Taxes vs. Fees

Decades of poor leadership from the city officials have left us in a terrible situation. Our sprawl has meant that that vast majority of our geographic expansion over the last 50 years generates no where near the amount of property taxes as is required to provide services and maintain infrastructure.


 

The conservative figure from Public Works is that we are underfunding road maintenance by $17 million per year. In addition, staffing for basic functions have not kept pace with demands for service for more than a decade. Note only do we subsidize sprawl on an ongoing basis, we also subsidize it up front. Just in terms of sewer hook ups, we force rate payers to pay an extra $5 million a year to keep the cost of hooking up to city sewers.

In short, today in Rochester the bottom half on the income scales is paying more to subsidize the top half. In my book that is nuts.

Given our situation 1 or 2 things must happen.

  1. Get smarter – stop allowing development unless the associated fees and ongoing revenues can support the ongoing operating & capital costs.
  2. Better tie the costs of service and capital needs to those that cause disproportionate consumption so those that drive up costs pay their disproportionately high share.

State property tax law explicitly forbids us from distributing costs in proportion to services demanded. We are just plain stuck there. HOWEVER, we can structure fees to better cover the driver of costs. That is why I am open, but not committed to using more fees in the future as opposed to sticking on property taxes.

Rochester is complicated because non-profits do not pay property taxes. We have a number of huge non-profits on expensive parcels which forces everyone else to pay more. Non-profits do however have to pay fees.

Minnesota is complicated because taxes are disproportionately assigned to business properties, meaning businesses (for-profit) carry the weight of subsiding our sprawl.

I often hear that it is better to put the burden in property taxes as if can be deducted, but this is probably overstated or just not true. In general property tax deductions work for those with a mortgage that means that are probably pretty well off and still working. A fee would represent less of a hit for more people because it is spread over more parcels.

Bottom line, fees probably could benefit more people and distribute costs more fairly IF they are structured right. I opposed the street light fee in the past because it was not structured right.

Data on how tax policy favors wealthy home owners.

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