Twenty-year practice was deemed a tax on nonprofits.
The city of Saint Paul’s controversial street maintenance assessment program has ended 20 years after it began. City officials have opted not to appeal a May ruling by a Ramsey County District Court judge who found the assessments to be a tax improperly levied on all property owners. The result could be a $15 million hole in the city’s 2023 budget unless there is an offsetting increase in property taxes.
The city had faced a July 5 deadline to file an appeal.
“After protracted litigation and the decision of the court, we determined that it’s in the best interest of our community that we identify a more sustainable means of providing this critical service for our residents,” said city attorney Lyndsey Olson.
Officials have decided the city will not be seal coating any streets in 2022. That program was to be funded with about $4 million in assessments, according to Public Works spokesperson Lisa Hiebert. However, other street work is moving forward.
In light of that decision, the city’s Public Works Department has been reviewing its options. Officials have decided that the city will not be seal coating any streets in 2022. That program was to be funded with about $4 million in assessments, according to Public Works spokesperson Lisa Hiebert.
However, other street work is moving forward. “Public Works completed the spring residential street sweeping, is keeping the street lights on, and is still planning to do the arterial mill and overlay projects and fall street sweeping,” Hiebert said.
Mayor Melvin Carter is expected to release his proposed 2023 city budget in August. By then, his administration will have figured out ways to provide street maintenance services going forward. One concern for Public Works is the poor condition of many of the city’s streets. A report released in 2019 indicated that 90 percent of the city’s residential streets will be in poor or failed condition by 2040 unless street maintenance funding is doubled.
A way to get nonprofits to pay for street work.
Saint Paul’s street maintenance assessment program was started in 2002 by then Mayor Randy Kelly as a way to hold the line on property taxes and get the owners of the city’s many tax-exempt properties to help cover the cost of street maintenance. The assessments were extended in subsequent years to cover more and more of the maintenance services along city streets, including tree trimming, streetlighting and sidewalk repair. At its peak, the right-of-way maintenance program covered more than three dozen services and topped $30 million in annual costs.
City officials contend that almost a third of the properties in Saint Paul are owned by nonprofit organizations that are exempt from property taxes. These include colleges and universities, K-12 schools, hospitals, places of worship, railroads, social service agencies and city, county, state and federal governments.
As the assessment program grew, it drew more and more objections from nonprofits. The leaders of downtown churches questioned why they were assessed at the same rate as large corporations in towering buildings that generated much more traffic and wear and tear on the streets.
An illegal form of taxation.
In 2011 attorney Jack Hoeschler filed a lawsuit on behalf of downtown’s First Baptist Church of Saint Paul and the Church of Saint Mary. Hoeschler, who died this past June, contended that the assessments were an illegal form of taxation on nonprofits and that the amount of the assessments exceeded the actual benefits.
The case went all the way to the Minnesota Supreme Court, which in August 2016 issued a ruling that prompted the city to greatly scale back the assessment program. It also led to a 20 percent hike in the city’s property tax levy for 2018 as about $20 million was shifted from the assessments to property taxes.
The 2016 ruling did not end Saint Paul’s street maintenance assessments entirely. Nor did it end the legal battle over what remained of them. In recent years, residential property owners who objected to the assessments for street seal coating joined the fight.
Saint Paul officials argued in court that the city services that were still being charged to all property owners after 2016 could be assessed under a 1967 state law. Ramsey County District Judge Robert Awsumb disagreed. He ordered in May that the remaining assessments cease.
According to attorney Ferdinand Peters, the plaintiffs in the lawsuit are still seeking a settlement from the city over the assessments they paid over the years. “It’s a bit time-consuming due to the number of total cases, but we’ll get it done within a few weeks,” Peters said.
— Jane McClure
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