A study of St. Paul’s tax system proves useful – Twin Cities

If St. Paul expected a formal system of payments from nonprofits to help solve its city-budget problems, it was mistaken.

Even calling such an approach “Payment In Lieu of Taxes” — or PILOT — as is done elsewhere, seemingly goes too far. There’s concern that any solution construed to compel contributions would fall outside legal lines.

That’s clearer after a Minnesota Supreme Court decision last summer found that more than $30 million in charges for street maintenance —applied to include churches, nonprofits and universities — are an impermissible tax, not a fee for service.

In the wake of the ruling and its budget impact on the city, the Citizens League, a St. Paul-based public-policy organization, convened a committee to study the matter. Its report last week — recommending discussion and design of an initiative for voluntary contributions — made some important points as St. Paul considers its options:

 

A smaller “universe” to draw from.

It’s been generally accepted that the nonprofits that define St. Paul — our college campuses, museums, landmark government buildings, hospitals and more — account for about a third of properties. Not so. The portion of St. Paul’s tax base that is tax exempt is 23.4 percent, the committee reports, and a majority of those properties — 57.4 percent — are government buildings and public schools.

 

We’re not as distinct as we thought.

Minneapolis and the state’s other large cities, including Duluth and Rochester, are in a comparable position to St. Paul, the report says.

Another point — about the impact of tax-exempt properties in St. Paul on properties that are taxed — suggests the ultimate importance of expanding the city’s tax base.

 

St. Paul requires more property tax “effort.”

The commercial-industrial tax base in St. Paul, for example, is smaller than it is in Minneapolis, as is the median value of homes in St. Paul, explains committee co-chair Joe Reid, a former St. Paul budget director.

Nationwide, about 90 percent of PILOT payments come from private higher education and health care organizations, Citizens League Executive Director Sean Kershaw told us.

In attachments to the report, our so-called “Big Ed” and “Big Med” institutions state their opposition to a formal PILOT system. Our private colleges and universities, however, say they are open to making voluntary financial contributions to the city, and the hospitals to considering conversations to further explore the question. Their documents provide some insights into these signature institutions in our community:

  • A memo from the presidents of Macalester College, Concordia, Hamline and St. Catherine universities and the University of St. Thomas notes that, collectively, they are one of St. Paul’s 10 largest employers. They cite “significant contributions to the community,” including ongoing city and county assessments, taxes and fees, as well as financial contributions and in-kind services to community and neighborhood groups.
  • A letter from the Minnesota Hospital Association, which represents all six of our hospitals — Bethesda, Children’s Minnesota, Gillette Children’s Specialty Healthcare, Regions, St. Joseph’s and United — says that PILOT programs “circumvent state and federal laws extending tax-exempt status to charitable, nonprofit hospitals and health systems.”

The letter stresses the hospitals’ benefit to the community, including charity care to uninsured or financially vulnerable patients, and makes note that St. Paul’s hospitals and health systems do pay property taxes on such non-hospital facilities as medical office buildings, clinics and cafeteria space and “other ancillary facilities.” Last year, according to the letter, HealthPartners, for example, paid more than $2.5 million in St. Paul property taxes, an amount that will increase in 2017 with completion of the Neuroscience Center it opened in April on Phalen Boulevard.

Mayor Chris Coleman said he intends to begin the conversation right away about how a voluntary payment approach “may serve as a vehicle of mutual benefit.”

The committee’s work — and its insights about properties that are tax exempt and their implications for those that are not — should be helpful as the conversation unfolds.

When it began its work earlier this year, we called the committee — including business and residential taxpayers, as well as nonprofits — a good crew to kick the tires on St. Paul’s tax system. We thank them for their service.

 

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