Until recently, the two-story building that housed St. Paul’s Downtowner Woodfire Grill formed a key piece of the urban fabric of West 7th Street. The restaurant was known for lunch deals, a staple for the baby boomers looking for a cozy combination of upscale service and affordability.

I say “until recently” because the two-story restaurant was torn down in October and its parcel was paved over. A small wooden kiosk has now been plunked into the middle of it. From all appearances, it looks set to become St. Paul’s newest surface parking lot. As reported in the Pioneer Press, the owners could not be reached for comment. 

As a long-time loather of surface parking lots, there are many irksome things about this story, but the one I want to call attention is this: Because of the way our property tax code works, the owners are set to receive a tax break from their destruction. 

The demolition has reduced the property’s assessed value from $1.5 million, based on tax records, to about $430,000. (This is an approximation based on the value of a nearby surface parking lot, around the corner on Walnut Street, owned by the same LLC.)

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This means that, after demolition and repaving, the property owners likely will see their tax bill drop from more than $56,000 per year to closer to $13,000, an annual savings of more than $40,000 even before comparing profit margins for surface parking lots versus restaurants. 

This is precisely the kind of regressive “development” that could largely be averted by a new land value tax (LVT) bill set to be re-introduced in the Minnesota legislature this year.

A quick LVT explainer

Currently, property taxes are levied on the assessed value of both the land and the buildings that sit on that land. This means that if you develop a vacant lot into a large building, you see property taxes increase dramatically with the value of the building. Likewise, property taxes plummet after a building is demolished.

An LVT system upends that by basing property tax levies far more (or even entirely) on land value, with or without a building. The idea comes from a 19th century economist named Henry George, who viewed it as a catalyst for a more equitable society. In its modern incarnation, it’s primarily a tool to fight land speculation and disincentivize empty lots, particularly in city cores that have seen cycles of disinvestment. 

Currently, state law disallows local governments from using LVTs, but that might be about to change. With the incoming class of elected officials at the state capital, DFL tax chairs in both bodies support an LVT bill that didn’t get out of committee during last year’s divided session.

Under the proposal, cities could set up “LVT districts” that shift the area’s property tax burden onto land. These would be targeted at neighborhoods known for land speculation or underdevelopment. Two suggested case studies are St. Paul’s Midway area near Allianz Field, and the half-developed parcels alongside the Blue Line in Bloomington, south of the airport. In both areas, the hope is that LVTs would spur long-awaited urban redevelopment. 

Political tailwinds

With the results of the recent election, LVT policy could finally see its moment. Minnesota Democrats have been given at least two years of “trifecta control” and a mandate from voters to bring down costs. But without a budget surplus, ensuring affordability is going to be a challenge. 

During her campaign for Governor, Amy Klobuchar campaigned firmly on addressing high housing costs in the state in part by removing regulations holding back production. The housing shortage is particularly acute in the seven-county metro area, where economists estimate that housing production needs to rise by thousands of units each year to bring down prices across the board. 

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But without raising taxes to fund housing subsidies or costly programs, the promise to “cut the red tape” will need to do a lot of work in this scenario. Minnesota Democrats will have to be ambitious about regulatory reform, focusing on more revenue-neutral policies like zoning reform, reducing local control over development approval or revitalizing the powers of the Met Council to encourage regional cooperation. 

This is why LVT policy fits neatly into the Minnesota housing puzzle. The policy is revenue-neutral by definition, working largely by shifting property owners’ existing incentives. Changing state law to allow cities to set up their own LVT districts could boost development and cost basically nothing.

‘I think this could be our year’

At a recent LVT rally at the Black Hart in St. Paul’s Midway neighborhood, Rep. Steve Elkins, DFL-Bloomington, promised the crowd he would re-introduce an LVT bill on the first day of the January session. 

“I think we’re slowly eliminating all of the objections,” Elkins told the crowd. “More and more people are getting it, understanding the role that [LVTs] can play in spurring redevelopment in underdeveloped areas. Keep your fingers crossed, but I think this could be our year.”

Elkins also said that he’s gotten state assessors to see how LVTs might work without adding to their workload, allowing some to offer support. Groups like the Building Owners and Managers Association should like the change because it would dramatically reduce their tax liability. Middle-class homeowners should like it because it would lower their property taxes, as well – a meaningful move toward affordability. 

I hope Gov.-elect Klobuchar and the rest of the incoming legislature are paying attention, because delivering on the promises of Nov. 3 is going to take political courage. Local officials don’t like being cut out of the regulatory process by state policies. And parking lot barons and land spectators won’t like seeing their tax bills rise, even if they’ve been getting a sweetheart deal for too long. 

In the 2027 legislative session, if the state makes some changes and if and when cities like St. Paul enact them, you might see some pressure on the surface parking speculators like the owners of the former Downtowner Woodfire Grill. Until then, though, the new lines of paint have appeared on the fresh black asphalt. West 7th Street is less vibrant, but the tax incentive for car storage is going strong. 

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