Property tax hikes slow, but increases won't stop
Minnesota lawmakers and Gov. Tim Pawlenty use terms like "significant" when talking about property tax changes enacted in the recently adjourned legislative session.
Sen. Tom Bakk of Cook, the Democratic chairman of the Senate Taxes Committee, said that of all legislation in 2008, he is most proud of the property tax changes.
But the politicians usually don't finish the story. Rep. Brita Sailer, DFL-Park Rapids, introduced a dose of reality: "Property taxpayers in northern Minnesota and across the state have been calling on us to help to slow down property tax increases."
Sailer's key phrase is "slow down." The cornerstone of 2008 tax legislation slows down the increase, but it does not stop taxes from rising.
A more expensive proposal early in the legislative session would have cut property taxes, but in a year when fixing a budget deficit was a primary goal, there was not enough money available.
Revenue Commissioner Ward Einess said that without the tax bill negotiated in the final hours of the 2008 legislative session, property taxes would have risen $550 million across the state.
"Under this, we probably can shave $130 million off that," Einess said.
Looking at it another way, for a typical $226,000 home, property taxes would have increased 4.2 percent next year, but now will go up something closer to 2.1 percent, the commissioner added.
Einess' department and others following the tax bill have not had time to calculate what its impact will be.
"It's going to take a little while to really dig into the numbers," said Phil Krinkie, president of the Taxpayers League of Minnesota (known for its no-new-taxes pledge) and a former House tax chairman.
The property tax relief section of the bill affects more Minnesotans than other tax provisions.
Property taxes have been a target of Democrats for years, citing an 82 percent increase since 2002.
The compromise includes:
n Limit property tax increases by cities and counties to 3.9 percent a year for the next three years. However, the taxes would be allowed to rise more under several situations, such as the need to hire more police or firefighters. The cap does not apply to cities smaller than 2,500.
n State aid to cities will increase $42 million next year, while county aid will go up $22 million. Democrats insisted on the higher aid levels before accepting a property tax limit. They say more state money paid to local governments means property taxes will not need to rise as much.
n About 70,000 homeowners - 5 percent of those in Minnesota - will get bigger property tax refund checks or get those checks for the first time. Einess said those most affected will be households earning about $90,000 annually from all types of income.
While it will take some time for homeowners to figure out just how the new tax policy affects them, the same is true for local governments.
John Sundvor of the Coalition of Greater Minnesota Cities said his member communities expected to increase property taxes 8.9 percent next year. Sundvor said his organization has yet to figure out the impact of the 3.9 percent cap, and how much increased Local Government Aid will keep taxes down.
Property tax limits such as were included in the final tax bill -- common over the years in Minnesota -- often cause higher taxes, Sundvor said.
"They have a tendency to encourage cities to levy to the maximum allowable because if you don't you are just left behind and you can't catch up," Sundvor said. "In that regard, they work contrary to property tax relief."
Krinkie called the property tax cap "a blunt instrument to try to limit local government spending." Pawlenty often has said he does not think city officials are doing enough to keep budgets in check.
While the law calls for a three-year property tax cap, the Legislature can change that when it meets again beginning Jan. 6. And there are bound to be attempts to change the law, possibly from key legislators such as Sen. Rod Skoe, DFL-Clearbrook, the Senate property tax chairman.
"In the end, I don't think levy limits are an effective way to provide property tax relief," Skoe said. "It's easy to limit how much taxes can be raised, but we cannot limit how much costs increase. If local governments face increasing costs and do not have a revenue stream to pay for them, they're going to be forced to cut vital services such as police, fire, park maintenance and even county health programs."