St. Paul shifting street maintenance charges, but who'll pay?

St. Paul's 14-year experiment charging property owners "fees" for street and alley work is nearing its end. Now, city officials are working to unwind the policy — and still keep the streetlights on.

The fee plan, launched in 2003 by then-mayor Randy Kelly, was an attempt to get land owners exempt from property taxes to help shoulder the costs of keeping up city streets. The move drew the interest of other cities looking for alternatives to raising property taxes.

It also drew the ire of the Minnesota Supreme Court, which in August ruled that the "right-of-way assessments" should legally be considered taxes, not fees. It's a crucial distinction, since millions of dollars in assessments have since been levied against thousands of tax-exempt properties, from public schools to churches.

Here's a look at where the city's been on this issue, where it's headed and whose bills might go up.

How does it work now?

St. Paul sends property owners two bills. The biggest is property taxes. The other is called a right-of-way assessment, on top of taxes. It initially paid for snowplowing and tree-trimming, services that used to get paid for by property taxes but got separated out, although taxes weren't cut to make up for it either.

It was like a new baggage fee on top of your airfare. It started small, but now is about $32 million, nearly one-third of tax bills.

The difference is, this fee got charged even to churches and hospitals, which don't pay property taxes. City officials say about a third of the properties in St. Paul are government offices, schools, hospitals and other exempt categories. The plan unraveled last year after two downtown churches challenged the fee and the Minnesota Supreme Court agreed.

What does the city do now?

The City Council on Wednesday began mapping its next steps. Finance officials said the city needs to consider shifting most of these bills back onto the tax rolls.

Some of the existing charges are legal, according to the court, including fees for street lighting and replacing sidewalks. But tens of millions of dollars in charges could move off of fees and onto tax bills, depending on how the city decides to resolve this.

Will people see big tax increases?

They could, but they'll see big fee decreases at the same time.

"At the end of the day, what we are doing here, is simply funding a program that currently exists with different ideas and different revenue streams," city finance director Todd Hurley said Wednesday. "This is not about increasing the revenues to the city. This is about collecting these revenues differently to continue to provide these services."

So is this just a wash in the end?

No. Picture two different houses, a mansion on Summit Avenue and an east side bungalow. Imagine both have 60 feet of street in front of them. A tax based on home value would fall hardest on a $1 million house on Summit Avenue. Compare that to a set fee, charged per foot of street frontage. That burden would be much heavier, comparatively, to the owner of a $60,000 house on the east side.

This program let city officials argue that they weren't raising taxes, which was very strictly true. But it also shifted the financial load out of the city's richer neighborhoods and into its poorer neighborhoods. It also caught up hospitals and schools and all kinds of places that can't be taxed.

So as this program gets wound down, that load should shift back to wealthier neighborhoods, back to big multi-story office buildings and other high value properties. City officials can't put a specific number on what the tax effect will be, because they haven't decided exactly how this shift will happen.

When will things change?

Not right away. This is a transition year in response to the Supreme Court decision. The city may try to kind of soften the blow. Some City Council members on Wednesday talked about a voluntary program, asking if churches and hospitals might be willing to pay the city a fee anyway.

St. Paul taxpayers may hear more about this in coming months. But this long experiment in shifting the way to pay for city services is going to mostly come to an end and St. Paul taxpayers are going to hear a lot of explaining about their tax bills in the next year or so.