Leaders Roundtable on Friday at the Hilton Garden Inn for a meeting with 3rd District Congressman Jim Ramstad. We had a good meeting with the Congressman. He covered five topics in detail that he felt were going to consume most of Congress’s available time and attention in 2008: economy, health care costs. transportation, education and the war in Iraq.

Congressman Ramstad talked about the success of the Bush tax cuts that he credits with 52 consecutive months of job growth in the United States - the longest streak of of consistent job growth in American history. But he wondered in the job growth numbers from the 4th quarter of 2007 is a sign that the streak may be coming to an end. He voted in favor of another one year fix of the AMT, but believes a permanent fix for the AMT is necessary. He also talked about the proposal to make the Bush tax cuts permanent (they expire in 2010), but understands that will mean a potential $2.5 trillion hit to the U.S. Treasury and wondered how the federal government would deal with that.

When discussing health care, Congressman Ramstad said that he favored the S-CHIP bills that came out of Congress this fall and credited Governor Pawlenty as one of the most innovative governors in America when it came to expanding and managing S-CHIP funded programs in Minnesota. He also shared his five suggestions for improving health care in the U.S.: cover the uninsured through refundable tax credits and vouchers; allow association health plans; implement medical liability reform; expand health savings accounts; and allow for the re-importation of pharmaceutical drugs from Canada.

The congressman said he would fight for earmarks for such transportation projects as highway 610, 494-169 interchange, Southwest LRT, and highway 212 because money is needed for those projects and because the projects have merit.

Congressman Ramstad said that the President and Congress should not become a national School Board and substitute its collective judgment for the judgment of locally elected school boards. He said the federal government should fully fund its 1976 commitment to pay for 40% of local special education costs. The federal government current funds about 18% of special ed costs.

Finally, Congressman Ramstad described the war in Iraq as the “800 pound gorilla in the room”. He was one of only 17 Republicans in the House to vote against the President’s “surge” plan. He acknowledged the reported success of the surge in reducing the overall level of violence in Baghdad, but wondered if the surge had just disbursed the bad guys into the hinterlands to lay low until the U.S. departed. He also offered some criticism of the Iraqi government for not making much political progress on the 18 benchmarks adopted by the U.S. Congress. So far, the Iraqi central government has only made substantial progress of 8 of the 18 benchmarks.

Congressman Ramstad is a great guy to have breakfast with. He is informative, but listens well too. He will be tough to replace.

The City of Shorewood is out of the municipal liquor business. In 2007 three of the five members of the Shorewood City Council examined the future of the City’s municipal liquor operations and decided it was not a lucrative enough venture for the City to continue to be involved in. Laurie Blake has a story in today’s Star Tribune. You can see the story by clicking on this link: “Municipal liquor sales: No business for a city?”

The decision about staying in (or getting out of) a municipal liquor operation can be a difficult one. Or, for some, it can be an easy one. Some people believe a City should control the distribution of liquor in a community because they believe it will be more controlled under the non-profit management of a city government than under the for-profit management of a private business owner. Others believe a city should not be engaged in any sort of retails sales operation, liquor included. The middle ground is typically occupied by people who feel it is a bit off target for a city to be in the liquor business, but they like the idea that liquor profits are used, primarily, to fund improvements to public streets, trails, parks, police cars, fire trucks, etc. that would ordinarily be funded by property taxes.

The numbers included in Blake’s story are interesting. The first number is total sales from 2005 and the second is the 2005 net profit from liquor sales in 2005. The source of the data is the State Auditor’s Office:

