St. Paul is poised to make fundamental changes to its annual street-maintenance program, moving much — but not necessarily all — of the $32 million in costs to the city’s general fund.

As a result, property taxes might increase substantially next year for high-value properties such as office buildings. For nonprofits, overall costs might plummet.

Homeowners can expect to land somewhere in the middle. Owners of lower-value homes likely will see net savings.

“We are considering very, very major decisions, and a real sea change for property owners out there,” said St. Paul City Council member Jane Prince, addressing city finance director Todd Hurley during a council work session Wednesday.

“We know the levy is going to go up significantly if we do … the program that you have suggested,” Prince added. “(The public) needs to understand what that means.”

Each year, St. Paul property owners of all stripes — from churches and condominiums to bank buildings — are billed for roughly 30 types of street maintenance, such as street lighting, snow plowing, litter pick-up, sidewalk sealing and tree trimming.

Those assessments — known as right-of-way fees — add up to $32 million in charges above and beyond regular property taxes, or $190 for the owner of the typical 40-foot-wide residential lot.

Even nonprofits pay the charges, and costs go up for downtown properties and properties on arterial streets. The one-downtown-block-long First Baptist Church pays roughly $25,000 per year.

Recent legal challenges are forcing the city to thoroughly revamp the program.

A median-value St. Paul home with a 40-foot-wide lot will pay $592 in city property taxes and $200 in right-of-way street-maintenance assessments this year (2017). Under a plan being reviewed by the city, that property owner could pay $732 in city property taxes next year, and $82 for right-of-way street-maintenance assessments (2018). The net difference is a $21 increase.

The net increase or decrease becomes more dramatic for lower-valued and higher-valued properties, with homes well below median value seeing savings, and office buildings and large residential properties paying much more.

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St. Paul City Council agrees on no levy increase On Wednesday, Hurley presented the city council with a list of options for how to reconfigure the street-maintenance program.

The goal is to move away from assessing properties based on street class (such as arterial streets) or property type (such as business or residential). Instead, uniform rates would be charged for uniform services.

“We are trying to bring forth a more balanced program — not all fees, and not all general fund or property taxes,” Hurley said. “This is collecting the same amount of revenue as we currently collect, but collecting it differently.”

BOTTOM LINE VARIES

The options could move funding for part — or even all — of the street-maintenance charges to the city’s general fund, relieving property owners of some of the annual right-of-way charges.

On the flip side, property taxes under those scenarios could go up significantly next year for higher-end properties, such as large office buildings. (The city’s general fund is largely supported by property taxes, though state legislative aid and franchise fees are also part of the funding mix and could impact outcomes.)

Hurley said the effect on homeowners would be varied, but owners of median-valued homes — those with a market value of approximately $161,000 — would see little net change in 2018 if one of the plans he presented is adopted.

That’s because the increase to their property taxes would be almost entirely offset by the decrease in street-maintenance charges, within about $21, at least according to his preliminary projections. The net increase would be 2.7 percent.

Lower-valued properties would likely see savings. A home at 204 Granite St. in the North End — with a market value of $53,000 — would pay an extra $32 in property taxes but save $185 in street fees, for a net savings next year of $153, or 40 percent.

Likewise, a modest commercial property such as Mama’s Pizza on Rice Street — with a market value of $198,000 — should see property taxes go up $225, but street assessments could drop as much as $1,400, depending upon how street-corner properties are assessed. The net difference would be 44 percent savings.

Mama's Pizza on Rice St. could save $1K+ if street maintenance charges dropped to 0 and property tax went up instead pic.twitter.com/euQsXi2Fjz — FredMelo, Reporter (@FrederickMelo) February 8, 2017

Higher-valued properties would end up paying much more.

As a result of the shift in street-maintenance funding, the owner of a Summit Avenue home — with a market value of $808,000 — could see property taxes go up $891 next year compared with 2017 but assessments drop $273, according to Hurley’s projections. The net difference would be about a 15 percent cost increase.

The owner of a downtown office building such as U.S. Bank Place on Fifth Street — with a market value of $21 million — would pay $29,000 more in property taxes and $19,000 less for street assessments. That’s a net difference of $10,000, or 6.4 percent.

Nonprofits would save 60 percent to 80 percent or, in some cases, more.

Regions Hospital on Jackson Street, which pays no property taxes, would save $26,000 in street-maintenance assessments, or 84 percent off current costs. University buildings, downtown churches and the Minnesota state Capitol building may see similar percentage savings.

Brendmoen: nonprofits should chip in. "Payments In Lieu of Taxes" (Pilot) are common in Boston. pic.twitter.com/NcfALaSg7g — FredMelo, Reporter (@FrederickMelo) February 8, 2017

Those projections are likely to change as more details become known. Hurley said the council will meet in a work session again on March 8.

“We’re crafting, I think in a thoughtful way, a system that responds to our legal obligations under the First Baptist case,” said city attorney Samuel Clark. “We’ve always needed to publicly fund public services. That’s never changed. It won’t change. People want and need these services.” Related Articles St. Paul council approves mayor’s basic-income project for poor families

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SERVICES WILL BE PAID FOR DIFFERENTLY

The city council has not committed to the changes. In fact, the council could go a step further in 2018, or at a later date, and eliminate street-maintenance assessments entirely.

“No other city does an assessment like this,” said city council member Rebecca Noecker. “We would not be alone in saying property taxes is the way we (fund) this.”

In August, the Minnesota Supreme Court found that the approximately $32 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.

City officials are still deciding up how some 30 or more services will be paid for, and which ones will be moved to the general fund.

For instance, St. Paul property owners will almost certainly continue to pay an annual fee of 66 cents per linear foot of street frontage this year to fund street lighting. They’ll also pay the full cost of street sweeping and seal coating.

On the other hand, half the cost of sidewalk repairs and mill-and-overlay work could be moved to the general fund, and off of the special assessment system. The part billed directly to property owners would be payable over a period of up to 10 years.

Among other particulars discussed at Wednesday’s work session, the city council is still wading through whether owners of street-corner properties will be required to pay for street maintenance on two sides of their property, a long-standing sore point for both home and business owners.

One option might be charging commercial properties for both sides and homeowners for the longest side, or having all properties pay for the longest side.

For St. Paul, the challenge is obvious: Roughly a third of the city is off the property tax rolls, including churches, nonprofits, government, school and university buildings.

The right-of-way program, which has grown to fund some 30 types of routine street maintenance since 2003, enabled the city to recoup most of its street-maintenance expenses by getting some form of contribution from nontaxable properties.

With the street-maintenance system shifting, at least in part, off of a special assessment system and into the tax system, city council members say they may have to look to the example of Boston and other areas that have instituted “payment in lieu of taxes,” or “pilot” charges, for nonprofits and other nontaxable properties.