Rochester might hike property taxes without legislative relief

State lawmakers have hinted they could revive tax legislation in a special session, a move that would renew Rochester’s chances for looser restrictions on city spending tied to the sprawling Destination Medical Center project.

During the regular session, the House and Senate endorsed measures to allow Rochester to tap into a pair of local sales taxes – a general tax and a hospitality tax – to cover certain administrative and planning costs. The plan would also lump those expenses into the city’s investment totals.

But the legislation was part of a larger tax bill that stalled out, fanning concerns that Rochester could have to find additional funding streams down the line – possibly though a property tax hike affecting its 110,742 residents. The costs in question could climb to $21 million over a five-year period, Rochester City Council President Randy Staver said.

Proposed legislative relief for Rochester, a rare point of mutual interest in House and Senate tax bills, had strong support at the Capitol. But the provisions were swept up in a political firestorm that yanked all tax relief off the table as the regular session wound down.

Rep. Kim Norton, DFL-Rochester, one of the Rochester legislation’s main architects, said she tried unsuccessfully to jam the provisions into a last-minute jobs bill that passed late Monday. But they stayed part of the sidelined tax bill, and House tax committee chair Greg Davids, R-Preston, said they’ll remain there if tax issues arise in a special session.

Despite calls toward the end of the regular session to potentially split the legislation into its own bill, Davids said solid bipartisan backing in both chambers make the proposal a can’t-miss selling point for the broader tax plan.

“You don’t give away the candy and get stuck with all the broccoli and brussels sprouts,” he said. “It is my job to defend the integrity of the tax committee and I was not going to allow death by 1,000 cuts.”

In the meantime, that leaves Rochester’s long-term Destination Medical Center financing plan in limbo.

“When we start linking noncontroversial things into bigger political gamesmanship, it just becomes very frustrating,” Norton said, adding that she will continue to push for the provisions’ passage if there’s room to do so in a special session.

As it stands, the city taps into an earmark to defray between $1 million and $2 million in annual administrative and planning expenses beyond its $128 million commitment to the Destination Medical Center, a multibillion-dollar Mayo Clinic build-out that over the next two decades will reshape Rochester.

With the earmark expected to dry up in the next two to three years, according to city officials, Rochester needs a backup plan. If the Legislature doesn’t act before mid-2016, Staver said, a property tax hike could be on the menu.

“If we don’t get the provisions changed – if not this year then certainly next year – we start running into an issue,” Assistant Rochester City Administrator Gary Neumann said. “The prospect is there, in the future, that the city would have to use property taxes to pay for it.”

Most of the funding at issue goes toward supporting the board that oversees Destination Medical Center development and a project-specific economic development agency.

It’s unclear how staffing changes could shift funding needs in the coming years – costs could rise or fall, Neumann said. City officials have previously said the economic development agency could sustain itself within the next half-decade, though the outlook is still hazy.

That uncertainty adds to pressure on the city to head off a funding gap and find a way to keep its long-term Destination Medical Center spending in check.

“The DMC legislation added $128 million of obligations to the city and we allowed them several ways to pay for that,” Norton said. “To even think of the possibility of additional funds being required above and beyond that is not fair to the taxpayers and is not what we had planned.”

Several lawmakers hinted this week that tax and transportation legislation could reemerge during a special session that could start early next month, but there’s no guarantee Gov. Mark Dayton will reopen the tax discussion in a special session that will revolve around education funding.

Rochester also has financial leeway to wait until next session for lawmakers to take up the proposal, but even considering the Destination Medical Center’s 20-year lifespan, the clock is ticking.

The city will begin cobbling together its 2016 budget in the fall, providing a clearer sense of its administrative and planning cost burden.

“Time is on our side,” Staver said. “Nevertheless, the more of this that we can lock down and becomes better defined just takes elements of uncertainty out of the equation.”