Metro Area City Sales Net profits

Anoka $3,189,297 $182,058

Apple Valley $6,405,618 $555,748

Brooklyn Center $4,610,091 $182,910

Columbia Heights $6,713,932 $228,532

Eden Prairie $10,023,770 $1,096,673

Edina $10,752,724 $1,003,411

Farmington $3,441,312 $267,924

Fridley $5,283,229 $375,866

Lakeville $11,481,091 $1,149,155

Lexington $2,598,458 $171,981

Mound $2,134,980 $-118,780

Richfield $10,016,562 $619,639

Robbinsdale $2,011,139 $13,652

Rogers $2,851,190 $137,880

Savage $5,749,755 $438,991

Shorewood $2,035,480 $46,792

Spring Lake Park $2,527,828 $25,129

St. Anthony $5,298,404 $269,061

St. Francis $1,717,092 $156,434

Watertown $22,195 -$69,215

Wayzata $3,101,217 $218,624

In 2005, Shorewood sold $2,035,480 in beer, wine and liquor in order to generate $46,792 for the City’s General Fund. That’s a 2.3% profit margin. Eden Prairie, by contrast, had 2005 sales of $10,023,770 and generated $1,096,673 - a profit margin of 11%, one of the highest municipal liquor profit margins in the metro area. Eden Prairie plugs its annual liquor profits right into our Capital Improvement Fund. From there it is distributed by the City Council to pay for many different kinds of public projects, such as road improvements, park improvements, new trail construction and improvements to public buildings and facilities. If the City did not have the annual municipal liquor profits, we would need to tax our property taxpayers for a like amount of revenue; or, reduce the number of road improvements, park improvements, etc. that we try to accomplish on an annual basis. It’s a tough choice.

The tough choice for municipal liquor belongs to the City Council. It takes a simple majority vote of a City Council to give up a City’s municipal liquor operations. And once you’re out, you’re out. Can’t go back again. Because it is a public-driven choice by a community’s elected officials, the City asked Eden Prairie residents in the City’s 2006 Quality of Life Survey what they thought about the City’s municipal liquor operations. Here’s what we asked them:

Do you favor of oppose the City continuing to operate its municipal liquor stores?

84% said they “favor”

9% said they “oppose”

7% said they were “Don’t know/Refused to answer”

The 9% who said they opposed the City’s continued operation of its municipal liquor stores were asked an additional follow-up question that went like this:

Do you still oppose the continued operation of the municipal liquor stores if closing the liquor stores would result in a $1,000,000 loss of revenue for the city?

50% responded they would still oppose the City’s operation of municipal liquor stores, even if it meant a financial loss for the City.

47% changed their minds after hearing the additional information about the loss of revenue if the City got out of its municipal liquor operations.

3% did not answer or did not have an opinion.

Staying in the municipal liquor business is a tough choice, even if the profits are good, and even if those profits go to a benevolent end. It’s one of the areas of city government where elected officials face the dilemma that something that is beneficial for the community may be in conflict with their personal philosophy of life, business or politics. Think being a member of a City Council is easy? Think about the arguments for and against the municipal liquor issue. It can be a tough choice.

We’re done. It’s finished. The 2008-2009 City budget was approved by the City Council at its meeting on Tuesday night. At just a few minutes over 4 hours, it was the longest Council meeting of the year, but the City has a budget for the upcoming biennium. Today’s posting is the internal release we posted on our Intranet for employees describing the budget.

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12/19/2007

At its Dec. 18, 2007, meeting the Eden Prairie City Council approved a 2008 City budget. The 2008 budget has a tax levy of $30,665,882, an increase of $749,212, or 2.5 percent over the City’s 2007 tax levy of $29,916,670. The newly approved City budget for 2008 is $40,851,327, increasing expenditures by $1,590,014, or 4 percent over the adopted 2007 City budget.

The additional property tax impact of the City’s 2008 tax levy on Eden Prairie’s median single family home is projected to be at or near zero. The median single family home is valued at $374,800 in 2008. The City’s property taxes on the median single family home in 2007 were $1,073. As a result of the Council’s action on the City’s 2008 budget, the estimated City property tax for the median single family home is $1,072.

The 2008 City budget includes funding for the continuation of the City’s current service, program and staffing levels with a few exceptions. The 2008 budget includes more than $800,000 for operating costs at the newly expanded Community Center. It also includes new staff positions in the Police Department, Facilities Division and the Information Technology Division. The 2008 budget also includes reductions in the scope of two City programming areas: heritage preservation and immigrant services. Plans to address these program reductions will be drafted early in 2008 and presented to the Council in February.

City staff will prepare the final budget documents for submission to Hennepin County by the end of next week. The 2008 budget will be posted to the City’s Web site in January.

This has been a challenging year for those of us who work on the City budget. On behalf of everyone who worked on the budget this year, I want to thank employees for their help and patience as the process worked its way to the final approval at last night’s Council meeting. For those employees who devoted hundreds of hours of time and energy into creating and presenting the 2008 City budget to the Budget Advisory Commission and the City Council - Thank You! Your work is very much appreciated.

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It feels good to be done with the budget this year. Now I’m looking forward to getting the work done over the next two years.

