Saint Paul’s fiscal challenges call for new ideas

The St. Paul skyline in winter, 2023. Photo by Stephen Maturen/Getty Images.

Saint Paul is a community that cares about our neighbors, especially the most vulnerable and under-resourced among us, and we are rightfully proud of the excellent public services provided by our local government. At the same time, we know that across the city, residents are feeling the pinch of property tax increases and have expressed more vocal opposition to proposed levies than in recent memory. Earlier this month in the Reformer, Jane Prince and Gary Todd rightfully sounded the alarm on our city’s long-term fiscal health. 

The reasons for property tax increases are many and complex, but they include significant challenges such as the following: 

1. Disproportionate amount of nontaxable land. As In$ight St Paul points out in their report, 18.7% of the total value of Saint Paul’s properties are tax-exempt, including government buildings, schools and nonprofit organizations, which limits the revenue potential from our land and puts more responsibility onto homeowners and renters. Even predating the pandemic, we were already at a major disadvantage relative to our peer cities in this way. 
2. Local and national impediments to development. The slow pace of development in Saint Paul is partially a result of national factors that cities have no power to influence, chiefly high construction costs and interest rates. Still, development in Saint Paul has noticeably lagged Minneapolis and nearby suburbs due to local factors such as overly complex administrative processes and the current structure of our rent stabilization ordinance. This has inhibited our ability to expand our tax base. 
3. Collapse in downtown office property values. This is the most recent and damaging trend. The shift to remote work and the economic ripple effects of the pandemic have severely depressed the value of downtown office spaces, reducing critical tax revenue and shifting tax burden to residential neighborhoods. 

These challenges have left Saint Paul in a difficult position. While they are not all unique to our city, they demand innovative solutions and urgent action from state and local policymakers. Often when budgets in cities like Saint Paul face fiscal pressures, the choices are traditionally boiled down to a binary: increase property tax rates or reduce public spending. 

As co-chairs of Sustain Saint Paul, our organization rejects this framing. 

If we’ve learned anything from the past several years, it’s that our residents’ need for robust social services — from housing assistance to public safety — is only increasing. At the same time, rising property taxes threaten to make Saint Paul less affordable for everyone, including seniors who want to age in place and young families who may be eyeing nearby suburbs.

It’s clear that neither of these conventional choices will lead to an equitable future. That’s why we propose a third way: a proactive strategy to sustainably diversify the city’s tax base while promoting economic growth, protecting key public services, and ensuring affordability. 

Our approach includes three components: 

1. Promoting better land use. The city must incentivize the redevelopment of vacant and underutilized properties, such as the old CVS at Snelling and University. This can be achieved through policies like increased vacant property penalties; tax increment financing to pay for infrastructure and economic development; zoning reform; and streamlined permitting processes. One policy tool we’d like to see cities like ours have in their toolbox is the ability to implement a so-called land value tax — a tax on land only — on designated blocks. Local governments can’t currently employ LVT on tracts of land until the Legislature updates a state statute. Fortunately, it had bipartisan support in the last biennium. By encouraging new housing and commercial developments, we can generate additional tax revenue and distribute the tax burden more fairly. 
2. Facilitating downtown conversions. With the decline of office property values and no bounce back in sight, Saint Paul should prioritize converting these spaces into mixed-use developments that include residential units, retail and community spaces. Cities across the country, from San Francisco to Pittsburgh, are embracing similar strategies to revitalize their downtowns and make up for lost revenue. These conversions can breathe new life into the city’s core while increasing the taxable value of properties. The Saint Paul Downtown Alliance has been a leader on this topic, and the budget recently approved by the City Council included $2.5 million for downtown revitalization efforts. The state could continue to bolster this with additional tax incentives. 
3. Streamlining administrative processes. We have heard feedback that current city requirements make it especially cumbersome for mom-and-pop developers to build new small-scale housing in our city. Despite councilmembers legalizing “missing middle” housing at the zoning level last year, these projects still face unnecessary regulatory barriers. We need to enable more incremental development led by those who live in our neighborhoods, but right now, it’s mostly only possible for large, well-resourced developers with the ability to pay specialist legal, architectural and engineering firms and withstand months of plan review and permitting processes.

All of the above strategies are targeted at expanding Saint Paul’s tax base over time, which would reduce pressure on homeowners and renters while also positioning the city for long-term resilience and prosperity. 

Our city’s fiscal health is a shared responsibility, and the solutions must reflect the values of our community: equity, sustainability and opportunity for all. 

It’s time for Saint Paul to explore new ideas that move us beyond the status quo. By expanding our tax base, we can ensure that our city remains a vibrant and affordable place to live for generations to come.