Budget watchdogs sound budget alarm for St. Paul, pointing to high taxes, business losses and slower growth

A coalition of self-appointed budget watchdogs has released a sweeping 18-page report intended to raise alarm about the state of St. Paul’s finances and budget prospects, from rising property taxes to a shrinking downtown tax base.

The report — written in part by a former city council member, a developer and former city budget director — discourages the city from investing in new park initiatives such as the proposed Mississippi River Balcony, the Mississippi Learning Center or a regional multi-sport athletic complex. until the city can “right the ship,” prioritize basic maintenance of parks, streets, and sidewalks, and wean itself away from supporting projects through tax breaks for developers known as “TIF.” , or districts that finance tax increases.

“If we don’t have enough money to maintain our park facilities, why are we putting more money in the budget to build new facilities?” said Gregory Blees, who served as city budget director in the 1980s under then-Mayor George Latimer and later as a financial analyst for the City Council. “That is a great frustration for our entire committee.”

Given the city’s rising debt burden, the “In$ight St. Paul” report warns that the city could be at risk of its coveted AAA bond rating. That would make it more difficult and expensive to borrow money to pay for major construction projects. That could result in homeowners and other property owners having to pay even higher taxes to keep up with higher interest rates. St. Paul’s effective property tax rate for median-valued homes – 1.39% of assessed market value – is already the highest of all 20 Minnesota regions, and its sales tax rate is the highest in the state at 9.875%.

From 2020 to 2023, St. Paul was the only one of Minnesota’s five largest cities to lose population. At least two major private employers in downtown have announced this year that they will leave the city.

‘Really good public education’

According to the report, the city’s tax levy grew 101% between 2015 and 2024, while Minneapolis’ levy grew 64% over the same period. Looking at a slightly different period, “City leaders failed to financially assist their constituents between 2016 and 2024, when certified property tax levies rose 97.4%,” from $105.6 million to $208.5 million.

However, some of the increase in the St. Paul tax levy will be offset by a reduction in the city’s “Right of Way.” street maintenance costsBlees acknowledged.

The report was shared Tuesday with St. Paul Mayor Melvin Carter’s office and members of the City Council by In$ight Committee co-chairs Jane Prince, a former city council member, and Gary Todd, who has been active in the fight against the the city’s plans for a new bike lane along Summit Avenue.

“I think the biggest value of it is that it’s really good public education,” Prince said Tuesday. “It is information that is rarely all available in one place. … According to our findings, we have the highest property taxes and the highest sales taxes in the state. We are the capital. Isn’t there some way the state should help with this? It looks at our finances at a time when we are facing many challenges in the city.”

Other members of the committee include Blees; Dave Beal, a former business columnist for the Pioneer Press; Julian Loscalzo, a lobbyist; John Mannillo, a developer and former mayoral candidate; Carl Michaud, a former environmental planner with the Metropolitan Council and assistant county administrator in Hennepin County; and public affairs consultant Donna Swanson, most recently director of the St. Paul Police Foundation.

Reached on Tuesday, council president Mitra Jalali said she had just received a copy of the report and would read it. Jalali noted that the council is discussing the mayor’s 2025 budget proposal with city department leaders and that many of the city’s financial challenges and opportunities would come as little surprise.

The mayor’s office noted Tuesday that the report refers to tax increases that do not take into account two court rulings street maintenance costs shifted from reimbursements to the tax dollar-supported general fund.

While the city’s Office of Financial Services offered to “discuss corrections and inconsistencies to financial and other data in the draft report before its release today, we have heard nothing,” the mayor’s office said in a statement. Later this fall, the city council will organize a hearing on the state budget.

Recommendations

Some recommendations from the report are:

• Establishment of a committee to advocate for more voluntary payments in lieu of property taxes by tax-exempt entities.

• Do not approve the design or construction of parks and recreation this year or next year for facilities or parks that do not currently exist, including the East Side Community Center, Mississippi River Balcony, River Learning Center at Crosby Park, a multi-use regional athletic complex and new or improved water features throughout the city.

• Do not approve the issuance of sales tax bonds until the city’s Bureau of Financial Services has completed a comprehensive bond and debt service report.

• Do not use long-term bonds to pay for police and fire vehicles that have a short shelf life and will not survive the life of the bond issue.

22 research papers

The report, which is based on Blees’ 22 unpublished research articles collected from data from five government agencies, does not discuss in detail rent control or a Nov. 5 ballot question that would increase the city’s property taxes municipal childcare subsidiesbut it requires a dim view of both.

The report acknowledges that many city practices — such as a heavy reliance on TIF districts for economic development — predate the Carter administration or the current City Council, which has seven members, more than half of whom were elected last November. Still, the report notes that leaders are elected to address challenges, and they say freezing spending on major projects would be a start.

The In$ight report shows that the city government’s workforce as measured by full-time equivalents — 2,924 positions in 2016 — would grow to 3,209 employees under the mayor’s proposed 2025 budget.

“Parks and Recreation is planning five new projects … without considering the additional costs of maintaining them,” reads the report, which questions whether the department has set aside enough money to maintain existing facilities.

Sales tax, projects, tax-exempt entities

A 20-year city tax of 1% approved by voters last November will be dedicated to the reconstruction of major thoroughfares such as Grand Avenue, as well as a variety of park projects, but not to the rehabilitation of residential streets.

“The city has requested more than $82 million in funding from the Minnesota Legislature for the River Balcony, Learning Center and Athletics Complex, along with $118 million for nine other capital bond requests, even though we lack funding to build the (public facilities) that we have to maintain. ,” the report reads.

Unique among Ramsey County cities, St. Paul includes many parks, schools, nonprofits, government buildings, and other uses that rely on public services, such as streets and sidewalks, but are tax exempt.

In total, 18.7% of properties in the city – valued at $8 billion, of the city’s $43.4 billion in total property value – pay no property taxes. That increases the city’s fiscal burden and could be addressed, according to the report, if the city were to require payments instead of taxes, a model used in Boston and other cities to recoup at least limited funds from non-taxable properties.

TIF, Budget Variance Program

The In$ight report examined “two complex municipal financing instruments”: tax increment financing and the state’s budget gap program. It found that St. Paul is the largest user of TIF in the state, allowing developers to use money that would otherwise flow to tax coffers to pay off their development loans for improvements to blighted properties.

Those TIF expenses have increased 40% since 2015, from $31.6 million to $44.3 million in 2024, even as TIF liabilities fell more than 50% in Minneapolis, the second-largest user of TIF in the state, which captures $21.5 million in taxable value in its TIF. districts.

The report urges St. Paul to better disclose how much of the city’s tax base is in TIF, as Minneapolis does annually. “The city of St. Paul should have the same transparency,” the report reads.

The Met Council redistributes corporate property taxes from the wealthiest cities in the seven provinces to the less affluent municipalities through the fiscal disparities program, and St. Paul is the metro area’s biggest beneficiary.