As St. Paul works through the final details of its 2017 budget, one key issue has emerged — the controversy around right of way assessments — that will likely result in funding cuts to new city initiatives.

City leaders were counting on $31.8 million in revenue from the assessment program, which pays for street maintenance. But, faced with legal challenges, St. Paul has decided to restructure how it pays for street upkeep.

As a result, city leaders are bracing for the loss of assessment money and considering cuts to many of the initiatives they had planned next year in order to close the possible budget gap.

At a budget meeting Wednesday, city staffers presented a breakdown of different funding sources that could be used to pay for right of way work in 2017. They expect to gather about $15 million from fees for street maintenance services and public works fund balances. Another $2.5 million could come from public safety bonds and sewer charges.

That leaves a projected $14.3 million gap. Council Member Amy Brendmoen asked if they could send out a supplemental tax bill to help make up that difference.

“There’s not another opportunity in 2017 to raise taxes,” said Financial Services Director Todd Hurley. So they are relying on cuts.

The initial proposal from city staff included more than $3 million of reductions to right of way services, including emerald ash borer treatment and street and sidewalk repair.

“We should not stop fixing potholes, we should not stop seal coating the streets, we should not stop snowplowing,” Hurley said, so the city is looking at projects that can be delayed.

But the bulk of the cost savings would likely come from one-time budget cuts to many of the city’s new initiatives planned next year.

The City Council will vote on the 2017 budget next week. City staff said the budget would include a list of potential budget cuts, amounting to $12.3 million in savings to offset the potential loss of assessment money.

The items could be restored to the budget if money is available.

Thirty suggested cuts were on the contingency list city staff presented Wednesday, including $1.5 million from parks maintenance, $2 million from Mayor Chris Coleman’s proposed job creation fund and $480,000 planned for downtown parking meter replacements.

Hurley said Coleman wants to make racial equity and public safety priorities to keep off the chopping block.

“There are a lot of things on this list that are obviously important to us,” Council President Russ Stark said, particularly park facility maintenance and a study of the Fire Department.

Assessment alternative?

St. Paul has been using assessments to pay for everything from street sweeping and patching to tree trimming and snowplowing. Cities can assess properties to help cover project costs, but according to state law, they are only supposed to assess those that benefit from the project. Residents have argued that is not what’s happening in St. Paul.

A Minnesota Supreme Court ruling that the charges are taxes, not fees, as St. Paul had argued, sent the city scrambling to figure out different ways to cover roadway maintenance costs in 2017.

A work group of city staff is looking into funding alternatives and Budget and Innovation Director Scott Cordes said he expects them to finish the evaluation in January. By the end of March, the City Council will decide on a plan for how to pay for right of way work, he said.

The work group is just focused on 2017 and how the city handles the right of way program in 2018 will be determined as part of that year’s budget process, Hurley said.

City officials will decide early next year — once they have a better estimate of how much the city can collect in fees for street maintenance services — what they do not want to cut.