St. Paul approves 2017 budget, prepares for cuts early next year

The St. Paul City Council finalized the city's 2017 budget Wednesday, but the future of many of the new initiatives it had planned for next year — including studying Fire Department operations and removing trees infested with emerald ash borer — remained uncertain.

The city is facing a potential multimillion-dollar budget gap due to changes in its assessment process, and several spending priorities of council members and Mayor Chris Coleman may fall victim to cuts early next year.

In the meantime Wednesday, the City Council unanimously approved a $561 million operating budget and a capital improvement budget of more than $61 million, and put a number of projects that could be cut into a contingency fund.

St. Paul's initial 2017 spending plans counted on $31.8 million from right-of-way assessments, which the city had planned to use for street maintenance like snowplowing and street lighting.

But a Minnesota Supreme Court ruling that those assessment charges were actually taxes forced city officials to rethink how St. Paul pays for road upkeep, and figure out which budget cuts to make to deal with lost revenue.

That made for an unusual end to this budget session, council members said.

Last week, city staffers suggested reducing spending on road projects that aren't pressing and creating a contingency reserve account. The City Council is expected to vote in March on what should be pulled out of the contingency fund and returned to the budget, and what should be cut.

Money for a number of high-priority items that were suggested as contingency last week was saved, at least in part, by some last-minute budget maneuvering. Some funding for parks and library programming, Right Track internships and police-community engagement efforts was preserved.

"The budget prioritizes investments in our work around equity and preserving our strong commitment to public safety," Coleman said in a statement.

Council Member Amy Brendmoen had asked if the city could raise taxes to deal with the budget gap, but that was not an option. The council set the maximum property tax levy in September and could not raise the levy above the $114 million it had already approved. Council members had planned to look for ways to reduce taxes, but on Wednesday they voted to stick with the $114 million levy.

That meant a 7.9 percent increase over last year's levy, the biggest jump since 2009. The owner of a $161,200 median-value home in St. Paul will pay $592 in city taxes next year.

"While this is a significant levy increase that we're getting ready to adopt for our city, I think at the same time it's a responsible thing to do," said Council President Russ Stark, who noted the loss of $3 million in anticipated state funding, changes in right-of-way assessments and inflation.

A large portion of the levy increase will be used to cover the growing cost of wages and benefits for city staffers, according to city budget documents.

There will be debates in the next few months about what contingency items should be removed from the 2017 budget.

The upside of the assessment situation and the state Supreme Court ruling, Council Member Dai Thao said, is that it forces the city to change the right-of-way system now.

"That system was unfair and it doesn't work. And now it has forced us, as leaders, to come together to solve it now instead of kicking it down the road," Thao said.

Assessments have become increasingly important to the city budget over the past 14 years. St. Paul assesses all property owners with street frontage, allowing the city to collect revenue from tax-exempt institutions such as churches, colleges and nonprofits.

City officials are looking at new ways to pay for street maintenance in the future. One option often suggested is the use of property taxes, a common practice in other cities. Several property owners said they would prefer that because it would allow them to claim tax refunds. But it also could mean an even larger levy increase in 2018.

Jessie Van Berkel • 612-673-4649