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In wake of veto and Supreme Court decision, St. Paul scrambles to adopt smaller budget

St. Paul
MinnPost file photo by Rita Kovtun
The result of the veto and court ruling is that the city council is scrambling to adopt a balanced budget by next Wednesday.

State government has not been kind to the City of St. Paul this year.

First, a promised $3 million in additional local government aid for St. Paul fell victim to Gov. Mark Dayton’s veto of a tax bill over a drafting error, and the special session that could have easily repaired the flaw has yet to happen.

Then the state Supreme Court sided with a pair of St. Paul churches, ruling that the city's long-running right-of-way assessment — which pays for the maintenance of public streets, alleys, sidewalks, lighting and trees — was illegally crafted. While city leaders expect to be able to create a new program that pays for items such as street sweeping, plowing and lighting, they doubt it will continue to raise the $31.8 million the assessments currently collect.

Mayor's priorities endangered  

The result of the veto and court ruling is that the city council is scrambling to adopt a balanced budget by next Wednesday — an effort that has endangered nearly all of the policy additions that Mayor Chris Coleman proposed in a relatively buoyant budget address in August. New spending for economic development and to boost equity hiring and programs are now at risk, though the mayor's call for five additional police officers is being maintained because the prospective officers are already in training, and because the city money is being matched by a federal grant.

Also in danger are the spending additions supported by the council in a September showdown with Coleman over the size of the 2017 property tax levy. Coleman at first suggested a 4 percent tax increase, but later asked that it be bumped to 6.9 percent. The council, however, adopted an 8.6 percent maximum levy. After that was vetoed by the mayor, the council approved a 7.9 percent levy in a way that made it difficult for Coleman to also veto.

A council majority supported the higher tax levy, partly to make up for the shortfall in local government aide from the state, but also to have money for spending that members wanted, such as an effort to reduce park maintenance backlogs. At the time, some council members thought there might be a way to reduce the levy increase before it would have to be adopted, in December.

That hope likely went away as city legal and budget staff assessed the meaning of the Supreme Court ruling about the right-of-way assessments. While that case directly affected the two churches that brought the legal challenge, the ruling also raised more fundamental issues about the legality of the assessments.

As a result, Coleman’s finance director presented a plan to the city council Wednesday that puts $11.3 million worth of proposed new city spending into a contingency account. That money would need council approval sometime next year to be appropriated. “The prudent thing to do to maintain flexibility would be to put these into contingency until we can get into that policy discussion,” said Todd Hurley, the city’s director of the office of financial services.

Among the things now at risk of not being funded: a study of fire department stations and services, parks maintenance increases, more money for parks programming, increased support for the downtown Community Ambassadors and a new job opportunity fund touted by Coleman in his budget address.

Council Member Rebecca Noecker
Council Member Rebecca Noecker

On Wednesday, Council Member Rebecca Noecker asked whether budget staffers thought any of the items being placed in contingency will be funded next year. “Presumably a lot of this contingency will not be released,” said city budget director Scott Cordes. “At the end of the day, it will have to go toward right-of-way functions.”

The budget proposal does find money from property assessments and other funds to maintain the basic city services paid by the right-of-way assessment. And Council President Russ Stark said the city feels comfortable that it can use a revised assessment plan for street  sweeping and lighting because they are specifically authorized by state law to do so. Snow plowing is not called out by the state as a proper use of right of way assessments, however.

But the budget proposal does remove items the city had hoped to fund. “It’s almost everything the mayor wanted, plus some one-time adds, plus the things the council wanted added with the higher levy amount,” Stark said.

Coleman’s August spending plan totaled $265.9 million. The maximum levy set by council is expected to raise $112.2 million.

Coleman’s spokesperson Tonya Tennessen said the mayor is pleased the council is agreeable to what she termed his “conservative approach.” She said it will give city staff time to fully evaluate any potential budget or policy implications related to the right-of-way program.  

How the city got here

Once again, Gov. Mark Dayton and the state’s legislative leadership have expressed optimism that a special session of the Legislature could be held before Christmas and the vetoed tax bill would be reconsidered. That could help the St. Paul budget situation, but it will not happen before a state deadline for the city to adopt its budget. It could, however, ease the exercise the city must go through over the winter and spring to revise the right-of-way assessment and decide what spending priorities can be removed from the contingency account and appropriated.

Mayor Chris Coleman
MinnPost file photo by Terry Gydesen
Mayor Chris Coleman

The state Supreme Court overruled district and appeals court decisions that approved the St. Paul assessment program, which is calculated by multiplying the appropriate rate by the property’s frontage along a city street or alley. The initial challenge was based on objections raised by First Baptist Church of St. Paul and the Church of St. Mary. Churches and other non-profits that are exempt from regular property taxes but are subject to special property assessments used to pay for specific improvements adjacent to church property.

The churches argued that the city’s right-of-way assessment is not a special assessment because it is charged to nearly every property in the city, and St. Paul did not make a determination of the value of city services to each property. The city first argued that it was a legal special assessment. Later it argued that it was a regulatory fee under the city’s general police powers.

But the court determined that it looked more like a general tax than a regulatory fee. “We consider it significant that, unlike typical police-power fees, the ROW assessment is not imposed on a limited group of players; rather, the charge is assessed to, and raises revenue from, the owners of almost all properties with the city limits,” Justice David Lillehaug wrote for the court.  “Because we conclude that the city’s power to collect the ROW assessment derives from its power to tax rather than from its police power, we reverse and remand for further proceedings.”

UPDATE: This story was updated to correct that snow plowing is considered a proper use of right of way assessments by state law. While street sweeping and lighting are called out in state law, snow plowing is not.

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Comments (2)

Tip of the iceberg?

If a fee payer can appeal assessments from 2011 and win; what is preventing ALL fee payers from the day this revenue generator was introduced by Randy Kelly (and up to the current time), from filing similar suits?

Good question?

The whole issue of property taxes and fees for these properties needs to be examined