[Winona Online Democracy] The following is an article from today's St. Paul paper that shows how St. Paul is being hit with a complex variety of fees being used to enable the City to honor a pledge of "no new taxes". Our Governor just proposed a budget that is full of ideas for fees, cost shifts and allowances for increasing property taxes. So, not only are we locally affected directly by the State's actions, we are also affected by the trickle down of the new methods. These methods are confusing and take several years to start to hit home for the average citizen. Fees are hidden taxes. New ones locally have been implemented and are being proposed. One danger they have is that our elected officials are not held as accountable. A major problem is that these fees and local taxes affect our citizens unequally. They have too little to do with ability to pay and relate too often to essential services. We don't even know all the places we are being charged fees by government (at least I don't keep track of it) -- a few are the garbage fees - one on my garbage bill and the other on my tax statement, the cable TV tax, the telephone tax, the electric and heating fuel tax, the proposed new sales tax, the 'rain' tax, etc., etc. Craig Brooks Here's the article -- ************************************** Posted on Sun, Jan. 30, 2005
Shift from tax to fees hits hard 22 percent hike for property owners; cost disparity cited BY TIM NELSON and JANET ROBERTS Pioneer Press St. Paul Mayor Randy Kelly kept his 2001 campaign promise not to raise taxes, but the policy change he engineered instead has meant that property owners now pay 22 percent more to the city than they paid in taxes when he took office. The increase is the result of $9 million in new street assessments — based on street frontage — that the mayor advocated in lieu of raising the city's property tax levy. Not everyone is feeling the increase equally, according to a four-month Pioneer Press examination of city and county tax records for more than 80,000 St. Paul properties. In general, homeowners haven't been hit as hard as businesses. Many businesses — car lots and country clubs with lots of street frontage, for example — are paying more. In addition, churches, schools and other tax-exempt property owners must pay their share of the street fees, which cover snowplowing, tree trimming on public property and, as of next year, streetlights. The newspaper's analysis also shows that costs have risen twice as much for low-value homes as for their more expensive neighbors. The same disparity holds true for businesses: owners of commercial property of less-than-average value saw what they pay the city in property taxes and new assessments rise by nearly 50 percent. Betty Terhark is one example of the shifting burden. The 75-year-old semi-retired beauty shop owner on St. Paul's East Side has a city tax bill on her home and shop of only $394. But partly because of her location and the business she owns, she is paying $608 a year more in fees than she did in 2002. "My taxes are just unbelievable. It's getting too expensive to stay here," she said in a recent interview. She's thinking about selling her home of 30 years and the attached shop where she has worked for almost a half-century. WHICH IS FAIRER? It's not likely to be getting any easier for Terhark. Assessments in St. Paul have risen from $8.5 million in 2002 to $17.4 million this year. Kelly administration officials say they aren't going to assess anything else, but a City Council projection shows the fees put in place since 2002 growing by nearly 55 percent in the next four years, in part because the city is subsidizing the system with a small surplus fund that will eventually run out. But raising assessments instead of property taxes isn't just a matter of collecting more money. The policy also has fundamentally altered who is paying for city government in St. Paul. There is no easy formula to calculate winners and losers of the change, but for any given lot size, the owner of a more valuable home benefits more by a shift to assessments than the owner of a less valuable home. For instance: Homeowners on the whole saw only a 14 percent increase in their total tax and new assessments, but for homes below the median value of $154,500, that increase was 21 percent. Homes above the median value are paying, on average, only 11 percent more than they were in taxes three years ago. "You're going to have anomalies in any system," East Side City Council Member Dan Bostrom said, after reviewing the results of the newspaper's tax analysis. He remains convinced the system is as fair as property taxes. Bostrom points out that the cost of running a snowplow down a St. Paul street, for instance, has nothing to do with the value of the real estate it drives by. But others argue that even if property taxes aren't perfect, assessments are a further step away from a central tenet of taxation in America: People are charged for government services more or less according to their ability to pay. Robert Kudrle, a tax expert and professor at the University of Minnesota's Humphrey Institute of Public Affairs, recalled that conservative British Prime Minister Margaret Thatcher tried replacing property taxes with a per-person "community charge" in 1988. The fee provoked mass demonstrations and even riots before Thatcher was forced to resign in 1990 and the charge repealed. "I'm not going to argue whether this is right or wrong," Kudrle said. "But it has been tried before, with unhappy results." He said that even the most conservative government fiscal policies typically include some relation to the constituency's financial means, particularly for common goods like roads or educating children. Assessments, instead, mimic the private market. Kelly and his advisers concede that St. Paul is charging more, but insist the city is doing so in the least onerous way. "The last three years have had some of the most difficult fiscal conditions in 70 years. We're doing the best job we can under