Lighting fee is a regressive form of taxation

By Michael Wojcik

The proposed street light fee in its current form is regressive in nature, hitting both the working poor and efficient neighborhoods hard. We should also be concerned that this fee may be abused. Our need to raise revenue should be done with equity in mind.

But before I get into the details of this fee, I would like to concede some points and do some “City Finance 101.”

The city of Rochester has financial issues that are largely the result of items beyond our control. While we are blessed to have 110,000 jobs for 45,000 households, the city provides infrastructure and services for many that are not helping us pay for the costs. The city of Rochester only has two tools to raise funds; property taxes and fees. We do get a tiny slice of sales tax, but that has limited uses due to state regulation. Taxes should be a three-legged stool (property, sales, and income), but local governments are only allowed to levy property taxes.

Local Government Aid (also known as the “Minnesota Miracle”) was a tool whereby local governments traded their ability to raise funds through various forms of taxation in exchange for the fair sharing of funds at the state level. Among other things, LGA addressed the situation where a person making $650,000 annually at a downtown job but living outside of the city pays almost nothing for city services. Given the ratio of jobs to households in Rochester, this situation is common.

Since 2003, Tim Pawlenty and other state leaders have skirted their own budgetary responsibility by borrowing or taking from local governments. Based on growth from 2003 promised LGA numbers, Rochester is losing out on roughly the equivalent of 150 police officers worth of aid in just 2010. While failing to live up to their side of the Minnesota Miracle, Pawlenty and those who back him have actually further reduced cities’ ability to raise funds in a fair manner.

While I have been outspoken about our local spending priorities, the real per capita city operating budget in 2010 is less than it was in 2000. City government is getting smaller, more efficient, and has been for years.

Though it is not well known, we previously reduced the 2010 levy by the same $1.3 million that the lighting fee would raise. The discussion about where the money is going stems from poor communication. Every dollar that comes in for lighting will pay for lighting.

I have a number of concerns about this fee, however.

We know that sprawl increases lighting costs, but we do nothing to ensure that properties on large frontages to pay a fair amount. Let’s consider if the city were to build a new mile of residential road with lights every 160 feet. We could allow homes with an average of 50 ft. of frontage per lot like many older neighborhoods, or we could allow frontages of 250 ft. like some other subdivisions. Let’s also assume it costs $50 annually to operate each light.

Given the regressive charge, the dense neighborhood will be paying nearly three times the cost of lighting their street. Or, put another way, those properties will be paying for their lighting and then a significant additional amount for the rest of the community.

Conversely, the other neighborhood will be covering only about half of their costs. We are overcharging the efficient development to subsidize the sprawl. This is poor fiscal management. We also ignore that some neighborhoods should probably pay a reduced amount because they have private or less lighting. We will never get a perfect solution, but a tiered solution would be better.

There is a claim that the average property owner will be paying less with this fee because entities that are not currently paying taxes will now be paying. This claim is unsubstantiated, and my suspicion is that this may not be true given the heavy weighting of this fee towards dense residential property, particularly if the citizen is able to itemize their property taxes.

My primary concern with enacting a new fee, however, is our history of being irresponsible with fees. Our RPU customer charges are regressive and disproportionately affect those that do the best job of conserving energy. Our water fees are still regressive but have been improved. Storm water fees are arbitrary and do not reward responsible decisions.

The most abusive fee is the wastewater fee. This fee pays for the operating and maintenance of our wastewater treatment system (good), and $68 million in development subsidies over 18 years (shameful). We increased this fee to keep our developer charges artificially low.

When I presented the data in a city council meeting not a single city employee, developer, or council member disputed my calculation. But we approved this anyway and did so without getting anything for the taxpayer in return.

Given the inequities in the proposed fee and our history with fees, I remain concerned about adding a new fee. I would encourage citizens to demand that their council member only support fees that are fair and equitable.

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