First Baptist Church of St. Paul v. City of St. Paul

• Court: Minnesota Supreme Court
• Writing for the Court: LILLEHAUG, Justice.
• Citation: First Baptist Church of St. Paul v. City of St. Paul, 884 N.W.2d 355 (Minn. 2016)
• Decision Date: 24 August 2016
• Docket Number: No. A15–0015.,A15–0015.
• Parties: FIRST BAPTIST CHURCH OF ST. PAUL, et. al., Appellants, v. CITY OF ST. PAUL, Respondent.

884 N.W.2d 355

FIRST BAPTIST CHURCH OF ST. PAUL, et. al., Appellants,

v.CITY OF ST. PAUL, Respondent.

No. A15–0015.

Supreme Court of Minnesota.

Aug. 24, 2016.

John G. Hoeschler, John G. Hoeschler, P.A., Eagan, MN, for appellants.

Samuel J. Clark, City Attorney, Cheri M. Sisk, K. Meghan Kisch, Assistant City Attorneys, Saint Paul, MN, for respondent.

Peter J. Nelson, Golden Valley, MN, for amicus curiae Center of the American Experiment.

Susan L. Naughton, Saint Paul, MN, for amicus curiae League of Minnesota Cities.

Rinal Ray, Saint Paul, MN, for amicus curiae Minnesota Council of Nonprofits.

OPINION

LILLEHAUG, Justice.

Each year, the City of Saint Paul (the City) assesses a charge to nearly every owner of real property within the city limits to pay for a wide range of public right-of-way maintenance services. Appellants First Baptist Church of St. Paul (First Baptist) and Church of St. Mary (St.Mary) (collectively, the Churches) are both located in Saint Paul and subject to the right-of-way assessment (ROW assessment).

The Churches appealed their 2011 ROW assessment to the district court, arguing, among other things, that the charge was a tax not imposed uniformly upon the same class of property and that the amount assessed improperly exceeded the special benefit to their properties. The district court concluded that the ROW assessment was a fee imposed under the City's police power—not a tax imposed under its taxing power—and that the assessment was therefore not subject to constitutional restrictions on taxation. Applying a “reasonableness” test, the district court upheld the assessments. The court of appeals affirmed on the same reasoning. Because we conclude that the City's power to collect the ROW assessment derives from its power to tax rather than from its police power, we reverse and remand for further proceedings.

Each year, the City assesses over 81,000 properties—almost every property in the city—and uses the revenue collected to pay for a range of public right-of-way maintenance services. Federally-owned properties, cemeteries, and “certain properties under public ownership” (such as Metropolitan Council properties) are deemed by the City to be exempt from the ROW assessment. Further, certain properties that the City has concluded derive no benefit from the maintenance services—most notably properties that do not abut public rights-of-way—are not assessed.

At the time of the assessments at issue, Saint Paul was the only municipality in Minnesota to fund street maintenance through such an assessment. The City uses this unusual mechanism, at least in part, because its location as the state capital means it is home to an atypically large number of properties that are exempt from local property taxes.

The City's ROW assessment pays for (1) sweeping, flushing, patching, and chip-sealing streets and alleys; (2) patching, blading, and placing crushed rock on unimproved rights-of-way; (3) overlaying streets (meaning placing a new layer of asphalt on an existing street); (4) snow plowing and removal; (5) sanding and salting streets to control ice; (6) tagging and towing vehicles during snow emergencies; (7) trimming and removing trees between the curb and the sidewalk; (8) repairing, replacing, painting, and operating street lighting systems; (9) installing, repairing, and replacing traffic signs; (10) painting pavement markings; (11) picking up litter; (12) ordinance enforcement; and (13) emergency maintenance services.¹

The ROW assessment is imposed annually, as authorized by the City's home rule charter and administrative code. The assessment is calculated by multiplying the property's assessable frontage on the right-of-way by a rate that varies based on the property's character and its location within the City. For instance, properties downtown and those abutting arterial streets are assessed at higher rates. Residential properties are generally assessed at lower rates than non-residential properties.

The City uses an accounting and work-order tracking system to attempt to ensure that the total revenue collected through the ROW assessment closely approximates its total right-of-way maintenance costs. Revenue collected is placed into segregated accounts used only to pay for right-of-way maintenance. The revenue covers the bulk of the City's right-of-way maintenance costs; the remainder is paid by local government aid from the state and county governments. For 2011, ROW assessment funds covered approximately 80 percent of the City's right-of-way maintenance costs.