There’s a pretty good article in today’s Star Tribune by Mike Kaszuba that talks about the protest that is being filed by the construction companies that did not get the contracts to rebuild the I-35W bridge. Click here to read the article: “Were savvy firms duped or outsmarted?” So which would you you rather be described as: Duped or Outsmarted? Not a great choice either way.

Is it sour grapes? One has to wonder. Were the locals thinking the contract was going their way, because they were locals? Or, were they thinking that they had made enough contributions to enough state legislative campaigns that MnDOT would go their way regardless of the official process? Or, did they think that the traditional method of government contracting of awarding the bid to the “lowest responsible bidder” would prevail again, despite the fact that MnDOT’s bidding instructions for this project were very clear that they were not awarding this contract on that basis?

It’s hard to say. But what isn’t hard to say is that it’s too bad that MnDOT is now going to have to spend time and energy chasing its tail in the media, in the courts and probably in the Legislature defending its project bidding procedures rather than getting actual work done. The rules of the process were clear. They were in writing. And, yes, there are costs to putting together a bid of this complex nature and it’s disappointing when you don’t win the contract. But that’s why MnDOT paid each bidder $500,000 to cover their costs in preparing the bids. That ought to be enough.

From what I’ve seen and know about the roads and bridges in our state, there’s going to be enough money spent by MnDOT over the next decade to go around for everybody in the construction business. So let’s quit grumbling and get to work to fix the transportation infrastructure of this state.

The City’s 2008-2009 budget process was in the local news again this week. Here are links to two stories about the September 18 City Council meeting that discuss the latest budget discussion on the Council: Eden Prairie News and/or Eden Prairie Sun Current.

Essentially, the Council has asked for a new budget option to consider. They have been considering two options. Version 1.0 with a property tax impact of +5.37% and Version 2.0 with a property tax impact of +2.08%. The Council’s action this week formally directed me to prepare them an additional budget version, which we’ll call Version 3.0, that increases 2008 spending by $1,00,000 over 2007 levels. I haven’t seen the exact property tax impact yet, but it’s likely to be about +1.00%. I’m also going to prepare an additional budget option for the Council to consider. This one will be the zero option. We’ll call it Version 0.0. It will reflect the changes in our budget necessary if the Council does not approve any increase in spending for 2008. The property tax impact of Version 0.0 is -2.57%.

It’s difficult to talk about the budget in hypothetical terms in an open governmental environment. With 100% transparency comes 100% knowledge of who said what to whom about the budget, and that can create a charged environment over time - especially when the discussion is centering on employee and service reductions. The budget is a very personal issue for City employees. They have mortgages, kids in colleges and bills to pay. Like anyone else, they want to know if their jobs are secure or if their salaries will increase in the upcoming year, or not.

Because a city government is a service business, most of our costs are personnel costs. Of course, most of our assets are too. It is very difficult to make meaningful structural change in the City’s budget without affecting the people that work here. Sure, you can decrease the rate of growth of taxes by spending down the City’s capital funds on operations. That’s a short run strategy that produces two very negative consequences in the future. First, you burn through your capital reserves, which most people won’t notice in the short run. But the reserves will eventually run out and the City will be forced to either impose new taxes for new capital resources or to stop investing in the capital infrastructure of the City. I hope we all learned a valuable lesson this past August about what happens when a government stops or defers making new investments in its capital infrastructure. The results of that decision can be more than just annoying. They can be tragic.

The other consequence is that someday the gap between annual operational revenues and annual operational expenses will need to be filled. Ideally, a government’s annual operating expenses should be covered by its annual operating revenues. When annual operating expenses exceed annual operating revenues an annual operating deficit is created. Covering that deficit with other revenues pays the bills in the short run, but it doesn’t address the structural problem in the budget. This is more than just accounting lingo. If this sort of situation is allowed to go on year after year, the operating deficit grows year after year and the gap grows. There would be a day of reckoning for this budget situation someday. And when that day of reckoning comes, it will be very messy and very painful for all concerned because services would be significantly cut and taxes would be significantly raised - not a good combination.

These are the kinds of situations and difficult questions the City Council is wrestling with right now. They want to make sure that our local City tax rates are reasonable, but to do that they must take a hard look at City services, which means taking a hard look at how many employees we have and how much they get paid. The Council is getting a lot of feedback right now. They’re also getting a lot information right now too. City staff will help them reach a wise decision, I hope. We’re working on that right now too.