Budget office projects a $28–$33 million baseline gap as general fund pressures mount

City budget staff told the Minneapolis City Budget Committee on June 8 that the current-service-level (CSL) baseline for 2027 shows an estimated gap between roughly $28 million and $33 million, driven by rising personnel costs, inflation-driven internal service charges and weaker non-levied revenue growth.

“Because of the nature of the current service-level methodology, our expenses in many categories grow from one year to the next but our revenues do not inflate in the same manner,” Deputy CFO Jane said, explaining why the CSL shows a larger expense increase (about 5.1%) compared with forecasted general fund revenue growth (about 1.9%). Justin Karlson, the budget manager, underscored the scale: “This is a large gap. I won’t sugarcoat that. We have a lot of work to do,” he said in response to council questions about whether the shortfall is typical.

Staff attributed the gap primarily to personnel costs (wage step increases, cost-of-living adjustments and rising healthcare premiums), an uptick in internal-service charges that are often driven by FTE and space allocations, and lower expected interest income due to reduced fund balances. Finance gave a simplified example showing how a single position’s total compensation and fringe costs can increase materially when step increases and health-premium changes are applied across thousands of positions.

Analysts also warned that transfers from the Downtown Assets Fund have been a material source of general fund support in recent years but are unlikely to be relied on at the same levels going forward. Staff forecast the downtown fund balance at about $81 million in 2026 declining to $48 million by 2041 and noted that transfers must first cover debt-service and downtown-asset obligations. Recent transfers increased to support near-term needs (cited in the presentation as rising to $56.8 million in response to recent pressures), but staff said such transfers are not a sustainable long-term solution to cover baseline service-level costs.

Finance outlined next steps and the budget timeline: staff will refine the data through the summer, present an August balanced-budget recommendation, and transmit a formal budget in September. The council will set the maximum property tax levy in September, hold public hearings in the fall, and adopt the final budget in December.

Council members pressed for additional detail, asking staff to provide historical dollar comparisons for prior years’ CSL gaps, a copy or briefing on internal-service allocation models, and written follow-ups on specific revenue-line questions (for example, sales and use tax patterns). Staff confirmed the CSL does not inflate overtime in its baseline and that overtime proposals are handled separately during the budget process.