More on Right of Way (ROW) Assessment

January 26, 2017

Saint Paul STRONG

Restructure of the St. Paul Street Assessment Program

The Challenge: St. Paul needs to completely reorganize how it funds its public works budget. The Minnesota Supreme Court recently ruled that it cannot fund $32 million in annual public works expenditures as a mere fee. It must recognize that those costs are a tax. This presents the city with a political hot potato. For years it has claimed it was holding the line on tax increases by mislabeling over 25% of its tax collections as a street assessment fee that was not part of property taxes. It is now necessary for the city to come clean with its citizens. As Mayor Coleman looks forward to his run for governor, he must decide whether he will honestly acknowledge the city’s street problems and solve them before he leaves or whether he will kick the can down the road and leave the heavy work to his successor. St. Paul STRONG Proposal: St. Paul STRONG (SPS) is a group of civic minded citizens concerned about the need for greater transparency and better process in government. It does not take sides on specific issues. St. Paul STRONG urges the mayor and city council to take bold, transparent and inclusive steps to rethink and reorganize the way the city funds street repair and maintenance. Those steps should include: 1.) honestly admitting the problem; 2.) involving all stakeholders, not just politicians, in developing a solution; 3.) convincing everyone that we all need to contribute our fair share to solve this common problem; and 4.) following the law.

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Admit the Problem: St. Paul’s street maintenance, repair and replacement is a serious problem that under current policies, will never be solved. It will just get worse each year. One reason for this death spiral is that the city currently substantially exempts all high rise properties from any obligation to help solve the problem. It does this because its street assessment program (SAP)“fee” is levied only on the lineal front footage (LF) of a property. The city needs to return to the traditional “ad valorem” method of burden sharing based on the value of each property. This unfair LF system means that a little downtown church like First Baptist pays more than $18,000 per year while a 25 story office building like UBS Tower in Town Square pays less than $6,000 per year. This is neither fair nor legal. By city calculations, if the entire street ROW assessment fee system were scrapped and the city were to use traditional property taxes to fund public works, small commercial corner properties would see more than a $1,000/year tax reduction , because the downtown high rise building exemption would end. It is high time that the city admits that its street assessment program (SAP) is unfair, inconsistent, insufficient and illegal. Obey the Law: The Minnesota Supreme Court’s decision finding the city’s SAP “fee” to be really a tax provides the city with the opportunity to completely and candidly rethink its street maintenance funding methods. Unfortunately the city attorney tried to talk around the problem last August by claiming that the city could still show it has the right to specially assess for those purposes. It wasn’t too long before the hollowness of that claim was shown when the city proved incapable of demonstrating the “special benefit” (i.e., increase in value) that such a special assessment requires. The city could do nothing but return the special assessments the churches paid in 2011---so much for the claim that the old system is legal. Any honest analysis shows the current system is broken and unworkable. The internal staff task force organized by the city knows that. The council knows that. The mayor knows that. What is missing is the political will to do the right thing. Ask for Help: SPS suggests that the solution needs to be found with the help of a blue ribbon task force of civic leaders who are not part of day-to-day politics. Let us hope that the

2. current administration is willing to accept help from other leaders as it works to solve this decades old problem before another year passes. Process is Important: The St. Paul SAP assessment fee has been vigorously challenged for over 6 years. The Minnesota Supreme Court ultimately decided against the City. During that 6 years, however, elected officials refused to consider the merits of those objections. The council allotted only 3 minutes for objectors to speak at a “cattle call,” flack catching, public hearing. No substantive changes were ever made to SAP. It simply continued to grow at more than 6% per year, compounded. The city’s process showed itself incapable of change or correction. Cost of a Challenge: The city relied on the reality that any person faced with the cost of a court challenge will likely decide that such a challenge, no matter how well founded, is simply not worth it. It was only when two Lowertown churches found their SAP charges had risen to become their third or fourth largest budget expenditure that they began to investigate the SAP in detail. After finding numerous problems, they got lucky and found a volunteer attorney willing to take their case. But they still found that they needed to rely on special contributors to cover out- of-pocket court costs of over $25,000. It is not surprising that theirs was the first actual court challenge to the SAP. The reality is that St. Paul’s part-time council, in a single party city, seldom challenges the administration on basic procedures such as SAP. If the city attorney says the program is defensible, that is the end of the issue. The public hearings required by law are simply tolerated as a necessary cost of doing business by the city. The council simply waits to see if anyone sues the city. That is not a good or professional way to proceed.

New Process Needed: SPS is particularly concerned about the lack of responsiveness of the existing procedures. There is no loyal opposition to challenge business as usual. SPS feels that a new procedure, not bedeviled by day-to-day politics, is necessary to help the city resolve this serious problem. We propose that the mayor and council establish a blue ribbon panel of broadly representative community leaders to study and recommend changes to the SAP system. This panel should be comprised of important stakeholders who will be able to reach consensus on a successful conclusion. While the members should be knowledgeable about the concerns of their constituents, they should not be able to veto the work because of merely parochial concerns.

