St. Paul is facing class-action suit over street assessments

Three attorneys told St. Paul leaders Wednesday they will file a class-action lawsuit on behalf of all property owners in the city if St. Paul continues to move forward with its unusual — and, according to the attorneys, illegal — process for funding street maintenance.

The City Council nevertheless confirmed the 2016 right-of-way assessment costs Wednesday evening, since most of the work the assessments paid for has already been completed.

But city officials said they are looking into changing the process, following a Minnesota Supreme Court ruling that determined the assessment is actually a tax.

Most cities, like Minneapolis, assess residents for certain projects that benefit their property. In St. Paul, the city assesses almost all property owners annually based on their street or alley frontage.

St. Paul expects to get $32.5 million from assessments in 2017, $2.2 million more than it received this year. The city relies on the money to pay for services from street sweeping to snow removal to tree trimming.

The state Supreme Court ruled in August that the assessments are an additional tax — not a fee, as the city argued — and that they are subject to tax restrictions.

That ruling spurred the attorneys to look into a class-action lawsuit. It also prompted policymakers to evaluate potential changes to the assessment program, City Attorney Samuel Clark said.

"Ultimately, that decision is going to be up to the council," he said.

As for the potential class-action lawsuit, Clark said, "I can't respond to a case that hasn't been filed yet."

Council members on Wednesday scheduled a public hearing for Nov. 2 on the proposed 2017 assessments. But Council President Russ Stark said the city could change its assessment process after the hearing.

Currently, how much a property owner is assessed depends on the property type, its location in the city and what sort of right-of-way runs alongside it. For example, a homeowner with 50 feet of frontage on an arterial street is expected to pay $217.50 next year, $14 more than this year.

But downtown, owners of all types of properties, except condominiums, would pay $20.63 for every foot located along a paved street, up $1.35 from 2016.

St. Paul began assessing nearly all properties with right-of-way footage in 2002, under Mayor Randy Kelly.

Attorney Jack Hoeschler, one of the attorneys who plans to bring the class-action suit, said the assessments allowed cash-strapped city officials to gather more money from residents without appearing to increase taxes.

"They shifted a whole bunch of these costs from above the line on your tax statement ... into this special category. And it appeared below the line and allowed elected officials to say, 'We are holding the line on taxes,' " Hoeschler said.

A 2011 policy document gives another reason for the assessments: It is a way for the city to distribute the cost of street maintenance more broadly, on both taxable and tax-exempt properties.

St. Paul has an unusually high number of tax-exempt properties, including religious, government and educational institutions. About one-third of the properties in the city do not have to pay property taxes.

The individual property assessments have been relatively small, so for many years no one fought the policy, ­Hoeschler said.

In 2011, he started representing two downtown churches that challenged the city over what they felt were unfair assessment burdens.

That case made its way to the state Supreme Court, which in August sent it back to the District Court, saying that an essential question remains unanswered: Are the churches paying more for assessments than they are seeing in benefits?

State law dictates that cities can charge assessments to fund public improvements, such as replacing streetlights and patching up streets, but only if the property owners who are assessed get a special benefit from the improvement program. That benefit — measured by how much the property value increases — must be equal or greater than the assessment.

A trial to determine the answer to that question is scheduled for early December, Hoeschler said.

Jessie Van Berkel • 612-673-4649