Financial overview

The 2022 Mayor's Recommended Budget for all City funds is $1.59 billion. This represents an $125 million, or 7.9 percent increase from the 2021 Council Adopted Budget of $1.59 billion exclusive of the City’s component units.

In 2020 the COVID-19 pandemic caused a drop in revenue collections at the CIty and throughout the country. Economic activity remains hampered by the lingering impacts of the pandemic and uncertainty around the containment of the virus calls for caution in revenue forecasts. In 2022 revenues begin to rebound, but have not yet returned to pre-pandemic levels, leaving a gap between revenues and expenditures in the City's general fund.

In March of 2021 congress passed and President Biden signed into law the American Rescue Plan Act (ARPA) which, through its Coronavirus State and Local Fiscal Recovery Funds provides $271 million in federal relief to the City of Minneapolis. One of the objectives of this funding is to "replace lost revenue for eligible state, local, territorial, and Tribal governments to strengthen support for vital public services and help retain jobs." The Mayor's Recommended Budget includes $47 million of the City's ARPA allocation to replace lost revenue in 2022 and bring back jobs and services faster than would have been possible without this legislation, and earmarks an additional $71.6 million to replace lost revenue in 2023 and 2024 as revenues continue to rebound.

The Mayor recommends a 5.45 percent increase in the property tax levy, raising the total amount levied by $21.6 million, from $395.8 million in 2021 to $417.4 million in 2022. In addition to ARPA funds and the above levy increase the Mayor's Recommended Budget includes $17 million in spending of accumulate fund balance in the general fund to support one time expenses for Elections and transfers.

Current Service Level

The City uses a Current Service Level (CSL) methodology of budgeting, meaning any ongoing service level commitments from a prior year constitute the starting point for the next year’s budget. Finance and Property Services, in conjunction with other internal service providing departments, works annually to determine the costs for the continuation of current services into each successive year.

The CSL includes personnel costs, allocation models, and the non-personnel base budget. Personnel expenses, like salaries and fringe benefits, increase year-to-year to account for changes to health insurance premiums and pay increases.

Allocation models are the distribution of expenses associated with the provision of internal services to all departments. As an example, the Information Technology

Department provides consistent services to other City departments (such as laptops) for which they collect revenue regularly.

The nonpersonnel base component of the CSL does not increase yearly. This part of the budget often pays for items like office supplies and contracts with external organizations.

2022 Budget

Despite the City’s ongoing recovery from the twin crises of the COVID pandemic and the murder of George Floyd, the General Fund needs of the City enterprise have grown. In 2022, the projected CSL budget expenses exceed revenues. Several key areas contribute to this increase in expenses: fringe benefits, interfund transfers, and the inclusion of two departments in the General Fund.

Worker’s compensation, within the fringe benefit category of spending, will increase in cost from $9.92 million in 2021 to $15.84 million in 2022.

In a related fringe benefit category, duty disability (Other Post Employment Expense) costs are increasing from $1.26 million in 2021 to $3.24 million in 2022. Duty disability retirement is a benefit unique to first responders. This expense is partially reimbursed by the State of Minnesota, though that rate of reimbursement continues to decline.

To make sure that the City’s Self-Insurance Fund (SIF) can meet its obligations in 2022, we are transferring $24 million from the General Fund to the Self-Insurance Fund.

Finally, two City departments have moving components of their operations onto the General Fund. The City Attorney’s Office previously had its Civil Division funded through the SIF. To better align with financial policies, the Civil Division staff will now be paid from the General Fund. This shift adds $7.15 million to General Fund expenses. Neighborhood and Community Relations (NCR) had been supported largely through a TIF district, now expired, in previous years. Its 2022 General Fund budget totals $4.19 million, up from $835,000 in 2021.

Major highlights

As a result of lowered revenues due to the global pandemic and increasing expenditures the starting point for the 2022 General Fund budget was a $34 million gap between revenues and expenditures without any new investments. In order to solve for this gap and add back staff that were cut in 2020 and 2021 and other new investments the Mayor's recommended budget proposes a 5.45 percent levy increase, $47 million in ARPA revenue replacement, and spending $17 million in accumulated fund balance in 2022.

