Board of Estimate and Taxation hears review of alternative revenue options; final Guidehouse report due in November

Andrew Hawkins, director of the Legislative Research and Oversight (LRO) office, presented an overview of city revenue sources and a comparative analysis of options the city could consider to reduce reliance on property tax at the Board of Estimate and Taxation meeting on Oct. 22.

Hawkins said the presentation and a preliminary Guidehouse report are Phase 1 of a two-stage effort; the final Guidehouse report and an expanded LRO analysis are scheduled for November. “These materials were broken up into 2 different phases, in order to allow legislative research and oversight to deliver certain pieces at an earlier date,” he said.

The presentation summarized Minneapolis’ current revenue mix, noting the city is unusually dependent on property tax and intergovernmental revenue. Hawkins cited the city’s 2025 projections, saying property tax is projected to be more than 50% of the city’s revenue absent other sources. “Absent additional revenue sources, we’re looking at property taxes being the bulk of at least 50% or more of the city's overall revenue,” he said.

Hawkins highlighted existing special taxes that Minneapolis already levies: a 3% citywide entertainment tax (2025 budget projection $26.9 million), a 3% lodging tax (projected $8.6 million in 2025), and an additional 3% restaurant and liquor tax inside the Minneapolis downtown taxing area (DTA) that in 2025 was projected to generate roughly $10.5 million for restaurant sales and about $4.5 million for liquor. He told the board the downtown taxing area’s fixed boundaries have not kept pace with new entertainment clusters outside the DTA, producing an uneven taxable base.

Hawkins outlined other non-property revenue sources the city uses: intergovernmental aid (noting local government aid of roughly $71 million for 2025), municipal state aid ($6 million), local affordable housing funds ($8 million), county grants (example cited: $10 million from Hennepin County) and special assessments (about $34 million). He also described the city’s fee and license structure, including more than 600 license types and user charges for utilities and parking.

Guidehouse’s preliminary findings were summarized: Minneapolis ranks low on per-capita revenue generation relative to nine peer geographies in the study and is relatively more dependent on intergovernmental revenue. The consultant identified potential revenue strategies other cities use — land transfer taxes, income taxes, business taxes, congestion pricing, excise taxes, payments in lieu of taxes (PILOT) and service fees — and suggested Minneapolis could explore those options within state law constraints. Hawkins said Guidehouse’s comparison required standardizing data across different city and regional structures.

The presentation included peer examples cited by Guidehouse: Kansas City’s 1% earnings tax and Boston’s PILOT program. Hawkins described Boston’s approach as voluntary PILOTs structured in partnership with exempt institutions and implemented with public reporting of assessed payments, collections and outstanding amounts. “It's not a tax because it's voluntary,” he said of the pilot approach.

Board members and staff discussed limitations and tradeoffs. Hawkins noted state law and regulation as a major constraint: many tax options would require legislative action at the state level or are otherwise limited by existing state caps. He also warned of “adverse impacts” — tipping points at which higher taxes or fees could push households or businesses to relocate. Hawkins recommended a two-track next step: (1) prioritize a short list of revenue options for deeper feasibility and equity analysis, and (2) have Guidehouse perform modeling and produce high‑level monetary impact estimates in the November final report.

President Steve Brandt and several commissioners asked clarifying questions about the Guidehouse findings and the presentation’s data sources. Hawkins said LRO will continue to coordinate with Guidehouse and circulate additional illustrative calculations and memos to the board and council members. He invited board members to identify particular options to prioritize in the Phase 2 analysis.

The board received and filed the presentation. Hawkins and Guidehouse will return with more detailed analyses in November.