Downtown businesses hit hard by tax increases
Steve Pease
Contributor
A gloomy state budget forecast has cast a long shadow on St. Paul’s residents and city hall. However, small business owners may be the ones taking on the brunt of the property tax burden.
"It was a shock," said Keys Cafe owner Carol Hunn-Gregory, referring to her property tax statement. "I’m a small business owner, so that’s a huge increase."
Hunn-Gregory purchased Keys, a popular Robert Street cafe, in July 2008 when the property was assessed at $5,800. Today, she said she is scheduled to pay $12,800. When factoring in the tax increase to a gift shop connected to the restaurant, Hunn-Gregory said she will pay an estimated 145 percent more in property taxes this year, which she said is unfair.
Property taxes set
Increases in property taxes are being proposed across the board. However, due to assessment formulas and a market in flux, some citizens may actually see the assessed market value of their home go down, and their property taxes go up.
The St. Paul City Council recently approved a property tax hike of $6.6 million, or an 8 percent levy increase, totaling $89.2 million in 2009. After receiving a bit of backlash from local business owners over a proposed 5 percent increase in permit fees, council members lowered that figure December 17 to a 3.5 percent increase for 2009.
The biggest increase in property taxes will be a result of higher Ramsey County Railroad Authority and Port Authority taxes. Ramsey County’s share of the property tax levy is $253 million, a 4.5 percent increase. The St. Paul Public School District’s property tax levy is also approved at a maximum of $107 million, a 3.9 percent increase over 2007. Now that the 2009 tax levies have been set, they cannot get any higher.
"How can they expect businesses to stay in downtown St. Paul with taxes like this?" asked Hunn-Gregory. "You have everything going against you (downtown), where in the suburbs you have parking, shopping and just about everything else you’d need."
Different standards apply to commercial properties, and therefore there is no limit as to how much property taxes can be raised in any one year. While Hunn-Gregory has the option of fighting the increase, she said she doesn’t think hiring a lawyer will do any good. Instead she has applied for a beer and wine license and might soon be serving adult beverages at the family restaurant.
"We started staying open nights last year," she said. "But even though business is picking up, it’s still not enough."
The city budget
St. Paul Mayor Chris Coleman’s proposed 2009-10 city and library budget is $542 million, a $42 million or 8.2 percent increase over 2008. The "modest" increase, as Coleman put it in his August budget address, would add 14 more police officers, expanded fire services and could extend library hours at six neighborhood locations.
But those additions are currently on hold, due to a looming $13.5 million budget deficit in St. Paul, and a $425 million shortfall for this year’s state budget, not to mention an estimated $4.85 billion state deficit in the next two years.
Coleman said two-thirds of the funding for the city’s parks and libraries comes from state aid and property taxes.
Public safety services are, by far, the biggest pieces of the city’s budget. Some $97 million is being spent on police, and $55 million for the fire department, comprising more than 65 percent of the city’s general fund. As of press time, it was unclear which city services would be reduced, or even eliminated, as a result of the state budget bomb.
Possible results
A likely result of the state deficit is more cuts to Local Government Aid (LGA), a formula-based state payout to Minnesota cities based on need. In recent years, LGA payments to St. Paul have fluctuated, but now hover around $130 million annually. That figure will very likely change. Gov. Tim Pawlenty is soon expected to rescind millions in LGA already promised to St. Paul. Worse yet, the reduction in LGA, which was expected to be paid out to cities on December 26, could drastically affect the city’s 2008 and 2009 bottom lines. If that happens, the city would be forced to tap reserves or even make cuts in city staffing.
"I think that as the economy worsens, as we start to understand how LGA may be impacted by the state budget deficit, we may have to resort to a hard hiring freeze, and have to go beyond that and start (letting employees go)," said St. Paul Financial Services Director Margaret Kelly.
She would only say the city is working on a "short time line" as to when such cuts would occur.
"If the state passes that deficit on to the city, we would have to act more quickly," she said.
If that happens, the city has only three options: cut city services, increase taxes, or a little bit of both.
Tough times
More taxes is not welcome news to business owners who are already faced with skyrocketing property taxes. While the proposed tax increases at Keys Cafe may be what Kelly deemed an "anomaly," others in the business community aren’t so sure.
"Generally we’ve heard from a variety of members who are extremely concerned with property taxes and costs of doing business in such a tough economy," said St. Paul Area Chamber of Commerce spokeswoman Liz Bogut. "It’s a really tough time to do business right now, and certainly this is the worst time to raise taxes on businesses."
Marvin Dieck, of the Ramsey County assessor’s office, appraised much of the commercial property in downtown. He said that due to delays in appraisals and increases in the value of commercial condos downtown, properties like Hunn-Gregory’s saw increases.
"I, myself, don’t like to make (property value) increases, but when you have a market that changes, especially over a short period of time, we have to follow the market as we are obligated to do," he said.
According to the 2008 St. Paul Business Owners and Managers Association (BOMA) report, there was a one percent overall decrease this year in competitive, government or owner-occupied space in downtown St. Paul. However, there was an increase of more than 60,000-square-feet in so-called "competitive" office space, alone.
Ramsey County property tax guru Chris Samuel said there’s a misconception that property values go hand-in-hand with property taxes. He said there are a number of factors that could account for homeowners’ property taxes going up when their assessed property value went down, including how it is classified and a formula known as limited market value. Some 6,000 Ramsey County residents saw an inordinate increase in property taxes in relation to the assessed value of their property because of the formula, which Samuel said will "go away" in 2009-10.
Silver lining
Depending on how you look at it, there may be a silver lining in all of the doom and gloom.
While some local businesses may be getting slammed with increased property taxes, many city residential property values could stay the same or actually go down due to the abysmal housing market.
Now that the County maximum levy has become final, property taxes for an $183,000, or median-valued home, in St. Paul are about $3 less than 2008, according to county numbers. Further savings at the city level could come because gasoline costs will soon be locked in at $2.77 for next year, a change from the $2.88 a gallon the city paid in 2008, Kelly said.
