City staff present preliminary report on municipal revenue options; Guidehouse comparison flags limited tax flexibility

Andrew Hawkins, director of the Legislative Research and Oversight Division, presented a preliminary municipal revenue report and a Guidehouse peer‑city comparison to the Budget Committee on Oct. 20, outlining where Minneapolis currently raises revenue and options for diversifying beyond property taxes.

Hawkins reviewed the city’s current revenue landscape, noting projections that property tax will account for more than half of Minneapolis’s revenue absent new sources. He summarized non‑property revenues including local government aid (stated as $81,000,000 in the presentation), municipal state aid, federal passthroughs (including HUD), charges for services, licensing and permitting revenue and special assessments. He said the city’s entertainment tax is a 3% citywide tax (budgeted at about $26,900,000 for 2025), the lodging tax is 3% (budgeted at about $8,600,000 for 2025) and a separate downtown taxing area levies an additional 3% food‑and‑beverage tax within a geographically defined boundary.

Hawkins noted boundary‑related inequities in the downtown taxing area as drafted — the North Loop entertainment district falls largely outside the existing taxing boundary — and described how that map can produce inconsistent incentives across blocks. He also summarized commonly discussed new revenue approaches from Guidehouse and peer cities: land‑transfer taxes, some forms of income or payroll taxes (noting Kansas City’s 1% earnings tax as an example), business or excise taxes, congestion pricing and payments‑in‑lieu‑of‑taxes (PILOT) for tax‑exempt institutions (Boston cited as a model). Guidehouse’s standardization found Minneapolis ranked near the bottom among peers for revenue generated per capita ($7,503) and ranked tenth in taxes per capita ($2,421), while Minneapolis ranked higher (third of 10) on property‑tax rates among peers.

Hawkins emphasized legal and structural constraints: many tax‑like changes would require state approval, and state law limits municipal tax authority. He recommended next steps that include evaluating feasibility of Guidehouse’s high‑priority revenue strategies, comparing Minneapolis’s exemptions and tax bases, and returning in November with deeper feasibility work. Committee members asked about property‑tax exempt institutions, PILOT approaches used by Boston, and municipal authority to enact new taxes without state action; Hawkins said many changes would need state authorization and that some approaches (for example, voluntary PILOT programs) operate outside state tax restrictions because they are not formal taxes.

Council Member Cam Cashman and Council Member Jacob Palmasano expressed support for expanding the downtown taxing boundary into the North Loop but differed on the downtown food‑and‑beverage rate; Cashman supported lowering the downtown food‑and‑beverage rate to 2.5% for resident affordability while retaining or expanding the boundary. Hawkins said the Guidehouse work and staff follow‑up will return with feasibility analyses for committee consideration; the clerk was asked to file the report.