3. The panel should be headed by a strong chair who should likely be paid for the effort and challenges that will be involved. The chair should be acquainted with public finance issues from experience, for example, as a state finance director, state auditor or academic at an organization like the Center for Urban Affairs of the U of M. The chair also needs to have a strong personality to be able to advocate effectively for what the panel decides. The panel should be adequately funded with professional staff consistent with the gravity of the city’s $32 million/year problem. Consideration should be given to partnering with outside experts like the Lincoln Institute for Land Policy or the Urban Land Institute. The panel timetable should be short but reasonable. The default solution should be a return to regular ad valorem taxes as are used by all other Minnesota cities for this purpose. Problems to Solve: The panel should look closely at the inequities of the present SAP system such as: 1) Why a downtown church like First Baptist pays more than $18,000 annually while a 25 story office building like UBS Tower in Town Square pays less than $6,000;

2) Why some small businesses on the east side pay annual assessments in excess of 3% of their assessed value on top of regular property taxes;

3) Why the state capitol is assessed as a residence;

4) Why little parish churches like St. Mary’s in Lowertown pay more than the Cathedral;

5) Why First Baptist pays more assessments each year than the next 12 Baptist churches combined;

6) Why St. Mary’s and First Baptist would pay 1/5th of the assessments they currently pay if they were located one block east, by the police station.

The panel should be authorized to hire PR and fundraising professionals so that they and the Chair can speak directly with the CEOs of leading stakeholders to solicit their buy-in to whatever conclusions the panel reaches. The panel might also suggest changes to the council’s review process that would facilitate cogent, informed and transparent discussions of issues such as SAP that are bedeviling the city.

4. Since the Supreme Court ruled against St. Paul’s SAP fee theory in August, SPS has watched the city struggle to respond to the challenge of adequately and legally funding its growing public works budget. While the city has established an internal staff task force to study the issue, the city attorney’s office continues to resist the challenges brought by the two Lowertown churches and now others. The problem continues to be a lack of political will by elected officials to admit that the SAP is a failure and illegal. As Einstein famously said: “No problem can be solved by the same level of consciousness that created it.”

Outside Help is Needed: One of the stated purposes behind the SAP is to force the city’s nonprofit charities to contribute a meaningful amount to the cost of street repairs. One of its failings is that SAP gives an even bigger exemption to high rise buildings because it is based only on lineal foot measurements at the ground floor. Any solution should involve as many key players as possible – both nonprofit and for profit enterprises. SPS sees the current crisis as an opportunity for statesmanship by the mayor and council but fears that, without outside help, they will revert to kicking the can down the road to the following administration. The mayor and council need the help of a representative group of community leaders to solve the problem once and for all. SPS urges the mayor and council to ask such a blue ribbon panel of community leaders from all affected groups to document the failings of the SAP and to recommend an entirely new approach where all affected parties will share in the burden. It is not realistic to expect the Mayor to approach the nonprofits with a plea that they give up their constitutional tax exemption. Community leadership outside of City Hall and a modality that sees everyone bearing a fair share of these common costs are necessary to achieve general agreement.

SPS believes that most nonprofit organizations are willing to pay a fair share of the burden to fund these services that they, like we, need. But they cannot be expected or asked to do so if the high rise property owners are exempted. The city has never asked the nonprofits – it merely demanded that they pay on a broken and inconsistent system which increased at 6-7% each year while it exempted the most demanding and able properties in town.

5. Involve Everyone: The panel should endeavor to devise a system that proportionally but legally burdens everyone, not just property owners. There needs to be an agreed limit on all of this and any allocation method should be based on property value rather than front footage to correct the huge exemption that the SAP gives to high rise buildings. If everyone is asked to pay proportionately, it is easier to get agreement.

PILOTs: Communities with similarly large nonprofit sectors have been able to obtain agreement on PILOTs (Payments in Lieu of Taxes) from their nonprofits. Because they are voluntary, PILOTs are legal exceptions to the regular tax exemptions enjoyed by nonprofits. These agreements are contractual and can run for at least five years. SPS feels that if everyone were asked to help and the actual charges to the nonprofits were less than currently demanded, a global agreement could be reached. Undue burden on the smallest nonprofits could be avoided by exempting the first $5 million of property value for everyone.

Use the Crisis: This crisis presents a good opportunity for the current mayor and council as well as those who will be running for office next fall to weigh in with their own ideas in a forum removed from the election campaign. By allowing the task force to lead the discussion, the tendency toward short term solutions that pervades day-to-day politics can be avoided. Now is the time to solve this problem. Both those running for mayor and the current mayor should use the crisis to establish and support such an outside panel to identify and lobby for solutions. The time to act is now.

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