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As St. Paul stares down a 2018 budget crunch, some city leaders are eyeing property owners who don’t have to pay taxes and wondering: would they contribute?

The city cannot force its many tax-exempt organizations, like hospitals, churches and colleges, to pay up. But some people are curious if voluntary payment programs, which have worked for cities like Boston and Providence, could be replicated here.

Community members are looking into the idea after a legal issue forced St. Paul to slash its revenue-generating assessment program, which charged taxable property owners and tax-exempt institutions alike. The possibility of a new payment program, even a voluntary one, has many of those same institutions on edge.

“We are very worried that would create sort of a pay-to-play system that organizations might get more favorable treatment or access to city officials if they were on the good guy list,” said Mary Krinkie, with the Minnesota Hospital Association.

Hospitals might have to cut community health programs if they have to chip in more for city services, she said at a recent meeting where the nonprofit Citizens League gathered input from potentially impacted organizations. A Citizens League committee is studying whether a voluntary payment system would work in St. Paul and plans to make recommendations to the city in the next couple months.

Krinkie was not the only person to warn of potential side effects. Church staff cautioned they might do away with services for the needy and a college administrator said the payments could diminish “good will” and partnerships with the city.

But City Council Member Jane Prince said St. Paul is dealing with various serious issues during a “terrible budget year,” including a lack of recreation centers for children and not enough police and fire resources.

“Those problems … are problems all of us share, whether we’re a nonprofit, whether we’re Macalester, whether we’re St. Thomas, whether we’re Health Partners,” Prince said. “If we want to be a successful city going forward, we all need to figure this out.”

Why the tight budget?

The city is in a budgetary bind after losing out on a longtime income generator: right-of-way assessments.

The Minnesota Supreme Court determined last summer that the assessments, which paid for street maintenance, were actually taxes. The city had been making all property owners, including tax-exempt ones, pay the charges and was getting more than $30 million annually from assessments.

Mayor Chris Coleman’s staff came up with a plan to deal with that gap, which Coleman is talking about at community meetings this month. It includes a scaled-back assessment program — which still gathers some money from tax-exempt organizations — that City Attorney Sammy Clark said is legally defensible. The city is collecting about $12 million this year through those assessments.

St. Paul elected officials have said the old right-of-way program helped make up for their lack of property tax revenue, since the city has so much land that’s off the tax rolls because of its concentration of colleges, nonprofits and government buildings.

One of the Citizens League committee’s most surprising discoveries is that a frequently mentioned statistic — that a third of the city’s property is tax-exempt — is no longer true. That is old data and does not reflect the increased value of taxable property, said Citizens League committee co-chairman Joe Reid, a former St. Paul budget director.

In 2017, less than a quarter of St. Paul property is exempt and Minneapolis is very similar, he said.

About 60 percent of the tax-exempt property in St. Paul is government land, Reid said, and government agencies might not be asked to participate if there is a voluntary payment program. The city could try to use such a program, referred to as “payment in lieu of taxes,” to help make up for lost assessment dollars, he said.

But the amount of money the city used to get from assessments on tax-exempt organizations that it can no longer gather is relatively small, Citizens League Executive Director Sean Kershaw said. Their committee’s goal is not to make up that gap, he said, “We are looking at a broader question.”

Questions remain

If the city goes forward with a payment in lieu of taxes program, it is unclear how much they would seek from organizations.

In Boston, where half the city’s tax base is exempt, a payment in lieu of taxes program generated $32 million in cash and $50 million of community benefits, like volunteer work and grants, in 2016, according to city data. The city phased in how much they ask for, and now requests that institutions voluntarily pay a quarter of what they would if their property was taxed.

The program requires a strong partnership between a community and its nonprofits, according Boston staff.

Some St. Paul community members worry a payment program could corrode the city’s relationships with higher education, health care and religious institutions.

It would make the city seem like a “shaming parent” rather than a partner and could raise concerns about quid pro quo, said Jeannie Fox, Hamline University’s director of nonprofit management programs.

“It’s not that we don’t want to do our fair share,” said pastor Amanda Simons, with Gustavus Adolphus Lutheran Church on St. Paul’s East Side. But, “For us it would mean that we would drastically reduce our giving back to our community.”

The city’s nonprofits and other tax-exempt organizations provide great benefits to residents, Coleman’s spokesman Ben Petok said. He also noted voluntary payment programs have been successful elsewhere.

“We look forward to the Citizens League report later this summer and expect there will be ideas in there for the administration and the council to consider during the budget process,” Petok said.

St. Paul resident Claudia Dieter listened to representatives of tax-exempt organizations make their case at the recent Citizens League meeting. She said she appreciates having those organizations in the city, but noted they also benefit when the city can afford to maintain streets and infrastructure.

“If an ambulance can’t get to a hospital because the street is full of ruts and holes,” Dieter said, “that impacts that hospital — and the community.”

Jessie Van Berkel • 612-673-4649