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With budget address, Coleman makes case that 23.9% property tax hike for St. Paul isn’t really a big hike

The oversimplified explanation is that as property taxes in St. Paul go up, the street maintenance fees paid by homeowners will go down. Still, the mere mention of a 23.9 percent levy increase is enough to raise eyebrows.

St. Paul Mayor Chris Coleman said the shift away from rights-of-way assessments is driving 19 percent of the increased levy.
MinnPost photo by Peter Callaghan

All St. Paul Mayor Chris Coleman had to do for his 12th and final city budget address was to make 23.9 percent sound more like zero.

As in, how a proposed 23.9 percent increase in the property tax levy might not cost a bunch of homeowners a lot more than they’re paying now. As in, how money that in the past been collected via a combination of property taxes and right-of-way assessments in St. Paul will now be collected — thanks to the Minnesota Supreme Court — (mostly) via property taxes. “It is important to understand,” Coleman said, “the city is not collecting an additional cent for these services.”

How’s that?

The oversimplified explanation is that as property taxes go up, the right-of-way assessment goes down. Still, Coleman wasn’t kidding himself Tuesday into thinking that the mere mention of a 23.9 percent levy increase isn’t going to raise eyebrows, if not ire.

For a guy running for governor, numbers like that can turn into some pretty vicious — and effective — negative campaign mailings. (In fact, Coleman was still greeting guests post-speech when the GOP-affiliated Minnesota Jobs Coalition issued a press release lamenting the tax hike “on hardworking St. Paulites.”)

Coleman joked that as much as he would have liked to leave the problem to his successor, that wouldn’t be fair. While admitting that 23.9 is a big number, “any other choice, however politically expedient in the short term, would have compromised public safety, reversed the progress we’ve made in building world-class libraries and parks and eroded the vibrancy that is stimulating new investment every day in St. Paul,” he said.

Court decision forces city’s hand

The city has known this day was coming since last August, when the city’s right-of-way assessment program was struck down by the Minnesota Supreme Court. Lawyers for a pair of downtown churches argued that the assessments, which were based on street frontage, were not fees for specific services that benefited that property (which tax-exempt nonprofits like churches can be required to pay), but were instead taxes collected for public services that benefited the general public (which churches are exempt from paying under both federal and state law).

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That wasn’t the only problem with the city program, though. Over the years, the list of services paid for by the assessments had grown well beyond what was allowed by state law, to the point that they included services like snow plowing, tree trimming and pothole patching.

As a result of services being shifted onto the city’s general fund, the primary source of that money — property taxes, which are calculated based on the assessed value of a property — also had to be increased.

Meanwhile, a replacement for the old right-of-way assessments, what is being called the Street Maintenance Program, will pay for a more limited set of services, including street lighting, street sweeping, and certain kinds of street repairs. The new fees will be based on how much street frontage a home or commercial property occupies, and nonprofits will also be assessed the fee.

For homeowners, the difference in collections means that higher-valued homes will likely be charged more in higher property taxes than any reduction in street fees, lower-valued homes might actually end up paying less overall, and those in the middle might not see much of a difference. According to figures prepared by Coleman’s staff, the tax and fee assessment for the typical home in St. Paul, valued at $161,400 in 2017, would pay $591 in city property taxes and $200 in right of way assessments based on a 40-feet wide lot. But for 2018, with an increase in the home’s value to $173,900, that same owner would pay $752 in city property taxes but only $84 for the Street Maintenance Program, or a $12 overall increase.

Not a big surprise for council

After promising to follow some old advice of a friend to make his budget speech “less budget-y,” Coleman got pretty budget-y when he got into the specifics of his proposal on Tuesday. He said the shift away from rights-of-way assessments is driving 19 percent of the increased levy. The other portion is to cover inflationary growth in city costs, which brings the total request to 23.9 percent.

Nonprofits benefit most by the shift, not surprisingly. But St. Paul is hoping to craft a new program that would ask such groups, from universities to hospitals, to make voluntary payments. The Citizens League has coordinated a task force to look at a Payment In Lieu of Taxes program that will ask nonprofits to make payments that equate to the amount of services they received. A draft of that program is to be finalized today.

The St. Paul City Council and mayor learned of the problem with the right-of-way assessments last summer, after Coleman’s budget plan was released. At the time, they cobbled together a solution that included a 7.9 percent levy hike, the moving of some money and the paring down of council and mayoral priorities.

“I think this is what we’ve been expecting,” said Council Member Amy Brendmoen. “We knew about the right-of-way lawsuit, we knew that there was this budget hole. It sounds like he’s done a good job presenting a very honest and transparent budget which sets the stage for a good conversation with the City Council.”

“What I hope to do is keep building on the message today about the shift from fees to taxes,” said Council Member Rebecca Noecker. “For a great number of people, this is going to decrease the amount that they pay or keep it relatively stable. This is not representing 19 percent more taxes coming into the city. It’s really a change in how we collect the same amount of revenue.”

Even so, Noecker, Brendmoen and Council Member Jane Prince have been asking budget staff to look at making a complete shift, putting all services into the general fund and onto the property tax. “We think it would be a cleaner approach,” Noecker said, adding that Duluth took that approach in resolving legal problems with its assessments that resulted from the St. Paul litigation. “That would mean one bill. We do hear that it is confusing because you have a number of envelopes to open. It shouldn’t be a game of what’s behind that box.”

Coleman’s budget does include some new spending. He wants to add $1.7 million to the fire department to help shift resources from fire fighting to medical aid, which make up 75 percent of calls for service.

Coleman also wants an additional six sworn officers in the St. Paul Police Department, and create a mental health crisis unit that will place specially trained officers in each police district. He also wants to make permanent this year’s investment in downtown community ambassadors, and plans to fully implement a police body camera rollout by the end of the year.

The mayor also called for $2.6 million to battle the emerald ash borer and will add 50 new internet hotspots to the 130 already existing to help assure more equitable access to the internet.

Minneapolis less dramatic (for now)

Mayor Betsy Hodges broke with her past practice by delaying her budget address to the City Council. Like Coleman, she had scheduled her appearance for Tuesday. But the shooting death of Justine Damond by a Minneapolis police officer and the explosion at Minnehaha Academy took time away from completing a budget plan and a speech, she wrote in a message to the council and the board of estimate and taxation.

Instead, she submitted a written budget plan, including a request for a 5.5 percent maximum levy increase. She wrote that she would address the council and have more specifics on her 2018 budget on Sept. 12. (Former Mayor R.T. Rybak used a similar two-part method both following the I-35W collapse in 2007 and the North Minneapolis tornado in 2011.)

In the message she released Tuesday, Hodges wrote that the levy increase will allow for the next phases in the 20-year parks and streets investment program approved by the council and park board last year. “We all knew when we approved this generational investment plan that it would require levy increases exceeding inflation,” she wrote, warning that any reduction in her levy request “will only drive future levy increases higher in order to fund the obligations that we codified in ordinance.”