Wave of foreclosures cost cities time and money

The north Minneapolis duplex where Latonia Bray is a renter bears a bright orange placard on its front door these days.

It warns that unless her landlord pays a bill of $117, her water will be shut off in two weeks. The duplex is also in foreclosure, so either way she'll have to find new housing.

"My hands are tied, and what can I do?" she wondered last week.

Her predicament is evident around Minneapolis, St. Paul and other Minnesota cities.

As a rising tide of foreclosures washes over them, local governments are getting stuck spending more time dealing with the growing problem -- and collecting less money because of it.

Bray's water bill is one example. If her landlord doesn't pay the bill, the city has to wait until the foreclosing lender or a new owner settles up. While the duplex sits empty, the city will be forced to spread the costs of its water system over fewer households.

That's just one of many new consequences.

Police officers are chasing people out of more boarded buildings. Inspectors are issuing more citations for uncut grass or unshoveled snow. Assessors are having to more closely scrutinize housing to determine its market value.

In New Prague, a rash of foreclosures in one subdivision has left city officials wrestling with whether to reconnect power to vacant foreclosed homes in damp soils and pay for a small amount of electricity needed to keep sump pumps running. Otherwise, water damage to those houses could eat into the city's tax base.

Laura Harris, a lobbyist for the League of Minnesota Cities, said that foreclosed properties, especially those now empty, are eating up the time of city officials.

Member cities complain most about the time involved in tracking down owners of the property. "It's very difficult to locate who the owner is," Harris said. That's because mortgage loans are resold among lenders and investors.

In Minneapolis, foreclosures are a dominant factor behind a doubling of vacant properties tracked by the city's problem property unit. That's jumped from 360 properties last December to 718 this week. And that number could hit 1,000 by the end of next year, according to Tom Deegan, who manages the unit.

Deegan estimated that 80 percent of those vacancies result from foreclosure.

Adding up the costs

Some of the costs of keeping an eye on those abandoned houses are quantifiable. For example, the city has spent $1 million to board up properties this year. That cost can be assessed against the property, like unpaid water bills, but it can take years until the property is sold before the assessment is paid. Deegan said the city recovers maybe 60 percent of boarding costs.

The city also incurs indirect costs because Deegan's 10-person unit spends about three-quarters of its time tracking boarded property. That's time that could be spent working with problem tenants or owners in occupied houses, he said.

Those unoccupied houses also aren't using utilities such as water, sewer and garbage service in which the city has invested.

For example, the city has lost 2,400 residential garbage customers since 2003, a period that coincides with the spike in foreclosures. That drop has cost the city roughly $1.4 million in garbage fees.

Although the city saves on disposal costs, fixed costs make up well more than half of the monthly average garbage bill of $22. For example, city garbage trucks still put on the same number of miles running past those empty houses to serve remaining customers.

"It'll probably make your garbage rates go up quicker than they would have," said City Council President Barb Johnson, whose ward is one of the hardest hit by foreclosures.

City coffers miss $1 million

That same customer loss affects water and sewer collections. They're running an estimated $1.1 million less this year than they would be if those empty homes were occupied. St. Paul water officials say they're also seeing more water accounts shut off for unpaid bills, although the number of residential customers is up overall.

Having fewer customers to share the fixed costs of city water is particularly critical for Minneapolis because it's paying off a $140 million ultrafiltration plant.

But unless Bray's landlord pays the water bill, the unit won't be contributing. A water shutoff means she'd need to find new housing by mid-November, a month earlier than when her landlord's lender is likely to take over the property. Bray's move will pose extra costs for the city, too, because she gets a city-administered federal rent subsidy that will have to be reissued.

sbrandt@startribune.com • 612-673-4438 rfurst@startribune.com • 612-673-7382