The city of St. Paul should see if owners of tax-exempt properties will voluntarily kick money into the city’s budget, but not rely on those donations to solve financial challenges, a prominent local civics organization recommended Wednesday.
The advice from the Citizens League followed a monthslong examination into the idea, spurred by a ruling in 2016 that the city’s assessments for street maintenance were actually taxes. As taxes, they could no longer be applied to churches, schools and governments.
“The reason that we were interested in undertaking this is we had a change — a pretty big change,” City Council President Russ Stark said at a council meeting Wednesday.
Mayor Chris Coleman pitched a 24 percent hike in the city’s property tax levy to replace the assessment, but the city will be collecting $1.8 million less from tax-exempt properties like schools, hospitals and other nonprofits. The Citizens League suggested the city begin discussions to see if any of them would voluntarily contribute and explore how a potential payment in lieu of taxes (PILOT) program might work.
“A St. Paul PILOT initiative cannot and should not be viewed as a solution to any financial and budget challenges you may be facing,” Kaye Rakow, co-chairperson of the committee that studied the issue, told the council. “And for a PILOT program to be successful there must be a strong relationship between the city and its tax-exempt property owners.”
The committee also discovered that St. Paul is not as unusual as it once thought in terms of tax-exempt properties. About a quarter of the city’s property value is tax-exempt, which is equal to Minneapolis and similar to Rochester and Duluth.
That’s much higher than many suburbs, however. Just 6.4 percent of nearby Woodbury’s property value is tax-exempt, for example. An exception is Falcon Heights, where 62.5 percent of the city’s property value is exempt due to the State Fairgrounds.
About 57 percent of St. Paul’s tax-exempt value is public property, including schools. The bulk of the private tax-exempt properties are colleges and hospitals.
Boston has the most prominent PILOT program in the country. But the committee found significant differences between the two cities’ finances. Half of Boston’s property value is tax-exempt, and its budget relies much more heavily on property taxes than St. Paul.
PILOT programs around the country typically collect less than 1 percent of a city’s general revenue, according to the Citizens League report. Other cities with programs include New Haven, Conn., Providence, R.I., and Cambridge, Mass.
Private colleges in St. Paul are generally open to the idea of making voluntary contributions, said Doug Hennes, University of St. Thomas vice president for government relations, who sat on the committee. But they are not comfortable with a program as structured as Boston, which suggests donation levels based on a formula.
“It sets an expectation that the city is thinking we would like you to give X amount of money,” Hennes said. “And then when the organizations don’t … then the numbers end up getting published in newspapers like the [Boston] Globe. The nonprofits can come across as looking like perhaps they don’t care.”
Mayor Chris Coleman said in a statement that colleges, hospitals and other tax-exempt properties add significant value to the city.
“The City of St. Paul will engage in a process with our tax-exempt partners to better understand the public services they value and how a voluntary payment initiative may serve as a vehicle of mutual benefit,” Coleman said.
The council members said they were appreciative of the league’s extensive efforts researching the topic.
“It’s good to finally know what the facts are,” said Council Member Amy Brendmoen.