Debates on police funding, legal costs loom over Minneapolis budget negotiations

Minneapolis city officials are beginning their next budget negotiations with a debate about policing — and the threat of multimillion-dollar legal costs — looming overhead.

With just weeks to go until the city's elected leaders finalize the 2022 budget, some activists and council members are raising concerns about the cost of police misconduct cases.

They cite an actuarial study performed earlier this year that estimated the city faced up to $119 million in potential legal payments stemming from all city departments. Aon Risk Consultants, which performed the study, wrote that a "significant increase" in potential liability was largely due to officer misconduct claims stemming from unrest in summer 2020.

The city's top financial staff members say those numbers are meant to reflect a worst-case scenario: what would happen if the city closed all its legal cases by paying the maximum amounts sought. Mayor Jacob Frey said he understands concerns about the costs of police misconduct cases but is also confident the city has a plan to ensure it can meet residents' needs while covering the necessary legal bills.

This will be the first time city leaders are negotiating a budget since voters rejected a proposal to replace the Minneapolis Police Department in the wake of George Floyd's killing. Frey has proposed restoring the department's budget to roughly $192 million, nearly the level it was before Floyd's death invigorated a movement to move police funding to other services. Frey will negotiate with a council that includes seven members who are about to leave office. The new class of council members, sworn in early next year, will have their own chance to make revisions if they wish.

To fund his proposal, Frey is relying in part on a roughly 5.45% property tax levy increase. The city estimates the levy increase would amount to $140 for an owner-occupied home valued at $297,000, $360 for an apartment building valued at just more than $1 million and $186 for a commercial building valued at $529,000.

Some activists who supported the proposal to replace the Police Department argue that taxpayer money slated to go to police could better be invested in other services, such as violence prevention and housing programs.

"The costs of our broken policing system just keeping adding up," Elianne Farhat, executive director of progressive organization TakeAction Minnesota, said in a virtual news conference. "If the city has the money to pay off the police settlements that are driving our budget crisis, we have the money to fund things we know keep people safe."

The actuarial study, first reported by the Minnesota Reformer, was dated April 2021 and based primarily on data available at the end of 2020.

The city requests these types of analyses every year and uses them to determine how much money it needs to have in its self-insurance fund — the pot of taxpayer money used to cover payments stemming from lawsuits, workers' compensation and other claims — and how much each department should contribute to that account.

Those figures "are intentionally set higher to ensure funding is available even though the paid amounts for a number of cases end up being zero," Dushani Dye, the city's chief financial officer, said in a statement. "These reserves, or actuarial liability numbers, are not the claim amounts paid; the amounts paid are typically significantly lower."

The city provided data showing that in 2020, it had about $3.3 million set aside in liability reserves to cover those types of costs and paid about $1.3 million of that. Those data reflect claims paid in that year, including from cases that began in previous years. Cases that were filed in 2020 and are still pending wouldn't be reflected in the data.

Those figures don't include the record $27 million the city paid this year to settle a lawsuit brought by Floyd's family. The city used money from its general fund to cover those costs.

As the number of lawsuits and other claims filed against the MPD rise, and as the department continues to sort through an unprecedented number of PTSD claims brought by officers, the city's models call for nearly doubling the amount of money that the MPD contributes to the self-insurance fund. In 2021, the MPD contributed just shy of $12 million for workers' compensation and other liability. In 2022, it's set to give $20.7 million — money that would come out of the nearly $192 million Frey has proposed for the department.

On top of that, the city plans to transfer an additional $6 million to $12 million sitting in its general fund to the self-insurance fund to help cover legal costs — if the City Council approves. A breakdown of how many of those payments would be attributed to the MPD versus other departments wasn't immediately available. The city expects to get another analysis of its self-insurance fund early next year.

Activists aren't the only ones raising concerns about the department's legal costs.

"The reality in our city right now is that the cost of our policing system is ballooning and there is an enormous amount of financial risk in our budget related to police-related lawsuits and legal liabilities," Council President Lisa Bender said in a public meeting earlier this fall, when the city's Board of Estimate & Taxation approved the city's maximum property tax levy increase.

Frey said Tuesday afternoon that he wasn't familiar with the activists' statements on his budget proposal. While he acknowledged that there are "always concerns" about legal costs, he said the city had relied on actuaries to ensure they can provide for necessary city services while abiding by their legal commitments.

"We have to abide by the law," Frey said, "and the law is that you honor decisions and commitments and agreements that are ultimately made, and clearly that will be the case here as well."

Police funding has fluctuated since Floyd's killing. The department entered 2020 with a nearly $193 million budget. After cuts made to trim costs amid the coronavirus pandemic and amid a push to move police funding to other services, city leaders gave the department $164 million for this year — with the caveat they could access additional money with council approval. After adding money from a public safety reserve fund and federal aid, the department has roughly $180 million to spend this year.

Frey is proposing boosting the MPD's budget to nearly $192 million for 2022. His plan also calls for increasing funding for the city's Office of Violence Prevention, bringing it closer to $7.8 million, and adds $1 million for a partnership with the Minneapolis Public Housing Authority that seeks to boost the amount of deeply affordable housing aimed at helping some of the residents with the lowest incomes.

The city's budget negotiations are expected to ramp up in the coming weeks and to finish in mid-December. Council members could begin formally pitching their budget tweaks as early as next week. Residents will have a chance to share their thoughts on the budget during public hearings Dec. 1 and Dec. 8.