Minneapolis is looking to new revenue and fee sources

Faced with a growing reliance on property taxes to cover the costs of city services, Minneapolis is exploring other ways to raise money.

The Minneapolis Board of Assessments and Taxation has been briefed on A Preliminary study by city staff Wednesday afternoon, which took into account potential new revenue sources including an income tax on wealthy residents and voluntary fees for tax-exempt organizations such as hospitals and schools.

Minneapolis’ reliance on property taxes is being reflected in cities across the country as they face uncertain cuts in federal funding from President Donald Trump’s administration, said Andrew Hawkins, director of legislative research and oversight in the city clerk’s office.

Property taxes accounted for 45 percent of Minneapolis’ revenue in 2024, but are expected to rise to 57 percent by 2031 if no new revenue is found, according to the city’s budget department. The city also raises money through state and federal aid, licenses, fees and special taxes such as the 3 percent downtown tax on restaurants and alcoholic beverages.

Relying on property taxes puts a burden on homeowners and risks reaching a “tipping point” where people start leaving the city, Hawkins said.

The city’s 2025 budget includes a 6.9 percent property tax increase for residents, and Mayor Jacob Frey has proposed a 7.8 percent 2026 property tax increase to cover revenue gaps. Guidehouse Initial Report He notes that property tax revenues can be volatile if property values ​​in the city decline.

The city also relies more on federal and state aid than other peer cities, Guidehouse found. Minneapolis ranked ninth out of 10 cities in terms of the amount of revenue collected per resident. The city ranked 10th out of 10 in revenue raised from taxes alone.

By comparison, Kansas City, Missouri, is expected to bring in just $208 million in property taxes this year, though it also collects $373 million from its 1 percent income tax. Minneapolis is expected to generate more than half a billion dollars in property taxes alone this year, according to the report.

Both Boston and Kansas City also collect voluntary fees from tax-exempt organizations in their cities, with Boston bringing in an estimated $57 million this year. Both cities also benefit from the legalization of recreational marijuana, though Hawkins said it’s not yet clear how Minneapolis’ marijuana tax revenues might be distributed by the state.

City officials’ hands are largely tied by the state Legislature, which controls how the city taxes residents. Minneapolis Board of Estimates and Taxation Chairman Steve Brandt has said in the past that he supports exploring an income tax or sales tax increase. Although the Council approves a tax levy increase each year, any changes to the city’s legislative priorities need approval from the Minneapolis City Council.

But the city can take other actions without legislative approval, according to Hawkins, including voluntary fees on tax-exempt organizations and city fees such as parking meters.

The report was requested by the City Council last year. The final report will be released by city staff and consulting firm Guidehouse next month.