The State's cuts in Local Government Aid over the past few years have revealed a vulnerability in the City of St. Paul's basic model of delivering services.  Cuts and formula changes to Local Government Aid that date back to 2003, but with the most significant cuts in the past 5 years, St. Paul is now receiving only half of the Local Government Aid  -- about $50 million annually instead of about $100 million -- that would have been anticipated under the old formula.  Some have characterized the State's Program of Local Government Aide as a handout.  In reality, the program was a forward-thinking, progressive tax system for the state that kept property taxes low while assuring that Cities of all sizes and land-use makeups would be able to provide high quality services for Minnesotans.

In St. Paul, our property tax base is modest due to a number of factors.  First, nearly one-third of all property in the city is property tax exempt (the purple areas in the map below are all tax exempt). State and Federal offices, city/county/school district facilities, college campuses, and nonprofit entities - including churches - pay no property taxes, yet still require basic city services, including police and fire protection.  Second, St. Paul's base of commercial and industrial property is modest compared to Minneapolis and other metro cities -- in part, because of all of the state offices, colleges, and other land uses that are over-represented in St. Paul.  The state's Local Government Aid formula takes into account these differences, historically yielding significant revenue for St. Paul compared to most cities around the state.  

So as Governors and state legislatures of recent years have made cuts to the Local Government Aid formula, City policymakers have had to both cut services and increase property taxes in order to maintain a reasonably high level of public services.  While the newly elected DFL majorities in both houses of the legislature may mean a stabilization (or even some restoration) of the old LGA formula, it is reasonable for us to expect that the longer term trend will continue to be less state revenue flowing into City coffers.  

One partial solution, proposed and implemented under Mayor Randy Kelly, was the expansion of the City's Right-of-Way (ROW) Maintenance Fee system.  The ROW fee existed prior to 2004, but that year a much larger array of services was included under the fee. Today, all street maintenance services are covered by the ROW fee, including snow plowing, street sweeping, lighting, street trees, sidewalks, seal-coating, and pothole patching.  The reason the ROW fee is a partial solution to the City's fiscal challenges is that property tax exempt entities DO have to pay the fee, which is based on the number of lineal feet of front a property has on a given street or alley.  As a result, the University of St. Thomas, for example, pays about $44,000 annually in ROW fees, off-setting costs to other property owners as compared to the property tax.  

Aside from increasing property tax rates and cutting services, what else can the City do to adjust and set itself on more solid footing for the future?  The primary remaining option is to "grow" the property tax base. How? By allowing for increased development density along our commercial corridors, downtown, and in other commercial and industrial areas.  Replacing one and two story buildings with 4 and 5 story buildings, for example, greatly increases the valuation of those properties, generating property tax revenues for the City and reducing the burden on other tax payers.

Investing in urban transitways such as the Green Line light rail project is also an important part of the solution. In addition to improving options for mobility, these investments attract private investment in new development.  However, new development also adds to the need for city services, so any growth in tax base is at least partially offset by these new service needs. 

Another partial solution may lie in the City's industrial zoning.  In recent years, it has become fairly commonplace for industrially zoned parcels to be converted into churches or charter schools. Both are property tax exempt.  Protecting more industrial and commercial land for property tax-paying uses is therefore a possible strategy toward improved fiscal health. The St. Paul Port Authority recently commissioned a study (caution, this links to a large file) that suggests that light industrial uses are some of the most beneficial to the City's financial health, because they are typically both a source of good-paying jobs and require much less in City services than they generate in property taxes.   

This Councilmember does not have all the answers to our current challenges, but I  recognize that doing things the way we've always done them in St. Paul is clearly no longer a viable option.