St. Paul charges Michael Schumann for snowplowing outside his Grand Avenue furniture store, even when there’s no snow.

The city charges him for tree trimming outside his Dayton Avenue home, even though there’s no boulevard tree. He pays for street sealcoating and mill-and-overlay work, though neither property this year received either service.

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Of some 32 assorted services covered by the city’s annual “right-of-way” (ROW) maintenance fee, Schumann said he believes he picks up the tab for at least 15 types of routine street and alley maintenance that never took place this year in front of his home or his Traditions Classic Home Furnishings business.

Nevertheless, he’ll pay $443 for his house and $1,550 for his business.

Citywide, those rates are poised to go up 7 percent in 2017, despite promises over the past five years from city officials who have pledged to study the system.

“All we’ve heard is a lot of sympathy, some promises, and nothing has ever happened,” said Schumann, addressing the city council during a recent hearing. “The time has come for things to come to a head.”

UNIQUE IN MINNESOTA

St. Paul’s annual street-maintenance fees — which fund everything from sidewalk crack sealing to streetlights and traffic signs — are believed to be unique in Minnesota. Duluth recently scrapped a similar system.

The cities might be out of step with the law.

A legal challenge begun five years ago by two downtown St. Paul churches has gained traction, and a series of additional plaintiffs have hired attorneys in hopes of mounting a class-action suit.

So far, the churches appear to be winning.

In August, the Minnesota Supreme Court found that the approximately $30 million in street-maintenance charges that St. Paul applies to more than 81,000 homes, churches, nonprofits, universities and businesses each year are a tax — not a fee for service — and may have to be reconfigured.

The case, filed in 2011 by the First Baptist Church of St. Paul and the Church of St. Mary against the city of St. Paul, was sent back to Ramsey County District Court for further arguments.

In the Aug. 24 Supreme Court opinion, Justice David Lillehaug wrote for the court that St. Paul’s right-of-way charges are taxes aimed at benefiting the public as a whole, and are not regulatory fees issued to pay for specific services awarded to individual property owners.

Lillehaug said the charges are subject to state constitutional limits on taxing authority, including rules surrounding how special benefits are calculated.

“This program is a ‘revenue measure, benefiting the public in general,’ that draws its authorization from the power to tax,” said Lillehaug, citing case law. “Accordingly, the City’s R.O.W. assessment is a tax subject to constitutional restrictions on the taxing power.”

St. Paul has not instituted any major changes, but the legal case could upend the city’s $30 million ROW street assessment system. If so, it may force St. Paul to follow Duluth’s lead and convert many, if not all, of the city’s street-maintenance charges into property taxes.

What that means for the typical homeowner or small-business owner has yet to be determined. Right now the typical homeowner pays an average of $200 a year in ROW assessments.

DISCUSSION AND CRITICISM

Attorney Ferdinand Peters, who is representing 14 street-corner business owners in appealing their assessments, is monitoring the churches’ case closely and planning a possible class-action suit.

Under the administration of then-Mayor Randy Kelly, summer street-maintenance charges expanded in 2003 to include winter street maintenance, tree trimming and sidewalk repair. They expanded again in 2005 to pay for street lighting. And more charges were added in 2011.

These days, more than 30 services are covered by the right-of-way charges, which are assessed regardless of whether a property owner receives those services.

“They started getting addicted to moving this thing away from the regular real estate tax levy, and onto assessments,” Peters said. “That’s a way to make property owners who are tax exempt pay something to the city — churches, mosques, synagogues, Catholic schools, public schools, government buildings, the whole nine yards.”

The ROW issue has made for strange bedfellows.

The Minnesota Council of Nonprofits and the Center of the American Experiment, a conservative advocacy group, recently authored a joint opinion criticizing St. Paul’s street-maintenance charges. They noted donors give to charities expecting to help the disenfranchised, not pay for basic government services.

“There’s a good reason why charities are (tax) exempt, and the right-of-way program is a way to evade that exemption,” said Rinal Ray, public policy director for the council of nonprofits, during a Nov. 2 hearing on the 2017 fee schedule.

