In any tax system there are inherent tradeoffs, winners and losers. Taxpayers are quick to challenge any aspects unfair to them but slow to acknowledge features of the system that give them special favors.
Any system must balance administrative workability, fairness, economic efficiency and political acceptability. Moreover, any change to such a system may turn some losers into winners and vice versa.
These are the lessons to be learned from the recent lawsuit filed against the city of St. Paul by three downtown churches, which object to the levels of city assessments.
This is a situation familiar to any professor. You have a student to whom you give break after break on missed deadlines, weak answers on tests, absences and unattributed passages in term papers. Then, when you return the final exams, you find him camped outside your office in high dudgeon because he received only 11 of 15 points on an essay question and his roommate “wrote exactly the same thing, and he got 12.”
Of course, it is unfair if students receive different grades for identical answers. And it may be unfair if a downtown church has to pay exactly the same street assessment as a 37-story office building or that a church located downtown has to pay several times as much in assessments as an identical one in a residential area.
It also is true, however, that the owner of a vacant downtown warehouse that generates zero income pays the same amount per linear foot of frontage as a well-off church or the landlord of a building housing a wealthy financial institution. A downtown gas station or grocery store similarly gets charged many times that of stores near my house in St. Anthony Park.
Street assessments are an attempt to link benefits received from city-provided infrastructure to specific pieces of property. They depend on a crucial simplifying assumption that there is a clear, linear relationship between street frontage and benefits received.
This is not always perfectly true — just as it is not true that there is a direct linear relationship between a property’s value and benefits received. Nor is there some perfect balance between household income taxes paid and benefits received from the government or between taxes paid on household purchases made and benefits received.
Yet property, income and sales taxes have been part of government finance for decades if not centuries. Try to find a fairer, yet cheap-to-administer alternative and it isn’t easy. The Wells Fargo and Piper Jaffray towers in downtown St. Paul may owe the same street assessment per foot of street or alley frontage as a church, gas station or fruit store, but they pay enormously larger amounts in property taxes.
Churches, along with nonprofit educational institutions and many other nonprofits, don’t pay any property tax at all, yet require large outlays in city services beyond the limited set covered by street assessments.
Yes, in one sense, the fairness of the structure of street assessments is as distinct from the broader question of nonprofits’ tax exemption as is the fairness of a one-point anomaly on an econ grade is from having given a slacker student too much slack for months.
The two issues are not entirely unrelated, however. We could simply fund street maintenance from general-levy property taxes. At one time that was the usual practice. But a century ago, in recognition of the fact that churches and many other nonprofits consumed government services but paid nothing toward them, a movement began to assess these institutions fees for identifiable services, including street maintenance and lighting, sidewalks, litter pickup, boulevard tree work and snow removal.
Hence the very fees that the churches are challenging in court.
But it would be entirely possible to extend this to other services such as police and fire protection. Put all nonresidential property on its own, not only for routine security but for crime investigation and enforcement. Return to the competing private fire companies that prevailed in many locales into the 20th century. (Read E.L. Doctorow’s novel Ragtime for an example.)
If this happened, churches with vintage buildings in thinly populated areas of downtown would suffer much greater hits to their budget than $16.62 per lineal foot of street frontage.
One might reply that it should be possible to add some sections to the municipal ordinances to address real inequities faced by churches. Perhaps — but that is how we got to where we are in the complexity and inequities of the federal tax code. Every tax or fee reduction for someone means an increase for someone else or a cutback in services.
More importantly, every move toward more complex tax codes creates more incentives for taxpayers, actual or potential, to re-order their affairs to further minimize taxes. This often induces economic inefficiency that results in fewer goods and services to meet society’s needs from available resources. Not every action to improve fairness reduces efficiency, but this is a case where the potential is high.
Street assessments for downtown churches may be unfair. But most people who read the 16 pages of St. Paul’s “Right of Way Maintenance Assessment Policies” will have to concede that it represents a good-faith effort to implement a coherent policy in a tremendously complex area. The court should recognize this and give the plaintiffs short shrift.