A projected windfall that will bring in millions more dollars earmarked for Minneapolis neighborhoods is creating a fresh tension over how the money should be spent.

The money, slated to come in over several years, is emerging as the newest test of support for the city’s 70 neighborhood groups since the city took more direct control over their funding in 2011.

Some City Council members and neighborhood advocates are concerned that Mayor Betsy Hodges’ proposed 2015 budget spends some of the new money outside the city’s neighborhood department altogether. The neighborhoods themselves would see only an inflationary increase.

“If you’re making the policy change, please tell us or explain … it and do it out in public,” said Doron Clark, a member of the city’s citizen-led Neighborhood & Community Engagement Commission. “Not in just spreadsheets.”

The debate is part of a larger conversation over how to better engage the city’s residents, including renters and other groups that have historically been underrepresented on neighborhood boards. Some neighborhoods have made strides to become more inclusive, but their progress varies greatly. Meanwhile, the mayor wants to use next year’s share of the new money to expand the city’s neighborhood department, plan for closure of the city’s port and hire two communications staffers to engage primarily with non-English speaking communities.

Another wrinkle has emerged in the debate. Across the city, neighborhood groups are already sitting on $16 million that is not yet contracted for any project or need.

“I do want to see these neighborhoods spend down their balances. … It’s not a savings account,” City Council President Barb Johnson said.

The city is heading into a complex argument over the new money that threatens to strain relations with the city’s neighborhood system. Johnson has already requested the city retain her recently ousted colleague, Robert Lilligren, to help new members navigate the issue.

Few cities in the country can boast Minneapolis’ robust network of neighborhood organizations, which now rely on about $3.8 million annually from the city. Their current funding is a fraction of what it was in the 1990s, when $184 million was doled out over 10 years as part of the now-defunct Neighborhood Revitalization Program. The money went to assist with housing projects, community engagement and other neighborhood activities.

The new program is more focused on community engagement than capital investments. Its funding comes from taxes paid by property owners in a checkerboard of special districts mostly near downtown. The districts were created more than 35 years ago to pay for nearby economic development. Those areas — the North Loop, Downtown East, Loring Park and the Hennepin-Lake area — are flourishing now and more money is projected to pour in.

That money — which previously hovered around $10 million a year — can only be divided between the two uses allowed by the Legislature: paying off Target Center debt and “neighborhood revitalization purposes.”

But neighborhood revitalization means different things to different people.

“The assumption was that since there was more money, there would be more money for neighborhood associations,” said Melanie Majors, executive director of the Longfellow Community Council, a compendium of several southeastern neighborhoods.

City finance officials estimate the district will outpace earlier estimates by about $15 million over the next six years, when the district expires under state law. That does not factor the growth of some key parcels in Downtown East, which could generate even more money (but also force the district to expire early because of a revenue limit).

In the mayor’s proposed budget, some of the new money would be used by the city’s neighborhood and community relations department to hire an additional staffer, evaluate the neighborhood funding structure and offer more grants to develop leadership among minority communities.

Not everyone agrees the department needs to grow. “What is [the department’s] purpose and at some point, can we do this in other ways?” asked Council Member Blong Yang, adding that some extra aides would allow his office to accomplish more in his North Side ward.

For the first time, the money would also go to activities outside the neighborhood department, including the communications staffers and the port closure planning.

“This is one of the biggest issues for our budget and I believe that currently, this discussion is not being given enough public debate or attention,” Council Member Alondra Cano wrote in an e-mail following a budget presentation Friday.

Council Member Andrew Johnson said neighborhoods expected they would get some portion of an increase. “My concern is that money is being diverted to other departments and for other purposes, which seems to conflict with the intent laid out in an enacted policy,” said Johnson, referring to the 2011 guidelines for the money.

Jana Metge, executive coordinator of Citizens for a Loring Park Community, said some of the money should be returned to neighborhoods that lost money during the transition several years ago. It should also be used to pay for neighborhood capital projects, she said, which are rarer in the current funding environment.

“There hasn’t been any meeting to talk to neighborhoods about what this would mean,” Metge said.

Metge says that keeping residents involved is harder when there is not enough money to invest in projects, citing developments under the previous program like affordable housing near the Franklin Avenue light rail station and an art-enhanced bridge over the Midtown Greenway.

“Here’s what happens in community engagement: People get together and they envision what needs to happen in a neighborhood,” Metge said. “So if we don’t have any funding to follow through on the community engagement, why would people keep getting together?”

City records show that some neighborhoods still have substantial sums in their coffers, in some cases because their plans for the money were submitted to the city later than others. The Holland, Longfellow and Jordan neighborhood organizations each have about $1 million left over. Another six have more than $500,000 that hasn’t been expended.

“Some neighborhoods are spending every dime that comes through the door, and that’s great, but other neighborhoods aren’t quite as sophisticated and up to speed,” Johnson said.

Sean O’Neil, staff member at the Holland Neighborhood Improvement Association, said a recent $290,000 contract to help build a community plaza near Edison High School, as well as a low-interest commercial loan program, will cut their unspent funds by more than half. Some of that unspent money, he said, was returned through previous home improvement and commercial loan programs.

“They might be worried and cautious about losing future funds,” said Council Member Cam Gordon, who hopes to have more discussion of the issue in his health, environment and community engagement committee. “So they’re trying to be smart about what to do.”

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