The assessments at issue here were imposed on the Churches in October 2011. In assessing the Churches, the City applied the class 1–A Downtown “All Properties” rate² to the Churches' assessable right-of-way frontage. The City charged First Baptist $15,705.90 and St. Mary $8,659.02. The Churches timely appealed their ROW assessments to the district court.

The district court granted the City's motion for summary judgment, but the court of appeals reversed on procedural grounds, holding that the district court erred in failing to rule on the Churches' motion to amend their appeal. First Baptist Church of St. Paul v. City of St. Paul, No. A12–1582, 2013 WL 1943045, at *2 (Minn.App. May 13, 2013). On remand, the Churches moved for partial summary judgment on four claims: (1) the assessment violates constitutional principles of uniformity in taxation; (2) the assessment amount exceeds any special benefit to the property; (3) the assessment is not roughly proportional to the special benefits accruing to the property because it is imposed on the basis of linear frontage; and (4) the assessment necessarily exceeds the costs of providing services to the rights-of-way abutting the Churches' properties, because the Churches are charged a higher ROW assessment rate than residential properties abutting downtown rights-of-way receiving the same services. The City moved for summary judgment on all of the Churches' claims, including the four claims just described.

The district court denied the Churches' motion and granted the City's motion. The court rejected the Churches' argument that the ROW assessment constituted a special assessment for local improvements imposed under the taxing power and that the special-benefit test should therefore apply. Relying on Am. Bank of St. Paul v. City of Minneapolis, 802 N.W.2d 781 (Minn.App.2011), the court instead concluded that the ROW assessment is a regulatory “fee for services” imposed under the City's police power, and that the fee was valid because it satisfied a “reasonableness” standard.³ The court of appeals affirmed on the same reasoning. First Baptist Church of St. Paul v. City of St. Paul, No. A15–0015, 2015 WL 5089063, at *3 (Minn.App. Aug. 31, 2015). We granted the Churches' petition for review.

The fundamental question before us is whether the ROW assessment is imposed as an exercise of the City's taxing power or as an exercise of its police power. In other words, is the ROW assessment a tax or a fee? If it is a tax, constitutional restrictions on taxation, including the requirements of uniformity and special benefit, apply.

I.

Because this case is before us on review of a grant of summary judgment, we must review the record to determine whether any genuine issues of material fact exist, and “whether the lower courts erred in their application of the law.” J.E.B. v. Danks, 785 N.W.2d 741, 746 (Minn.2010) (quoting State by Cooper v. French, 460 N.W.2d 2, 4 (Minn.1990) ). In doing so, we “must view the evidence in the light most favorable to the party against whom [summary] judgment was granted.” Id. (quoting Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn.1993) ). Whether the courts below erred in concluding that the assessment was a police-power fee and not a taxing-power special assessment is a question of law that we review de novo. See Johnson v. City of Eagan, 584 N.W.2d 770, 771 (Minn.1998).

A.

Special assessments for local improvements are levied under a municipality's taxing power. Buettner v. City of St. Cloud, 277 N.W.2d 199, 201 (Minn.1979) (“A special assessment is a tax, intended to offset the cost of local improvements ... which is selectively imposed on the beneficiaries of” the improvements). As an exercise of the taxing power, a special assessment is subject to constitutional restrictions. Carlson–Lang Realty Co. v. City of Windom, 307 Minn. 368, 369, 240 N.W.2d 517, 519 (1976).⁴ Special assessments are valid only if they are imposed in an amount that does not exceed the “special benefit” conferred on the assessed property by the improvement. Id. The amount of the special benefit is determined by the increase in the market value of the property attributable to the improvement. Id.

However, these constitutional restrictions on the power to tax do not apply when a charge is imposed under a municipality's police power. See Drew v. Tifft, 79 Minn. 175, 183, 81 N.W. 839, 841 (1900). Such a charge is a fee, not a tax. In determining that the 2011 ROW assessment was a fee and not a tax, the district court and the court of appeals relied heavily on American Bank. In that case, the court of appeals concluded that a charge assessed to a property for the cost of abating a nuisance on that property was an exercise of a city's police power, not its taxing power. 802 N.W.2d at 788. American Bank concluded that, because the charge was a fee, constitutional restrictions on taxation did not apply and instead a standard of “reasonableness” governed. Id.

Although broad, a municipality's police power does not “extend[ ] to permit revenue raising measures.” Country Joe, Inc. v. City of Eagan, 560 N.W.2d 681, 686 (Minn.1997). Determining whether a particular charge imposed by a city government is an exercise of the taxing power or the police power requires a reviewing court to examine the charge's “primary purpose.” See Farmers Ins. Grp. v. Comm'r of Taxation, 278 Minn. 169, 174, 153 N.W.2d 236, 240 (1967). If “a city's true...