The Star Tribune recently carried the headline, "Property taxes projected to spike in St. Paul" (Metro cover, Sept. 28). Homeowners had better brace themselves. They will shoulder more of the city's tax burden if the tenant-drafted rent control measure on St. Paul's November ballot is approved.
To date, much of the debate over rent control has concerned whether or not it is good for tenants. Lost is any consideration of rental properties' contribution to the tax base of metro areas and the tax burden they have historically paid.
As rental properties house more of the total population in the metro area, these properties pay a greater share of cities' real property taxes. Apartment buildings are assessed and taxed at a higher rate than single-family homes. As rental property sale prices have increased, and as rents have risen, apartment owners have paid a higher share of the property tax revenue received by the city.
As city budgets have increased, elected officials have been able to assess and collect taxes on rental properties based on the rising valuation of those properties. Rent control will reverse that trend.
A rent control measure will have the triple impact of discouraging investment in: 1) improving rental sites, 2) the prices paid for existing buildings and 3) building new rental properties. With relatively fewer rental properties valued at relatively lower levels, the overall contribution of rental property to the assessed taxable property value of the city will steadily decrease.
The St. Paul proposal has been criticized as the most restrictive proposal in the nation. It will have an immediate and lasting adverse impact on rental property valuations.
We can expect existing assessed valuations for apartment buildings to be challenged by their landlord owners. As valuations go down, the taxes the city will be able to collect from landlords will go down. Yet no one expects city spending to be reduced. Elected officials will need to look more to local business and homeowners to pick up the tab.
I am an attorney. I have represented residential landlords for 44 years. Most of my clients have owned and managed properties in the Twin Cities area for decades. Many are second- or third-generation owners. They run good businesses. They do not need the City Council to tell them how to do it.
The future for these businesses looks bleak. But one area of our legal practice that will prosper if rent control measures are passed will be helping them exercise the right of any property owner to challenge a property tax assessment and show that the fair market value for the property has decreased.
If single-family homeowners in St. Paul think their taxes are high now, they need to wait a year or two, until they're feeling the full effect of helping to subsidize tenants.
Donna Hanbery, of Edina, is a lawyer representing Twin Cities property owners and managers.