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A outwardly small legal spat between two churches and St. Paul might change the way cities generate revenue.
The increasing number of cities that use fees in lieu of taxes to fund municipal programs may get a serious surprise when Minnesota’s Supreme Court rules later this year on a case in which two Lowertown churches challenged the way the City of St. Paul funds city-wide road maintenance.
The Minnesota Supreme Court recently heard oral arguments in the challenge to St. Paul’s right of way maintenance (ROW) fee. “This could be big,” said Peter Nelson, vice president and senior policy fellow at Center of the American Experiment. Nelson filed an amicus brief on behalf of the churches. “This isn’t just about snowplowing. The case presents the Court with an opportunity to clearly define when a revenue measure is a taxversus a fee.”
St. Paul underwrites road maintenance by assessing a linear-foot fee on all city properties. First Baptist church, which occupies three sides of a block, gets as- sessed $15,706. In contrast, the 25-story UBS Plaza is charged $5,458. First Baptist, the oldest church in St. Paul, primarily ministers to Burma refugees as well as providing substantial human services to the homeless. “The ROW fee is the third largest item in the church’s budget,” Nelson said. “It starts to look a little bit unfair.”
More than that, Nelson said, the constitution requires taxes to fund public purposes. “If you call it a fee, you can charge everyone, including churches and other non-profits, that are exempt from taxes.” Fees also evade requirements that require assessments to equal the benefit that the property owner received, usually defined as an increase in the property value, he said. “In this case there is no increase in the property value because the city is going to plow your road anyway,” Nelson said.
“A clear distinction between a tax and fee is important in order to ensure state and local revenue measures follow constitutional and statutory limitations on taxation,” Nelson said. “These limitations exist to help guarantee a fair, accountable and transparent tax system to the people of Minnesota. But more and more cities are ‘diversifying’ their revenue streams by imposing fees to fund core public services unrelated to the fee, and, thereby, avoiding taxpayer protections provided for in the state’s constitution and statutes.”
The case was initiated five years ago by Jack Hoeschler, a St. Paul attorney. Hoeschler says that CAE’s involvement, alongside the Minnesota Council on Nonprofits, gave the case the gravitas it needed. Before that, the city always treated us like two little whiny churches in lower town who didn’t want to pay their fair share.”