Minneapolis eyes new revenue streams, fees

Facing increasing dependence on property taxes to cover the costs of city services, Minneapolis is exploring other ways to raise money. 

The Minneapolis Board of Estimate and Taxation was briefed on a preliminary study by city staff Wednesday afternoon, which took into account possible new revenue sources including an income tax on wealthy residents and a voluntary fee for tax-exempt organizations like hospitals and schools.

Andrew Hawkins, director of legislative research and oversight for the City Clerk’s Office, said Minneapolis’ dependence on property taxes is mirrored by cities across the country as they face uncertain cuts to federal funding from President Donald Trump’s administration.   

Property taxes accounted for 45 percent of Minneapolis’ revenue in 2024 but are expected to increase to 57 percent by 2031 if new revenue isn’t found, according to the city’s budget division. The city also raises funds through state and federal aid, licenses and fees and special taxes like the 3 percent downtown tax on restaurants and liquor. 

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

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

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

By comparison, Kansas City, Mo., is projected to bring in just $208 million in property taxes this year, although it also raises $373 million with a 1 percent income tax. Minneapolis is expected to pull in more than half a billion 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 recreational marijuana legalization, although Hawkins said it’s not yet clear how marijuana tax revenues might be distributed to Minneapolis by the state. 

City officials’ hands are largely tied by the State Legislature, which controls how the city can tax residents. Minneapolis Board of Estimate and Taxation President Steve Brandt has said in the past that he supports exploring an income tax or increase in the sales tax. Although the board approves the tax levy increase each year, any changes to the city’s legislative priorities need to be passed by the Minneapolis City Council.  

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

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