difficult circumstances," Kelly said, noting the city has lost more than $50 million in state aid since he was elected in 2001. "We haven't been reckless," Kelly said. "We haven't been egregious. We have worked extremely hard to be sensitive to what the people of St. Paul face. Our middle class is being treated better here than in any of our neighbors, and if we are going to have a vital city, we have to be committed to making sure they stay." But other city officials aren't sure fees are the way to do that. In East Side neighborhoods represented by City Council President Kathy Lantry, like Dayton's Bluff and Battle Creek, homeowners are saving an average of only $2.50 a year under the assessment plan. In Highland Park and Macalester-Groveland, homeowners save an average of $64 a year because they're assessed rather than taxed. "There's a reason we have a property tax system," Lantry said, after reviewing the results of the Pioneer Press study and noting the disparities. Across town from Betty Terhark, for instance, Joseph and Ellen Konstan live in a $1.65 million home they built recently on Summit Avenue. They have a hefty city property tax bill of $6,765, but are paying only $84 in new fees because they have a relatively narrow lot. They're paying $1,100 less than they would have had the city raised property taxes instead of fees. Joseph Konstan, a computer science professor at the University of Minnesota, said he is aware of the city's assessment program. "I don't know all that much about what they're doing," he said after hearing about the comparison. "My gut reaction is that it's not a bad thing, but it's not the best thing they could be doing, either. "My sense is that overall local government funding in this state is pretty severely broken," Konstan adds. "I don't think that property taxes are the right solution, and I don't think assessments are the right solution. But the state doesn't give us a lot of alternatives." WINNERS AND LOSERS The data also showed: • The biggest single loser under the assessment plan is the school district. Facing a $24 million budget deficit next year, the schools will transfer nearly $130,000 more to the city in 2005 than in 2002. That would only pay for about 2.5 teachers in a district of about 4,200 teachers, according to Roy Magnuson, a board member of the St. Paul Federation of Teachers. But it would buy St. Paul's 3,000 first-graders about four picture books a year, or two new $1,200 computers a year for every elementary school in the city. Another educational institution, the University of St. Thomas, pays an additional $14,000. • While 77 percent of homeowners have benefited under assessments, only 28 percent of commercial and industrial property owners saved money. Some benefited considerably: Xcel saves some $158,400 annually, mostly because its $105 million natural gas distribution network is underground and can't be assessed. The utility's savings are almost one-fifth of all the money saved by commercial and industrial property owners in St. Paul. It's not exactly a bonanza for Xcel, though. On top of the more than $1 million in taxes it pays each year, Xcel spokesman Steve Schmidt pointed out that the company also sends St. Paul a $17 million "franchise fee" annually, and that the financial benefit ultimately accrues to ratepayers. Other companies like St. Paul Travelers and the Stuart Co., which owns some large apartment buildings, also save more than $20,000 annually. (Northwestern Publications, the parent company of the Pioneer Press, ranks 28th on a ranked list of "winners" and saves more than $6,400 annually with assessments.) But three in four commercial and industrial properties would have been better off if the assessments hadn't happened and taxes had simply been raised by the same amount. The city's private country clubs are the hardest hit among privately held business. Hillcrest and Town & Country pay $50,000 more a year between the two of them because they have so much street frontage around their golf courses. More typical are businesses like the Rihm Motor Co. on University Avenue. The Kenworth truck dealership has large parking lots, which means lots of street frontage. An across-the-board property tax increase would have cost Rihm Motor about $1,700. Instead, the company now pays nearly $7,000 in assessments. The CSM company, a hotel and commercial property developer that owns the Westgate office park near Minnesota 280, pays $15,000 a year more because of assessments. City finance director Matt Smith points out that recent state tax law changes have favored commercial and industrial property owners. "It evens out, somewhat," Smith said. But the effects of the assessments nonetheless came as something of a surprise to Larry Dowell, head of the St. Paul Area Chamber of Commerce. His organization has staunchly supported assessments, and thought they would be an overall benefit to businesses. Still, Dowell maintained during a recent interview that the assessment plan "is good public policy, even if there are some modest differences." Dowell, in fact, took issue with the very premise of the Pioneer Press study and the comparison of assessments and taxes. He believes the city would have picked both. "The fact is, the City Council isn't willing to make the choice, and they've shown that," Dowell said. "Their plan would have increased both, and started us down that slippery slope, that open door of tax increases, no matter what." • While the fee plan did spread some of the cost of public services more widely, the effect was small. The city nets less than $1 million from churches, schools, hospitals and other tax-exempt properties. Even so, many nonprofits are feeling a pinch. Catholic Charities, which operates the downtown Dorothy Day Center homeless shelter, has had to come up with about $6,100 more a year to pay the assessments. Just down West Seventh Street, the Church of the Assumption will now pay about $8,300 a year for snowplowing, tree trimming and streetlights. That's only about