Minneapolis Park Superintendent Jayne Miller doesn’t get to live in the five-story Dutch colonial house in Lyndale Farmstead Park for free.
But her rent of $1,154 per month paid to the Park Board hasn’t gone up in more than five years.
Meanwhile, rents for single-family homes in the surrounding southwest Minneapolis area have risen by 15 to 20 percent in the past five years, according to Janene Christy, an area residential rental broker.
The terms of Miller’s lease could forestall any increase in rent until mid-2018. Still, the arrangement raises questions related to potential tax liability and whether it puts Miller’s compensation over a state-set cap.
When asked about the rent, Park Board President Anita Tabb said she thinks the house’s rent needs a market check. “I do think we need to re-evaluate that,” she said.
Miller said in an e-mail Wednesday that she’s willing to negotiate if her rent is below the market. But she declined to comment further and directed some questions to Tabb.
The house Miller rents was built to lure Theodore Wirth, the famed second park superintendent, to Minneapolis. Seven of the 13 park superintendents have lived there. Those who didn’t typically already had homes in the city. As recently as the 1990s, superintendents lived there rent-free; some were contractually bound to do so.
When Miller was hired six years ago from Ann Arbor, Mich., she said she wanted to become more familiar with Minneapolis before buying a home. She’s contractually required to live in the city, but not the house.
She initially paid $640 monthly for 644 square feet that included the kitchen and two second-floor bedrooms of the house. A new lease in 2011 nearly doubled the amount of square feet she rented, adding third-floor space. Her new monthly rent of $1,154 represented a 3.25 percent increase in her rent per square foot. The Park Board pays utility costs.
That lease requires mutual agreement to amend its terms, including the rental rate. Absent that, her rent would stay at $1,154 through mid-2018, when her current employment contract expires.
A previous lease of part of the house to a park foundation required 3 percent annual rent increases.
Tax and salary implications
Not increasing rent causes potential tax liability, according to Gregg Polsky, who teaches tax law at the University of Georgia and formerly taught at the University of Minnesota. That’s because the difference between a below-market rent and the prevailing market rent is taxable as employee compensation, Polsky said.
There would be an exemption to the IRS rule if the board required Miller to live in the house as it did for the last superintendent-occupant, David Fisher, until waiving that requirement.
Tabb said she doesn’t think the Park Board is reporting any lodging benefit to the IRS now. The board won’t know if some of Miller’s lodging should be reported until it determines the current market rate, she said.
She also acknowledged that a below-market rent could also cause salary cap issues. Miller’s salary of $165,003 annually is at the top of that allowed for public employees in Minnesota. Any difference between her rent and a market rate could be considered additional compensation.
Tabb said the board needs a periodic reminder from its staff to review the rental market. She pledged to seek a review of the rent once the board adopts a 2017 budget next month.
Commissioner John Erwin, board president when Miller was hired, said the rent was set after consulting several real estate brokers. “We should be looking at it every three or four years, he said.
When Miller’s contract was extended in early 2015, then-President Liz Wielinski said the rent still reflected the market. Her bigger concern was keeping Miller from going over the state cap for public employee compensation. To make sure that Miller’s compensation didn’t exceed the cap, Miller’s $6,000 annual car allowance was converted to mileage reimbursement in the second year of the pact.
Still, by several measures, rents in southwest Minneapolis have risen.
The median rent for all types of residential property in Miller’s ZIP code jumped 9.8 percent between the year she moved in and 2014, according to the latest census data available.
Average rent since 2011 in southwest Minneapolis apartment buildings of at least 10 units have risen 39 percent, according to a Marquette Advisors survey of about 9,000 units.
The market’s especially tight for single-family housing, said Christy, the rental broker. She recently rented a three-bedroom home in the area for $1,750 a month.
“When they go on the market, it is crazy,” she said. “When we hold an open house, they rent in minutes.”