St. Paul should stop using ‘fees’ to fund street maintenance

Minnesota’s Constitution imposes some important limitations on a city’s tax power. For several years, the city of St. Paul has imposed a right-of-way assessment on all property owners to fund road maintenance. The city has claimed this ROW assessment is a “fee” and, therefore, not subject to constitutional limits on taxation.

Earlier this year, in response to a challenge by First Baptist Church of St. Paul and the Church of St. Mary, the Minnesota Supreme Court ruled the St. Paul “fee” is, in fact, a “tax” and subject to constitutional limits.

The St. Paul City Council is now in the process of building its 2017 budget. St. Paul should follow the law, as set out by the clarifying opinion of the Minnesota Supreme Court, and raise the resources to support city services with property taxes, rather than with unconstitutional fees.

This isn’t just the law, it is good policy and the facts of the lawsuit underscore why.

The Minnesota Constitution exempts public charities from taxation for good reason. Charities, alongside local government, benefit the public. Donors give to charities with the intent that all of the donated dollars will be put to work for charitable purposes. Yet, over the years, millions of dollars in charitable assets have been diverted from charities’ missions to pay for St. Paul’s ROW assessment. This means millions of dollars were not used to provide food, shelter, clothing, education or support to those in our communities who need it most.

The situation with First Baptist Church is particularly striking. In addition to serving as a place of worship, the church provides free child care to families experiencing homelessness while parents search for work and shelter during the daytime. First Baptist is also a refuge for new immigrant communities, hosts recovery groups and provides other critical needs for the community. Yet the city’s ROW assessment diverts more than $15,000 annually from First Baptist’s charitable work.

The Minnesota Constitution also requires taxes to be uniform, meaning similar properties pay similar amounts. St. Paul’s ROW assessment clearly undermined this good policy. In contrast, the fee is only about $5,000 for the owners of the UBS Plaza, a 25-story office tower that places exponentially more demands on the city’s transportation network.

Finally, the Constitution requires taxes to be used for funding public purposes. The Supreme Court found that well-maintained streets benefit the broader public, not only the assessed property owner. Funding public purposes through taxation helps make city budgets more transparent and, therefore, more understandable and accountable to citizens. It’s far easier for people to track and compare how much they pay to city government when it’s not spread out over multiple taxes and fees.

Looking to St. Paul’s ROW assessment, city officials frankly admitted that “the changes in the ROW assessment since 2003 were all a result of policymaker wishes to control the growth of property taxes.” Shifting costs from property taxes in this way made it much harder for St. Paul residents to compare what they actually pay for public services against what residents in other cities pay.

As two attorneys who filed separate amicus briefs on behalf of the churches, we represent organizations that do not often agree. Here, however, we are brought together by our interest in a robust nonprofit sector, fair tax policy and sound budgeting.

This is not just about St. Paul. Many other cities are trying fees as an end-run to raise revenue to fund roads and other public services and not count it as taxes.

Duluth’s Mayor, Emily Larson, recognized the significance of the court’s ruling against St. Paul. She called the decision “unambiguous” and then proposed a 2017 budget that shifted funding for Duluth’s roads from the present street system maintenance utility fee to the property tax.

Unfortunately, in the same budget, Larson has proposed tripling the city’s electric utility franchise fee. This fee is also open to legal challenge under the recent court ruling because it goes to fund general public purposes and is passed through to everyone with an electric bill. Moreover, it’s also bad policy for all the reasons just outlined.

To avoid future lawsuits and to promote sound budget policies, cities across Minnesota need to begin transitioning away from any reliance on fees to fund general expenditures.

Rinal Ray is deputy public policy director for the Minnesota Council of Nonprofits and Peter Nelson is vice president and senior policy fellow at Center of the American Experiment.