The source of St. Paul’s budget crisis

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The City of St. Paul is facing a grim $17 million budget deficit, which will likely cause significant property tax increases in 2008. Mayor Chris Coleman didn’t get the city into this position, but he faces the unenviable task of leading the city out.

Before grabbing pitchforks and torches to storm City Hall, St. Paulites should consider the following: Adjusting for inflation, the total of 2008 property taxes and state aid to the city is likely to be more than one-quarter less than the 1994 level.

So, what happened from 1994 to 2007? The short answer: a “no new taxes” ideology that ran amok.

In constant 2007 dollars, property taxes and state aid received by the City of St. Paul in 1994 totaled $195 million. Even if Mayor Coleman recommends completely closing the budget gap by increasing taxes (which is unlikely), the total revenue from property taxes and state aid in 2008 will be approximately $142 million. That’s $53 million in less than in 1994.

What explains this hemorrhage of revenue? Two things:

* In constant 2007 dollars, St. Paul’s state aid declined $33 million, or 32 percent, from 1994 to 2007, and will decline by another $3 million in 2008. State aid to St. Paul kept pace with inflation until 2002; since then, it has fallen precipitously as the state cut aid to local governments to meet its own budget deficits.

* Previous St. Paul mayors adhered to a strict property tax freeze, not even allowing collections to keep pace with inflation. In constant 2007 dollars, city property taxes in St. Paul declined by $30 million from 1994 to 2007. The tax increase the current mayor is likely to recommend for 2008 will restore no more than half the reductions in real buying power since 1994. Even so, city property taxes under Mayor Chris Coleman’s anticipated 2008 budget will be less than the eight-year average under Mayor Norm Coleman (1995-2002) after adjusting for inflation.

Adjusting for inflation, St. Paul revenues from all sources declined by $65 million, or 16 percent, from 1994 to 2005, the most recent year tracked by the state auditor. This erosion of city revenue was imposed both from outside City Hall — through state aid cuts by Gov. Tim Pawlenty — and from inside City Hall — through property tax freezes set by Mayors Norm Coleman and Randy Kelly.

The city budget cuts that resulted have gone beyond what was necessary to “get the fat out.” Beginning in 1994, the city employed a series of short-term budget fixes to address long-term fiscal problems — in effect shifting the real cost to future leaders and future taxpayers. For example, in inflation-adjusted dollars the city’s spending on streets and highways declined by more than a third from 1994 to 2005. Government can get by “on the cheap” in transportation spending for a while, but the ultimate costs are a large backlog of infrastructure needs, increased commuting times and a more dangerous road system.

While no one likes property tax increases, Mayor Chris Coleman deserves credit for having the courage to address squarely the difficult fiscal problems that were not of his making. All the anti-tax rhetoric in the world won’t paper over inflation and the reality that state aid reductions shift the cost of public services to local property taxpayers.

The bottom line: Angry St. Paul homeowners should not be storming City Hall. They should take their pitchforks and torches a few blocks north — to the State Capitol.

Jeff Van Wychen is an independent tax analyst, specializing in property taxes and state aids