Amid economic growth, Minneapolis and St. Paul weigh property tax hikes

Minneapolis and St. Paul each want to boost property tax collections next year at a rate not seen since the recession, and residents are expected to feel the pinch despite the booming economy in both cities.

Minneapolis is seeking $16.4 million more from taxpayers and St. Paul is asking for an additional $8.3 million, in large part to cover the rising pay of city employees. Other factors include a lack of new state aid — particularly in St. Paul — tackling deferred park maintenance and the hiring of more police officers.

The budgets in both cities won't be set until December, but preliminary estimates show city taxes would rise up to $78 on a median-value home in Minneapolis and $46 on a median-value home in St. Paul, where the median value is lower. While city officials largely support the increased collections, they've also worried that the biggest impacts will be felt in neighborhoods hit hardest by the recession, where housing values are rebounding.

"It's hard to vote to raise the levy this much and to think that that might result in a tax burden for folks," St. Paul City Council Member Rebecca Noecker said as the city set its maximum tax levy. "But by making those strategic investments … hopefully we're preventing having a more significant cost in the future."

Still, council members in both cities have found themselves picking apart some budget items. Minneapolis Council President Barb Johnson, for instance, highlighted a $100,000 program for young male sexual health outreach in a recent hearing.

"We're taking $10,000 here, and $50,000 here, and $40,000 here, without any realistic look at if we're making progress," Johnson said. "I find it very frustrating."

The increases come a year after both cities set levy increases below the metro-area average of 4 percent, according to the League of Minnesota Cities. Minneapolis is now proposing a 5.5 percent rise, while St. Paul is considering a 7.9 percent increase. The league does not yet have 2017 averages.

Minneapolis Council Member Kevin Reich, whose Northeast ward is expected to see tax bills jump by the largest percentage, has asked the city staff how that burden could be eased. He is scrutinizing proposed spending outside of infrastructure, public safety and parks.

"There's a lot on the table that is not those categories … and we're even proposing to put more money in," Reich said.

City taxes make up less than half the total residential bill in each city, which exceeds $2,000 for median-value homes after county, school and other property taxes are applied. The tax bill does not account for assessments and utility bills.

Minneapolis endured years of levy increases hovering around 8 percent during the 2000s, largely to pay off debt and handle state aid cuts, but increases have been comparatively tepid in recent years.

Mayor Betsy Hodges' $16 million request to cover new spending in 2017 is the largest since her election.

About $8.6 million of that will help cover rising employee pay and benefits in the general fund, under existing labor agreements.

Another $3 million will fuel a major boost in park maintenance, such as mowing and sidewalk repair, after the Park Board insisted the city's massive system was crumbling with existing resources.

To improve trust in law enforcement, Hodges wants an additional $4 million for the police department. Part of that would go toward entry-level officer positions in hopes of recruiting more people of color and several officers geared toward mental health issues.

In St. Paul, growth in the property tax levy has varied widely since 2000, but this year's $8.3 million increase is the biggest since the recession.

Mayor Chris Coleman and council members have said they want to trim it back before setting the final levy and budget.

Much of the increase will help pay for a $7.2 million jump in levy-supported wages and benefits. The city also plans to hire eight new staff positions.

Council members, who raised the maximum levy beyond what Coleman had initially recommended, said the city needs $1 million for deferred maintenance at parks and rec centers and additional library materials.

Coleman has also pitched new initiatives that would draw in part on levy funding, including community ambassadors to work with police and youth and additional recruiting and better retention of employees of color.

Expenses aren't the only rising factor in city budgets, but not every new spending priority would be paid for by property taxes.

In both Minneapolis and St. Paul, the mayors have proposed new programs that would be funded from other sources, including grants and fund reserves.

In St. Paul, Coleman wants to use $2 million from the sale of the Penfield apartment complex, which the city redeveloped, as seed money for a Job Opportunity Fund. In Minneapolis, the city's reserves would largely cover $9.8 million in one-time expenses, including $1.5 million to preserve affordable housing and $500,000 to support the Commons park.

Both Minneapolis and St. Paul have seen their tax bases grow in recent years. But the new developments aren't enough to ease the burden on homeowners.

Property tax bills fluctuate based on a complex calculation of how the total levy is spread over residential, apartment and commercial properties with shifting values.

Both cities have seen growth through new construction, most evident in downtown apartment buildings.

But Minneapolis Chief Financial Officer Mark Ruff noted that about 80 percent of the tax capacity growth in that city comes from rising property values.

"We'd have to have less than a 2 percent levy increase in order to make more than half the people not have a tax increase," Ruff said.

There are other pressures. Taxes now being paid on five new buildings, including Nic on Fifth, 222 Hennepin and 4Marq apartment buildings in downtown Minneapolis, will be siphoned off into a special streetcar fund established by the Council in 2013.

And the city's net obligation to the region's pool of shared commercial and industrial tax base — known as fiscal disparities — will rise from about $3 million to upward of $10 million, due to growing commercial values.

In St. Paul, more than half the levy will end up falling on residential properties, due in part to St. Paul's large number of tax-exempt educational, religious and government institutions.

Unlike other cities, St. Paul assesses almost all properties for street maintenance, but the Minnesota Supreme Court ruled last month that those assessments are actually taxes that are being levied improperly.

The case was sent back to district court, and its impact on the city's budget is not yet certain.

Adding to the pressure, the city found out this summer that it would not get $3 million in additional state aid it was banking on. Coleman chose to increase the levy further rather than cut new initiatives.

Jessie Van Berkel • 612-673-4649