Capping rent increases stems neither the city’s affordable housing or deteriorating tax-base crises

Saint Paul has allowed its property tax base to gradually erode over the years. The tax base is and always has been what pays for public safety, schools, libraries, parks and recreation, streets and now affordable housing in the city. It also pays off our public debt. For decades, the city has been increasing spending—mostly for needed services, but also, and unfortunately, while depressing the tax base.

About 25 percent of the city’s real estate assets are tax-exempt. This includes hospitals, churches, colleges, schools and other nonprofit organizations. It also includes the real estate of five levels of government. This is no small amount, and it leaves Minnesota’s capital city in a fairly deep hole when it comes to tax base. 

Too few of these tax-exempt organizations pay a reasonable share for the city services they use. The city should make a concerted effort to encourage all of these institutions to participate in a payment in lieu of taxes (PILOT) program. The state of Minnesota could also pay its fair share for the city services it uses.

Saint Paul has often been accused of not being business friendly. Ryan Companies, master developer of the 122-acre Highland Bridge redevelopment project, is required to make 20 percent of the new housing units there affordable to households making no more than 60 percent of the Twin Cities’ area median income (AMI). Half of those units will need to be affordable to households making 30 percent of the Twin Cities AMI.

To help Ryan achieve these numbers, the Saint Paul City Council approved a public subsidy of up to $275 million in tax increment financing (TIF) for Highland Bridge. The city has made another $209 million in TIF available for redevelopment around the new Allianz Field soccer stadium at Snelling and University avenues.

With TIF, the city finds itself paying mostly out-of-town developers to help with building projects in Saint Paul. This effectively removes a significant portion of the potential tax revenue from these projects for a quarter century or more, leaving us with little to show for the project. To make make matters worse, we are creating competition for property owners who do pay taxes into our general fund. In the process, we risk overbuilding commercial properties and in that way reducing the valuations of commercial properties throughout the city.

On November 2, Saint Paul voters approved a new ordinance that caps at 3 percent yearly increases in the rent charged for residential properties—all new, existing and even luxury rental housing. By limiting rent increases, the ordinance could discourage investment in new rental housing and in maintaining or improving existing rental housing. It could hurt all landlords, the good and the bad. And is yet another way we risk depressing our tax base.  

Saint Paul needs to effectively address the shortage in affordable housing in town. That has become a top priority. What is the best way to relieve the shortage? I would suggest it is to expand the tax base and increase the annual revenue the city has to spend. Promoting affordable housing does not have to be a zero-sum game; we don’t need to take away from those who provide market-rate rental housing to help those who cannot afford market-rate rents. We do not need to discourage this kind of investment.

If deeply affordable housing is the most important immediate need in Saint Paul, the goal should be to build the most units we can as fast as we can. This could be achieved by encouraging the building of new market-rate rental housing—by developers who are willing to build without public subsidy and who will pay market-rate property taxes.

The future revenue derived from these property taxes can be bonded up front, similar to TIF. The difference is, the city would be creating a restricted fund to capture that future revenue and use it to subsidize the private development of new affordable housing. In this way, the city can control the location, the quality and the desired amenities of affordable housing. One hundred percent, not just 20 percent, of the new housing would be affordable.

By protecting what is good in Saint Paul, and improving upon it, we can build a source of funding for whatever our needs may be, work toward a healthy tax base and make more people want to live and do business in the city.

A resident of Highland Park, John Mannillo is a former commercial developer and former residential and commercial landlord.