Report: Cities Will Go Broke by 2015

Going broke: New projection shows the fiscal breaking point for Minnesota cities of all sizes and in all regions will occur in the year 2015

Current system of funding for city service provision no longer sustainable

(June 24, 2010—St. Paul, Minn.) If current revenue and spending trends continue and no policy changes are made, Minnesota cities of all sizes in all regions of the state will be broke by the year 2015. That is the startling finding of a recently-completed projection prepared by the Hubert H. Humphrey Institute at the University of Minnesota for the League of Minnesota Cities, and released today at the League’s Annual Conference for city officials in St. Cloud.

According to this projection, cities overall would see a deficit of 35 percent of city revenues by the year 2025. The projection found that it makes no difference where a city is located geographically, how large or small its population, what its tax base is, what the local economy looks like, or what its unique mix of revenue sources is—all types of Minnesota cities will end up in the red if big changes aren’t made to city services, funding for those services, or both.

The projection serves as a foundational piece for a new League effort titled “Cities, Services, and Funding: Broader Thinking, Better Solutions” – an initiative designed to spur a statewide dialogue about city services and how those services are paid for. As part of the dialogue, the League plans to launch a series of community conversations throughout the state over the next 18-24 months.

“There are no easy solutions to how we go about funding city services in the future,” said Jim Miller, executive director of the League. “We can’t simply cut our way out of the problem, nor can we continue to close the budget gap simply by raising property taxes. Solving the challenge will take bold and creative thinking among all Minnesotans who have a stake in preserving the quality of life in our communities.”

To develop the projection, the Humphrey Institute relied primarily on data from the Minnesota Department of Revenue and the Office of the State Auditor. Researchers analyzed 11 years worth of historical city revenue and expenditure data, as well as state aid and property tax data. Based on those historical trends, they projected what overall city revenues and expenditures would look like through the year 2025 assuming no policy changes.

The League has already begun to grow public awareness of the problem through release of an animated video (www.youtube.com/outsidetheox) and to collect citizen perspectives on city services and funding through a new blog site (www.outsidetheox.org). The thoughts and ideas gathered from contributors will form the basis for policy proposals and possible legislative action.