Swap St. Paul’s right-of-way levy for higher taxes on downtown buildings? Bad idea

On Sunday, November 02, an article appeared in the Pioneer Press that discussed the fairness of the St. Paul right-of-way assessment.  Included in the discussion was a proposed solution: shift the assessment to the downtown buildings.  This proposal is inherently a bad idea and could result in a loss of jobs and a reduction in the city’s overall tax base.

The assessment was lawfully established by city government as a means of generating additional funds to pay for basic road maintenance services.  Given the plethora of public sector and nonprofit properties in St. Paul, the right-of-way assessment was a creative solution that avoided further inflating already high property taxes.

With any public-sector revenue collection system, there will often be some perception of unfairness.  The city should therefore be willing to consider adjustments to its process to ensure that all property owners are equitably assessed for services rendered.

So while not everyone may be pleased with the assessment, what is a viable alternative?  According to some, we should eliminate the assessment and shift much of the overall burden to downtown buildings through increased property taxes.  Why?  It seems, according to this flawed logic, these expensive buildings are better positioned to take a larger hit than other property tax paying entities elsewhere in the city.  This idea is dangerous to the health of the city and tax paying residents for two reasons.

First, most of the large downtown buildings have numerous tenants, many of which are small businesses.  Taxes paid by the buildings are passed along to tenants through rents.  Any increase in property taxes to these buildings as a consequence of eliminating the assessment, would eventually be borne by these businesses.  Some businesses would choose to relocate outside of St. Paul to avoid paying the increased rents.  This outflow from downtown would increase vacancy rates, potentially lowering building values and reducing property taxes collected.

Second, a few of the downtown buildings are owner-occupied, home to some of the city’s largest employers.  These companies provide St. Paul with many great jobs.  Raising property taxes on these buildings could potentially cause these employers to reconsider their long term commitment to the city if they sensed St. Paul was becoming a less competitive business environment.

St. Paul already has high property taxes for commercial properties.  The shift will exacerbate this situation, and, counterintuitively, raising rates further could have the opposite effect – actually lowering taxes collected, as property values drop and the overall vitality of downtown is diminished.  Under this scenario, it would be St. Paul homeowners and businesses located outside of downtown who would be left to pick up the tab for any tax shortfall.

A more sensible approach would be to grow the overall tax base by aggressively developing three key areas of the city: downtown, the Green Line along University Avenue and the Ford Plant site.  All three have the potential for significant growth over the next decade.  The goal should be to maximize the tax base potential.  This may require higher densities than currently exist or are being planned in these important areas.

Growing these commercial districts is vital to building and maintaining a healthy tax base in St. Paul.  Homeowners and small businesses should encourage political leaders to develop those areas of the city that can provide the greatest opportunity for impacting the city’s coffers.  At the same time, they need to be wary of any schemes that purport to fix or eliminate the right-of-way assessment with no apparent regard for the negative impact on the long term sustainability of St. Paul.

This article appeared in the November 7, edition of the Pioneer Press.

Posted in News, November 2014