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Minneapolis is facing a budget hole of $21.6 million next year — and that's just to keep things as they are, officials revealed Monday.

The spending gap, the result of federal pandemic funds drying up amid rapidly rising labor costs, threatens to spawn stiff residential property tax increases, budget officials told City Council members.

The looming shortfall was telegraphed by Mayor Jacob Frey earlier this month, when he said it appeared to be almost impossible to stick with his planned property tax levy increase of 6.1% or less — and that the levy, the overall amount of money raised by property taxes, may need to climb by double digits. But Monday was the first time Frey — or any city official — publicly put a dollar figure on the budget gap.

"I just want to make sure I heard correctly," Council Member Robin Wonsley said as she asked city Budget Director Jayne Discenza to repeat the numbers.

Discenza reiterated: $21.6 million in 2025 and $38 million in 2026.

"Kinda scary stuff," Wonsley commented.

The figures might seem small in context of the city's overall annual budget of $1.8 billion. But with Minneapolis still trying to hire its way back from a staffing exodus during the pandemic and following the murder of George Floyd, the city is now facing its biggest fiscal challenge since the Great Recession.

Unlike during the pandemic, when wave after wave of massive federal stimulus backstopped local governments, "There's nothing significant enough in the near term we can use to fill that gap," Budget Manager Justin Kohls told council members, noting that cities and school districts across the nation are in similar situations.

It's too soon to tell how any increase would affect individual property tax bills.

Big pay raises

The projected shortfall comes despite an expected increase in the city's revenues from sales and entertainment taxes, which nearly reached pre-pandemic levels last year and are predicted to surpass them this year.

But those increases aren't enough to keep up with pay raises for the more than 4,000 city workers. "It's a different market," Discenza said. Unionized municipal workers have been able to leverage public employers for historic raises following a period of high inflation, while retiring workers have dried up the labor pool. Last month, the city reached an agreement with the union representing about 440 public works employees, and they won record wage increases.

The city is currently in closed-door talks with the Minneapolis Police Federation, where Frey and others have publicly supported raising wages and giving incentives for hiring and retention. Next year, at least 12 union contracts covering some 1,125 workers, ranging from attorneys to building inspectors, will be up for renewal.

Frey told council members Monday he doesn't want to consider layoffs, and he reiterated that he doesn't think the city can afford new programs.

New hires?

The mayor's comments during the council's budget committee meeting came after council members entertained a number of requests to increase spending.

For example, City Clerk Casey Carl presented a request from the Legislative Department that included $7.8 million in new spending, including 15 new full-time employees. Most of those proposed new jobs would be council aides; some council members are advocating to add to their own ward budgets in order to hire an additional hand-picked aide.

It wasn't clear Monday whether that idea had enough support to pass, and council members agreed to delay any votes on it.

Carl also said he wanted about $1.5 million for a mobile voting operation that would include a vehicle with election equipment and staff "to bring the ballot box to the people" and increase voter outreach.

The council and Frey must agree on a balanced budget before the end of the year.

Discenza said department heads will spend much of the summer scouring their budgets for ways to reduce costs with minimal impact to public services.