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axes give way to 'user fees' NATE THOMSON, PIONEER PRESS St. Paul city employees Barry Nyquist, in bucket truck, and Jerry Halverson trimmed a storm- damaged tree Monday on Geranium Avenue. Tree trimming and snowplowing are among services Mayor Randy Kelly believes should be paid for through special fees. Loath to raise property taxes, local units of government are turning to service charges. But is that good policy? St. Paul budget shifts from property taxes Property taxes are only a fraction of what it costs to run St. Paul, and this table shows the city is moving further away from traditional tax financing. Year Total budget Taxes Percent 1996 $398,739,292 $64,358,298 13.7% 2000 $414,975,605 $62,393,263 13.1% Source: City of St. Paul PIONEER PRESS BY TIM NELSON Pioneer Press Need the fire department to get you out of your wrecked car? In St. Paul, that'li be $300. Get your street plowed? The city will send you a bill in 2004. Been thrown in the pokey? That'll be $20 a day, or $35 if you're in Sherburne County. Welcome to government a la carte, the shape St. Paul and many other local govern- ments around Minnesota are taking as they edge away from property taxes and the politi- cal rancor of levying them. Instead, they're moving toward a fee-for-service system. Advocates see service fees as a way to make tm-exempt properties pay a portion of the cost of government and as an incentive in helping to control some spending. Opponents, however, say the ~hange can make it harder to measure the true cost of government and prevents taxpayers from deducting the new fees on their income tax returns. The money still comes out of residents' pockets -- the bill might even be mailed in the same the envelope as property taxes. SERVICE CHARGES, 7A TUESDAY, AUGUST 20, 2002 ST. PAUL PIONEER PRESS · Service charges (continued) But it's not a "tax." "It's a stalewide trend, and even the smallest cities in greater Minnesota are strug- gling with it," says Remi Stone, a lobbyist with the League of Minnesota Cities. "Their gener- al funds are strapped, and they're facing levy limits on property taxes at the Capitol. So they look at fees .... It just makes sense." i-~,_.- ~: -- _----:; es well s for security alarms and liquor licenses. But few cities will be looking as hard at fees as St. Paul. To deliver on his campaign prom- ise to keep property taxes fiat, Mayor Randy Kelly has pro- posed paying for core services like snowplowing and tree trim- ming by assessing a "service charge" in addition to proper- ty taxes. (Minneapolis pays for snow- plowing out of its general fund, with property taxes. Tree trim- ming is the jurisdiction of the city's park board, which has its own separate levy.) "It's a huge step he's made here," Stone said after the mayor released .his budget pro- posal last week. "He said, 'This is it. The citizens themselves are going to have to determine what they want and how they're going to pay for it.'" Not everyone, though, is sure it's a step in the right direction. "I think Minnesotans are very willing to pay their fair share. This isn't Mississippi," says David Strom, legislative director for the Taxpayers League of Minnesota. "But there is an increasing trend for gov- ernment to be a little bit trickier, make things a little more opaque. And the only way democracy works is for people to know what's going on: what's coming in, what's going out." And the ins and outs of municipal finance are set to become a key issue in Minneso- ta: The state is facing a $2 billion shortfall and likely will make some serious cutbacks next year. But as'it is, the state spends $3.3 billion a year the third-largest line item in the state budget to subsidize the traditional property tax system. Here are the pros and cons of changing that system, as St. Paul and other cities are consid- ering: · A fee-for-~ervice system can reach beyond tax levies. Tax-exempt properties like churches or colleges, for instance, could be billed for snowplowing or tree trimming that they don't pay for now. · Fees can help control pub- lic spending: St. Paul, for instance, sends out $105,000 ambulances and paramedic crews scores of times a year to calls about minor ailments. Charging $300 a visit might encourage people to get them- selves to a clinic and not rely on the Fire Department as their health care provider. a Unlike property taxes, fees and charges typically aren't eli- gible for income tax deductions. That may actually raise taxpay- ers' "out-of-pocket" expense, since the local, state and federal governments all get a bite of the same money. · Fees can obscure the ulti- mate cost of services: a $300 vehicle extrication charge from the fire department, for instance, could be paid as part of a traffic accident settlement, but auto insurers will eventual- ly pass that charge and their costs along to policy holders. · Public fees must, by law, be "reasonable," and be reported to the state auditor. But they aren't subject to the same dis- closure as property taxes, such as "truth in taxation" hearings or public notices of abatements. They are the fine print of public f'mance. But this is about mor6 than just the fine details of municipal revenue policy. St. Paul already charges more than $8 million a year to property owners for street sweeping and summer street maintenance, apart from property taxes. (The services are included in the reg- ular general fund levy in Min- neapolis.) The mayor's 2003 budget suggests adding anoth- er $6 million to the separate assessment for winter mainte- nance in 2004. Together, the street charges equal 22 percent of the city's $66 million property tax levy. It's serious money at stake. And it isn't just dollars and cents, either it touches on some of the most nettlesome political issues in St. Paul. Strom, the Taxpayers League lobbyist, points out that fees-for-service are much differ- ent than traditional taxation. Fee transactions, he says, imply that the service is elective: If you don't want to pay, you can find someone to do it cheaper, you can do it yourself or you can do with less if not with- out. But that won't work with snowplowing: That all has to be done at once for it to work. Peo- ple have to be rescued from their cars without asking first what it will cost or who might do it more cheaply. "You can't, have your cake and eat it, too. Without competi- tion, it's just another form of tax," Strom says, raising the privatization issue that came to be one of the central debates of last year's mayoral race. Kelly has avoided that last "p-word" as conspicuously as he has promised to hold down "property taxes." But with the state takeover of school funding from local levies, state cutbacks to the tax- increment financing that cities offer builders and St. Paul's own 10-year levy record, it's clear if St. Paul is any example that business isn't going to be as usual for local governments. "There is a very different dynamic that is beginning to take place," Kelly said after his budget address. "We're in a very different environment than we were before. We have to adjust to that, and state poli- cy has to begin reflecting the kind of tools cities need to pro- duce the revenue they need." Discussion of that adjust- ment in St. Paul will kick off Wednesday, when the City Council opens its first full budg- et debate with the Kelly admin- istration starting at 10 a.m. Tim Nelson can be reached at tnelson@pioneerpress, com or (651) 292-1159. The St. Paul City Council begins its monthslong review of the 2003 budget at 10 a.m. Wednesday in Council Chambers at City Hall.