St. Paul property owners continue legal fight against city's street maintenance fees

St. Paul property owners have filed new appeals in a legal battle that has already forced the city to raise taxes to pay for street maintenance.

The owners of seven St. Paul buildings are challenging assessments charged for seal coating and mill and overlay work in 2019 and 2020. They say such services benefit the entire city, so property owners shouldn't have to foot the bill for the upkeep, which is at least partly funded by fees based on how much of their land abuts the street.

The challenges — laid out in separate appeals filed by two attorneys — echo arguments of a previous case against St. Paul that went to the Minnesota Supreme Court in 2016.

In a ruling then, a judge wrote that the city's assessments were taxes, not fees, as the city argued. That sent St. Paul scrambling to find a way to fund more than $30 million in street maintenance services and ultimately resulted in a 20% property tax increase in 2018.

State law says cities can charge assessments to fund public improvements if the assessed property owners get a special benefit. That benefit — measured by how much the property value increases — must be equal or greater than the charged fee.

The concept is at the crux of the new lawsuit filed June 11 by attorney Ferdinand Peters on behalf of Factory Lane LLC, Northern Pacific Railway Co., Soo Line Railroad Co. and others. Peters writes that seal coating services — which St. Paul performs on residential streets every eight years — "are expected in any well-run city."

"No prospective purchaser would pay more for Plaintiffs' properties merely because the city maintains the streets," Peters wrote. The Ramsey County Assessor's Office does not recognize an increase in value associated with the work, he added.

On June 18, attorney Kelly Hadac filed a similar lawsuit taking issue with St. Paul's mill and overlay projects, which repave the city's commercial and arterial streets every 10 years.

"Ask yourself the question: Does everybody benefit from having safe streets and repaired streets, or is it only the property owner that abuts the streets?" said Hadac, who is representing Stadium Ramp LLC, Park Square Court Building LLC and Degree of Honor Building LLC.

In the wake of the Supreme Court ruling, the city started paying for half of the costs of all mill and overlay work and seal coating projects for certain residential properties with multiple street or alley frontages. St. Paul still uses fees to cover street lighting and street sweeping, but the city switched to using its general fund to cover other services like snowplowing, pothole patching and traffic signage.

St. Paul's 2021 budget includes $7 million for mill and overlay work, $4 million for seal coating and $11 million for street lighting and sweeping.

"We will respond to this case as we have done with other legal challenges to our current program to ensure that our residents and property owners can continue to benefit from these vital city services," City Attorney Lyndsey Olson said in a statement Monday.

The city attorney has also pointed to a 1967 Minnesota law that allows St. Paul "to provide for the collection of special charges" to cover the costs of street surfacing, street oiling, street flushing and street cleaning.

Attorney Jack Hoeschler, who originally helped the First Baptist Church of St. Paul and others appeal their 2011 street maintenance bills, is still representing dozens of property owners with new lawsuits filed since the Supreme Court ruling. He is working with Peters, who wrote that he does not believe any other cities in the state use assessments to pay for such work.

One of Hoeschler's initial arguments against the practice was that it gives the city the ability to charge tax-exempt properties like churches, hospitals and schools.

"The law is still the same," Hoeschler said. "This is not a regulatory fee. It's a tax. We're having the same argument as before."

Katie Galioto • 612-673-4478