Park fee would be wrong tax at wrong time

Building housing or office space in Minneapolis is never easy or cheap. A bill working its way through the Minnesota Legislature threatens to make it even more complicated and expensive.

The goal of the legislation is to allow the city and the quasi-independent Minneapolis Park and Recreation Board to get developers to pay a new fee for the acquisition and improvement of new and existing parks, playgrounds and green spaces in Minneapolis.

But at $1,500 per residential unit, or $200 per new employee for a business that's expanding its office, warehouse or manufacturing space, the ordinance represents a significant tax on new development and job creation -- something the city can ill afford as it seeks to expand its property tax base. Even the city's own Planning Commission concluded that the ordinance needed "further work and refinement before being placed into prime time."

Not everyone in city government sees a problem. Chuck Lutz, deputy director of the city's Planning and Economic Development Department, notes that almost every other city in the metro area imposes a similar fee. "I'm not seeing why this would be a development killer," he said.

John Erwin, president of the Park Board, said he believes it will ultimately aid development by making the city a more attractive place to work and live. "Throughout our history, we know that adding parks has spurred economic development," he said.

But cuts in state aid have already made it increasingly difficult for the Park Board to maintain the thousands of acres of parks and recreational land it already owns. With the city's population not growing, can the Park Board really afford to acquire even more property to maintain?

"The city and Park Board are misleading the Legislature," said Steve Minn, a developer and former Minneapolis City Council member. "This is not a technical correction. This is a systemic change in how park dedication fees are collected. It's a special tax."

Park dedication fees are nothing new. Suburbs rely on them to get developers to provide the playgrounds, pools and ball fields for families that move into all those new homes. A homebuilder can donate the land, or pay a fee that goes into a special fund that can be used only to create new parks or maintain existing ones within a prescribed distance from the subdivision.

In 2006, the Minnesota Legislature made the tool available to cities that are already subdivided -- the fee based on a formula tied to the market value of the land to be redeveloped. St. Paul adopted a park dedication ordinance one year later. The Minneapolis City Council and the Park Board, after two years of negotiations, signed off on their request for enabling legislation in the fall.

So what makes the Minneapolis measure so objectionable?

First, Minneapolis property owners already pay almost $50 million annually in property taxes to the Park Board, which owns or operates the parks, beaches and golf courses within the city. Most metro communities do not have an equivalent body with similar taxing authority.

Second, downtown developers will rarely be able to donate land, so that means they must come up with additional cash. And a fee based on a per unit basis, rather than using a market value approach, is more costly.

Consider the consequences this way. In St. Paul, a developer who wants to build a 56-unit apartment building on the city's East Side would have to pay about $11,000 in park dedication fees. The fee for a similar project in Minneapolis would be $84,000 -- payable before construction begins -- if the city's new fee system is approved.

Erwin counters that the proposed Minneapolis fee is less than what developers encounter in nearby, fast-growing suburbs. Woodbury, for example, charges about $3,600 per unit; Blaine charges $2,435.

The lower density of a typical suburban subdivision means less upfront, out-of-pocket costs, however. And throwing up houses in an empty field is a far less expensive proposition that redeveloping one or two blocks in downtown Minneapolis, where developers confront higher land costs, frequent contamination issues, and the additional expenses of underground parking, storm-water drainage, etc.

"There is no city in the state of Minnesota that's more expensive to develop in than Minneapolis," Arnie Gregory, president of Greco Real Estate Development, told a House panel earlier this month. Gregory said the four projects he's involved in would likely not occur if the park fee is imposed, including the $39 million project in Uptown.

The fact that Minneapolis didn't have a separate park dedication fee may be one reason why thousands of new apartments and condominiums were built in downtown Minneapolis during the past 15 years, boosting the residential population to an estimated 30,000.

The recession stalled that growth. A park dedication fee, at least as currently conceived, won't help jump-start it.

ericw@startribune.com • 612-673-1736