Using one time sources, like ARPA dollars and accumulated fund balances, to fund increases in ongoing spending can lead to future pressures on other revenues or abrupt spending cuts if the longer-term outlook for revenues and expenditures is not considered. The Mayor's recommended budget includes an ongoing increase in spending of approxiamatly $16 million. Although ARP dollars are needed to cover this increase in 2022, by 2025 the City's revenues are expected to recover and, with modest annual increases in the property tax levy, will be able to sustain that ongoing spending.

Sustainable use of one-time funding sources

Five Year outlook of revenues and expenditures in the General Fund, including $120M of ARPA revenues from 2022- 2024

In the above chart, the green bars represent the general fund revenue with the dark green representing the property tax levy that increases by around 5% each year. The light blue area shows base spending (also called the Current Service Level/CSL) on projects and personnel in the city that were approved in the 2021 Adopted Budget and the dark blue represents new spending the the 2022 Mayor's Recommended Budget.

In 2022, while revenues are still heavily impacted by the COVID-19 pandemic, expenditures exceed revenues. But by 2025 and 2026 revenues are expected to rebound, making some new investments sustainable.

The Mayor recommends utilizing $119 million in ARP funds over 2022 - 2023 to support basic city services and bring back city jobs that were frozen in the budget cuts of 2021 (shown in yellow on the above chart.) In addition the Mayor recommends spending down some accumulated fund balance in 2022 through 2025 to balance the budget and offset one-time expenditures. This planned spend down of cash positions the city to far exceed its minimum fund balance policy at the end of the budget year.

planned use of ARPA funds to replace general fund revenue in 2022, 2023 and 2024

Sales tax and other revenues are on the rise in 2022 but are not expected to reach pre-pandemic levels until 2024 and won't reach previous growth projections until 2025 and beyond. The Mayor's proposal uses lessening amounts of ARP dollars in 2022 through 2024 to fund core city services while revenues return.

American Rescue Plan Act appropriations, Phase 1 and Phase 2

On July 2nd the City Council Adopted a a plan to spend $102 million of American Rescue Plan Act dollars in the first phase of decision-making.

Detail on the Council Adopted plan can be found here

The Mayor's recommended budget includes a planned use of $119 million in ARPA funds to replace General Fund revenues over the next three years. The largest portion of that total is to replace sales tax revenue which was the most severely impacted revenue stream at the City in 2020 and 2021. The remainder is to replace other general fund revenues like business permits and other City fees and fines.

This leaves $50 million remaining unobligated of the City's total $271 million ARPA allocation, to be appropriated in the next phase of decision making.

$102 in ARPA phase 1, $63M for sales tax replacement, $56M in GF revenue replacement and $50 million for ARPA phase 2

City spending

For 2022, the budget includes expenditure appropriations corresponding to priorities outlined in the Mayor's Recommended Budget as well as ongoing projects and current City-provided services. Details of the individual expenditure appropriations within the departments and other categories identified in the pie chart below are available in the Operating Departments and Capital Programs sections of this document.

Below is a summary of the 2022 Mayor's Recommended Budget by departmental activity, excluding transfers and independent boards.

Total expenditure budget - use of funds

2022 Mayor's Recommended Budget: $1.59 billion

Expenditures by services

City sources of revenue

For 2022, the City forecasts $1.5 billion in revenue from a variety of sources. Many of the City’s revenue sources are restricted, meaning they are required to be spent in defined areas or on specific programs or projects. These restrictions limit the City’s ability to raise additional funds and to 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, including both operating and capital costs. Because these revenues are restricted, the City cannot raise water bills to pay for citywide police services.

Grants and allocations from the Federal Government and other units of government are usually designated for specific needs and 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. Like many Minnesota cities, Minneapolis pays for core City services (police, fire, streets, parks, etc.) primarily with property taxes and LGA, as well as other general governmental revenues such as licenses and permits as well a fees and interest income.

Below is a summary of the 2022 Mayor's Recommended Budget revenues by major category.

Revenue by category

Total revenue budget - source of funds

2022 Mayor's Recommended Budget: $1.54 billion

General Fund Expenditures and Revenues

General fund expenditures by service

(includes transfers)

General fund expenditures by service

(includes transfers)

Total general fund revenue budget - source of funds

(includes transfers)

General fund revenue by category

(includes transfers)