Minneapolis city leaders reckon with projected $33 million budget gap

Deena Winter, Star Tribune on Jul 14, 2026

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Minneapolis city leaders are grappling with a projected shortfall of up to $33 million as they put together the 2027 budget — putting them in a financial squeeze that could force some tough choices.

City Council President Elliott Payne has called the estimated gap in the general fund, the city’s operating account, “kind of alarming.”

The city’s deputy chief financial officer, Jayne Discenza, has said it is “a large gap.”

“I won’t sugarcoat that,” she told the council’s budget committee in June. “We have a lot of work to do, and we will do it.”

The city’s overall budget is about $2 billion; the general fund is projected to be $744 million next year.

Mayor Jacob Frey is making decisions now about what cuts to propose and how much taxes will have to go up in order to balance the budget. But the projected shortfall means city officials may have to forgo new initiatives if they want to ease the pain for taxpayers.

City budget and finance officials say the budget gap is largely due to increasing personnel costs and flat or declining revenue.

Salary and benefits are projected to go up by nearly $36 million next year.

City employees got pay bumps in recent years, led by the police union, which is negotiating a new contract now. Inflation is pushing up costs, too, while federal pandemic funds have dried up, and the general fund has dropped, reducing the amount of interest it generates, in a vicious cycle.

Now St. Paul is facing an expected $26 million budget hole going into 2027, according to the mayor’s office. That city’s budget is smaller, too. This year, St. Paul’s general fund is $407 million.

On top of raises for employees and rising health insurance costs, the capital city is also coping with the end of American Rescue Plan funds and the end of other federal grants for policing.

One-time public safety aid from the Legislature is running out too, and St. Paul has also faced unexpected costs, from replacing stolen copper wire, to the costs of policing protests at the State Capitol.

The Minneapolis city property tax levy has gone up an average of 7.7% annually since 2018.

If no changes were made to city services, the property tax levy would have to go up more than 11% to fund the budget.

That’s not palatable to the mayor or City Council, so Frey will have to find a way to bridge the budget gap with cuts and other revenue.

Fluctuations in property values also play a role in individual tax bills.

And as more office workers began working remotely, commercial property values plummeted, and homeowners took on a bigger share of the property tax burden.

Downtown property values plummeted for the fifth straight year last year. Homeowners now shoulder nearly 56% of the city’s tax capacity — their share has grown more than 8 percentage points since 2020.

The Minneapolis Police Department has been spending big bucks on staffing after losing hundreds of officers beginning in 2020. The department is projected to blow its budget by more than $23 million this year after missing its target by a similar amount last year.

The budget-busting is driven by heavy overtime, which has exploded since 2020, from more than $10 million to nearly $33 million last year — about $26 million over budget.

It’s unclear so far how the council will reckon with the police budget for the coming year. But they have zeroed in on that department as a problem.

When asked about funding for MPD’s mounted patrol earlier this month, the council’s budget chair, Council Member Aisha Chughtai said:

“The state of our city budget is not great; the police department is, in fact, bankrupting our city, so I don’t know how much money we have to contribute to a mounted patrol unit.”

Frey will propose a balanced budget to the City Council in mid-August.

That will set off several months of budget work, public hearings and negotiations between the mayor and council. The Board of Estimate and Taxation also weighs in on any levy increases, setting a maximum in September, before final passage of the budget in December.

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(Josie Albertson-Grove of the Minnesota Star Tribune contributed to this story.)

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