John Mannillo: How to address St. Paul's $32 million ROW hole

Pioneer Press Guest Editorial

By John Mannillo

January 26, 2017

Thanks to a unanimous Supreme Court decision, St. Paul seems finally to have “found religion” concerning its problematic $32 million Street Assessment Program. The City has conceded that it has no defense to the 2011 court challenge by two Lowertown churches and it has now made a similar concession for later years. Faced with a class action on behalf of all St. Paul property owners in 2016, it has set aside $32 million in its 2017 budget, apparently indicating a possible return to traditional property taxes for that purpose in 2017.

While that would comply with the law, it is not the only legal option. The City should honestly admit that:

  • The Street Assessment Program (SAP) is really a tax, rather than a special assessment against all property owners, and the City should return to the regular ad valorem property tax to collect that money unless it finds a better and legal alternative

  • Its public works budget is woefully underfunded

  • Many city streets are in awful condition and far overdue for major repair

  • The SAP is inconsistent and unfair not only to nonprofits, but also to small commercial corner properties in the neighborhoods, and all commercially assessed properties which are charged more than the City’s actual costs

  • The SAP unfairly benefits the most valuable high-rise properties.

Instead of studying the issue internally for another year, the City needs to involve all stakeholders in a transparent and fair process to develop a consensus on the solution.

We urge the mayor to appoint a broadly representative task force of stakeholders led by a strong and experienced chair (a former state finance director, state auditor, or someone from the Center for Urban and Regional Affairs at the U of M, for example). Because this is a $32-million-a-year problem, the City should commit enough money to adequately staff the process.

The timetable should be short but reasonable and the default solution should be a return by 2018 to the regular ad valorem property tax that all other Minnesota cities use for this purpose.

The task force 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 percent 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 task force should hire special public relations or fundraising pros to initiate negotiations with the stakeholders, including the largest nonprofits, to negotiate a Payment in Lieu of Taxes for reasonable public works funding by nonprofits.

We believe that most nonprofit organizations would be willing to pay a fair share of the burden to fund these services that everyone needs. The City has never tried this — they have merely demanded that the nonprofits pay on a broken and inconsistent system that increases at 6 percent to 7 percent each year while exempting high-rise properties.

The task force 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 the 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.

What other funding sources might be used? Would a Business Improvement District for certain areas of the city with special needs be better? Would a wheelage tax more closely link the cause of the problem to the solution?

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 an approach that sees everyone bearing a fair share of these common costs are necessary to achieve general agreement.

This crisis presents a good opportunity for Mayor Coleman and the City Council to seriously address a basic problem that has been ignored for too long. Indeed, a solution agreed upon by the outgoing administration represents a wonderful gift to its successor.

John Mannillo, a commercial real estate broker and developer, has been in business in St. Paul for more than 40 years. He submitted this column on behalf of the Saint Paul STRONG Steering Committee. A longer, more detailed version of this column is available here, on the Saint Paul STRONG website.