a nickel a visit for the 3,200 worshippers who attend the church's five Masses each weekend. "It's not an impossibility," said the Rev. John Malone, the parish priest. "But do we notice it? Sure." • The new assessments have driven up the cost to city property owners, but that's only part of the story. Little-mentioned effects of state and city fiscal policy have cost property owners an additional $7 million in taxes since 2002. That means the real cost to property owners has risen 32.1 percent in St. Paul, compared with a 32.4 percent increase in Minneapolis. WILL POLICY SHIFT? St. Paul officials concede they haven't studied the effects of the fee-for-service policy in this much detail. It isn't clear, either, whether doing so would have changed any votes on the City Council or any of Kelly's budget proposals. "We've asked for this information again and again, and we didn't get it," said 2nd Ward City Council Member Dave Thune after reviewing the newspaper's analysis. Thune led an unsuccessful drive for a 2 percent property tax increase this year; property owners in his ward will pay about $450,000 more next year because they are assessed, rather than taxed. But other council members, such as Debbie Montgomery, remain confident that fees are a good deal. "I haven't gotten a single complaint about assessments," said Montgomery, who represents the 1st Ward and voted in favor of the streetlight fee this fall. City Council Member Pat Harris, who represents neighborhoods like Macalester-Groveland and Highland Park, has supported the shift to assessments all three years it came up for a vote. Nine out of 10 property owners in his 3rd Ward come out ahead. He notes that others haven't done as well, but insisted that "you can't say that St. Paul hasn't been fiscally responsible these past three years." In fact, one nationally recognized tax expert calls St. Paul's finance policy — or at least parts of it — "brilliant." That's what Michael Pagano says of the city's effort to extract some of its revenue from tax-exempt properties. He is a University of Illinois professor in Chicago and heads the National League of Cities' annual Fiscal Conditions Survey. "A lot of cities that are state capitals have a lot of tax-exempt properties. Some of the wealthiest, for instance, are universities. These are huge consumers of public services and they don't contribute to covering the costs of these services," Pagano said. "This is one way of recouping the costs of these services." St. Paul officials say there are other advantages, as well: • Assessments collect money from a small number of properties with "tax increment financing." Regular taxes from those buildings are usually diverted to pay off the cost of building them and are not available to the general budget. • Assessments can't be used for anything else. That means they guarantee a service, like snowplowing or streetlights, no matter what fiscal crises occur. • Taxes are subject to tinkering in the state Legislature that the city can't control. • Assessments might make city finances more transparent. St. Paul property owners know exactly what they're getting for their money, since it's listed right on the assessment statements. And it isn't just St. Paul. Cities like Contra Costa, Calif., and Missoula, Mont., use street assessments, and cities like Mounds View, Shoreview, New Brighton and North St. Paul charge streetlight assessments. Officials in Des Moines, Iowa, are thinking of doing away with property taxes entirely and changing to fees. But not everybody is sold on these points. Minneapolis officials have looked at the assessment model, but it's gotten no serious consideration there. Pagano, the tax expert, also notes that diversifying revenue, even if it collects the same amount of money, can be confusing and obscure the total cost of public services. And public finance experts are often apprehensive about partitioning off parts of government funding like street assessments. The practice reduces the flexibility they often need to respond to budget gaps: St. Paul's streetlight money, for instance, can't ever buy a fire truck, no matter how badly the city might need one. The difficulties come as no surprise to Lantry, part of the majority that tried, unsuccessfully, to pass a property tax increase this summer — but also approved additional assessments at the same time. Although she has voted for the fees in the past, Lantry says she has always had concerns about the plan. "Any time the government asks for more money, it's a tax," Lantry said. "I'm not quite sure why we can't just be more forthright with our constituents. "We have pared down, consolidated, done everything we can," Lantry said of the city. "We have shown that we are really responsible with the people's money. … But the bottom line is we are charging significantly more and not doing significantly more for our constituents." Betty Terhark, the owner of Betty's Salon on Arcade Street in St. Paul, styles Florence Mordoski's hair recently. Terhark is among the St. Paul property owners paying more because of the city's shift to street assessments to raise revenue. "It's getting too expensive to stay here," she said, noting her $608 assessment for this year. She's thinking about selling her home of 30 years and the attached shop where she has worked for almost a half-century. Tim Nelson can be reached at [EMAIL PROTECTED] or 651-228-5489. © 2005 St. Paul Pioneer Press and wire service sources. All Rights Reserved. http://www.twincities.com _______________________________________________ This message was posted to Winona Online Democracy All messages must be signed by the senders actual name. No commercial solicitations are allowed on this list. To manage your subscription or view the message archives, please visit http://mapnp.mnforum.org/mailman/listinfo/winona Any problems or suggestions can be directed to mailto:[EMAIL PROTECTED] If you want help on how to contact elected officials, go to the Contact page at http://www.winonaonlinedemocracy.org
