On Tuesday Mayor Coleman gave his 12th and final budget address as Mayor of the City of Saint Paul. In it, he highlighted many items that we at the Chamber find favorable, including:
- Funding for six new police officers including four who will be trained and join a new Mental Health Crisis Unit within the SPPD. In conversations with businesses about downtown Mayor Coleman heard about the need for specially trained officers to respond to people with mental illness or chemical dependency issues.
- Investment in Full Stack Saint Paul to bring 2,000 innovation and tech jobs to the City by 2020 and increase innovation-related commercial space by 200,000 square feet.
- Money for the Department of Safety and Inspection (DSI) to upgrade technology for developers and builders to electronically submit construction plans to the City.
- Funding for a commercial vitality mode in the Snelling-University Area.
- A new job opportunity fund to help small businesses get started.
- Ongoing funding for Right Track, which supports youth employment in the City – we have a great Right Track intern right now!
- A decrease in spending -- the budget is overall a $1.5 million, 0.3% decrease in spending over the City’s 2017 approved budget.
One item remains a significant concern. As you may recall, last summer the Supreme Court ruled that the City’s Right of Way (ROW) assessment fee was not a fee but rather a tax, meaning that it could not be assessed to any properties. The bottom line is that when payment for the services included in the ROW fee moved from being a fee to a tax due to the Court’s ruling, the City lost the revenue it had assessed through the ROW fee on tax-exempt properties. In order for the City to continue providing the same level of services, it needs to restructure the $32.5 million that would have been revenue from the ROW fee in 2018.
The Mayor has proposed two ways of filling this budget gap: First, a new Street Maintenance Program, which will include five services that can be assessed as a fee (and therefore assessed on all properties): street sweeping, street lighting, seal coating, mill and overlay, and sidewalks.
These five services that can be assessed as a fee through the Street Maintenance Program will fill approximately one-third of the revenue lost by eliminating the ROW fee. To cover the other two-thirds the Mayor proposed a growth in the property tax levy of 19%. This revenue will fill the $21.1 million needed for services like snow plowing, tree trimming, and pothole patching. He has also proposed an additional 4.9% increase to cover inflation and service level increases. This makes for a total 23.9% increase to the property tax levy.
At first glance this seems like a massive increase in property tax costs for commercial and residential properties. However, these properties will see a significant reduction in their fees cost since the ROW fee was eliminated and the Street Maintenance Program fee will be much smaller. The amount that a property pays for these services, previously through the ROW program and now through the SMP and property tax increase, will vary greatly from property to property.
This spreadsheet shows the estimated change to City taxes and street maintenance under the Mayor’s proposal for an example property -- US Bank Place downtown. As you can see in 2017 this property, with a market value of $21,010,000, would have paid $125,173 in taxes to the City and $23,725 in a Right of Way fee*, for a total payment of $148,898 to the City.
In 2018 the same property has an estimated market value of $23,111,000 and under the Mayor’s proposal will pay nothing in ROW fees, since that program would be eliminated. Under the proposed Street Maintenance Program, the property’s fees to the City would be $3,862. The same property’s tax to the City under the proposal would be $162,431. (Keep in mind this is the amount of taxes that is collected for the City – it does not include the amount collected by the county or other entities). The property’s total payment to the City would be $166,293. This is an increase of $17,395 over the 2017 amount, an increase of 12%.
We understand that the City faces a tremendous challenge. The challenge for the business community is that the cost is shifting from a fee to a progressive tax, and will undoubtedly be an inordinate burden on our commercial tax base, which provides and supports jobs in the City.
It is hard to hear about a budget that stands in the way of job growth and retention at a time when we need to be particularly focused on these important initiatives in the City. In addition, innovative development in this city happens through public-private partnerships. Such a shocking tax increase for our largest building owners can have unintended consequences of reduced investments elsewhere.
The only worse outcome would be placing 100% of the lost ROW fee revenue onto property taxes, and we urge the City Council to halt any thought of doing so.
If you’re interested in City fees for a typical residential household, see this document.
*Because the City had budgeted for revenue from the ROW assessment in 2017 and then was not able to collect it in that way because of the court decision, the City used $19 million from the general fund to fill the gap in 2017. Therefore, properties paid much less for their city fees in 2017 than in previous years.