City council President Russ Stark said a city staff committee is studying the ROW system, but he promised no immediate changes.

“There’s obviously been a lot of discussion about our right-of-way program, and I just wanted to acknowledge that discussion and criticism is being heard,” Stark said at the hearing.

A REVENUE MEASURE, NOT A SPECIAL BENEFIT

In the churches’ suit, the Church of St. Mary noted it was assessed almost $8,700 for street maintenance in 2011, and First Baptist was charged almost $16,000, even though they are tax-exempt institutions that generate limited foot and vehicular traffic during the week.

In contrast, the 25-story UBS Plaza/Piper Jaffray Tower on Cedar Street draws many more visitors, but it was assessed only $5,400 in 2011.

Meanwhile, churches outside of downtown pay a small fraction of what the downtown churches pay, raising legal questions about tax uniformity.

In an April 2012 legal filing, the churches’ attorney, John Hoeschler, pointed to the 1976 Minnesota Supreme Court case Carlson-Lang Realty Co. vs. City of Windom.

The court found that assessments “must be uniform upon the same class of property” and “the assessment may not exceed the special benefit” the property receives, which is measured by the increase in the market value of the property.

In August, the state Supreme Court appeared to agree.

The decision was enough to strike fear into the hearts of Duluth officials.

On Sept. 8, Duluth Mayor Emily Larson’s office announced that her budget proposal would scrap the city’s annual street-maintenance fee, which averages about $60 per homeowner. The money would be recouped instead through property taxes. Larson estimated minimal impact on most homeowners, with owners of lower-valued homes actually seeing some net savings.

If St. Paul were to scrap its ROW fees, it’s unclear what the impact might be on everyday property owners.

In their defense of the existing program, city officials have maintained that because St. Paul is home to so many government offices, schools and nonprofits, roughly one-third of the city is off the tax rolls. Unable to levy property taxes, the city uses fees to recoup funds for necessary services such as snowplowing and street sweeping.

The rates vary by type of street and type of property, so downtown churches pay far more than churches on residential streets, and businesses on major arterial roads pay more than businesses on residential streets.

Taking properties as large as the Cathedral of St. Paul, the University of St. Thomas and the state Capitol building out of the ROW system would leave a large vacuum that private property owners would have to fill through higher taxes.

HIGHER TAXES, LOWER COSTS?

But as projected in Duluth, some property owners could see net savings, and some might pay nothing at all.

That’s because under the existing system, fees are applied based on linear street frontage. By moving to a tax-funded street-maintenance system based on square footage, a church or school might contribute nothing, while a downtown office tower would pay thousands of dollars more than it currently does.

It’s unclear how St. Paul homeowners and small businesses might fare.

An attorney who sits on the First Baptist Church Board of Trustees crunched some numbers in 2011. By his calculations, the Hoa Bien Restaurant on University Avenue would pay about $1,000 less than it currently does, and so would Mama’s Pizza on Rice Street. The 26-story U.S. Bank Center high-rise on Fifth Street would pay $14,000 more.

Officials with the city attorney’s office have noted that the decision handed down in August by the Minnesota Supreme Court does not stop the city from using a special assessment system to cover street maintenance, though it clearly takes issue with how St. Paul configures its existing charges.

In the ruling, Lillehaug noted that special assessments are taxes that cannot exceed the value of the improvement being provided by the city, or the resulting increase to the property’s market value.

In the case of the two downtown churches, Lillehaug said, the value of the city services they receive was unclear.

Municipal fees, on the other hand, are “policing powers” issued to abate a nuisance, such as piled up snow or weeds, and are not intended to pay for ongoing municipal operations that benefit people walking by on the sidewalk.

“Viewed as a whole, the R.O.W. assessment does not qualify as a ‘special charge’ … but operates as a tax,” Lillehaug wrote. “It funds the bulk of the city’s public right-of-way maintenance program.”