St. Paul faces down $15 million budget gap

St. Paul is looking for money to fix its streets after a court decision left a $15 million hole in the city's budget.

Tuesday marked the deadline for the city to appeal a May 2 ruling from Ramsey County District Judge Robert Awsumb, who ordered St. Paul to stop assessing individual property owners for routine upkeep of the streets abutting their land.

"After protracted litigation and the decision of the Court, we determined that it's in the best interest of our community that we identify a more sustainable means of providing this critical service for our residents," City Attorney Lyndsey Olson said in a statement.

Moving forward, St. Paul property owners will not be billed directly for lighting, sweeping, seal coating and mill and overlay work on their streets. But they could see some of those assessed costs — which were supposed to total $15 million this year — added to property tax bills down the road.

In the short term, the city is working to identify funding sources to patch the gap in this year's budget. St. Paul Public Works Director Sean Kershaw said the city will forgo $4 million of seal coating it had planned for 2022, and officials are committed to finding other ways to pay for other work planned for this year.

When it comes to budgeting for future years, St. Paul officials are considering "all our options," Kershaw said. He said the city plans to have a more definitive plan in place by late summer, when Mayor Melvin Carter presents his budget proposal for 2023.

St. Paul is collecting $175.4 million in 2021 property taxes. Adding $15 million to the levy — the total amount the city collects in property taxes — would mean an 8.5% increase, though Kershaw said the city could also re-evaluate its programming and explore potential state and federal funding opportunities.

It's not the first time leaders in the capital city have found themselves in this position. In 2016, a Minnesota Supreme Court ruling forced the city to overhaul the way it paid for street work. St. Paul's property tax levy increased 20% in 2018 as the city shifted about $20 million from assessment bills to tax bills.

St. Paul continued to assess property owners for a handful of services. City officials said that maintenance provided a direct benefit to adjacent properties and argued in court that a 1967 state law gave St. Paul special authority to charge owners for certain aspects of street work.

Dozens of property owners filed lawsuits challenging the assessments, saying it is unfair for St. Paul to charge individuals for the upkeep of streets bustling with traffic from all over town. They also argued that the city was relying on assessments to collect revenue from tax-exempt properties, such as churches and schools.

"St. Paul's in the same situation as a lot of capital cities, where we have a tax base that has a lot of tax-exempt properties in it," said Kershaw, who did not know exactly how much the city collected in assessments from such properties.

Ferdinand Peters, an attorney representing some of the St. Paul property owners, said he is working toward a resolution with the city. Plaintiffs who already paid assessments want their money back, and there are similar court cases that could be dismissed if an agreement is reached.

"This is a victory for the entire city," Peters said.

In the past, attorneys have threatened to pursue a class-action on behalf of all property owners — a potentially costly outcome for the city if the court were to order payments to all those who have been charged assessment fees over the years. When asked about that possibility, a St. Paul spokesperson said the city does not anticipate further litigation related to the ruling.

In 2019, a St. Paul Public Works report warned that 90% of the city's residential streets would be in poor, serious or failed condition in 20 years unless maintenance funding doubled. Kershaw said as the city re-examines the way it funds street services, he hopes to find a long-term plan to stay on top of repairs.

"I would rather not have this situation," he said of the court ruling. "But we are also optimistic that we can address it and keep this critical service going."