Should Minnesota phase-out property taxes? A proposal by Sen. Kent Eken would do just that

Every year, millions of Minnesota homeowners, rich and poor, begrudgingly pay their property taxes.

Businesses, large and small, also pay property taxes on their buildings and spaces, most at a higher rate than the homeowners.

Those tax revenues are divided among school districts, city, county and state entities for them to operate.

But, what if one day property couldn't be taxed in Minnesota?

Would lawmakers implement a new system for dividing revenues among the state's counties and municipalities?

Why would a state even think about going through such a hassle?

Sen. Kent Eken, DFL-Twin Valley, said he thinks it will help create a fairer tax system that will benefit lower- and middle-income families, many of whom live in rural areas.

"It's because we have fewer people and less property value to tax," he said. "It means we're taxed more heavily, at a higher percentage of your property, in order to raise the same amount of money."

Rural areas are primarily farmland, he said, and isn't the industrial base that is seen in the metropolitan area with higher value.

"There are lots of properties (in the metro area) to be taxed," said Eken. "We don't have as much up here. We don't have as much property wealth."

Eken explained that his proposed constitutional amendment, introduced in February, would phase out the state Legislature's ability to tax real or personal property.

"It is so regressive, it's so arbitrary, it's so archaic, antiquated," said Eken. "I've heard people say (property tax) is stable and that's because you have to pay it even if you're struggling, you still have to pay. The income tax isn't quite as stable because if you're not making income, then you don't have to pay, but, as far as property tax, you could be on the brink of disaster for your business and you still have to pay it and that's one of the reasons I think it needs to be eliminated."

To replace the lost tax revenue, he said, a more progressive income tax system would need to be established by lawmakers and local government aid would make up for the lost property tax revenue.

Eken said homeowners would pay more in income tax, but without the burden of paying property taxes, too, the variables could cancel each other out.

"We can't just eliminate property taxes without some kind of replacement," Eken said. "That was the problem in North Dakota."

The North Dakota ballot initiative to abolish property taxes failed in 2012, he said, partly because the state had no plans to replace the lost revenue and the measure was an abrupt change, not the multi-year phase out framework included in Eken's proposal.

Eken also said various personally owned items and vehicles used to be subject to tax in Minnesota but those items were removed from the taxable rolls and believes the whole of property tax should follow suit.

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"You'd pay taxes on the value of your furniture, your car, your ATV, your entertainment system," he said. "(The Minnesota Legislature) eliminated that because we felt that wasn't fair and we replaced it with local government aid, that's where LGA came from."
He first introduced his constitutional amendment in the 2019-2020 legislative session, but it failed to receive a hearing in Senate Tax Committee, which is chaired by the GOP Senate majority. He reintroduced it this February, and again, it was referred to the Senate Tax Committee and has yet to have its hearing scheduled.

"We put in a hearing request and this is the power of being in the majority," said Eken. "If you've got the gavels, you decide whether a bill gets a hearing, or not."

According to the Minnesota House Research and Fiscal Analysis Departments, Minnesota collected $37.4 billion in state and local taxes in 2020, and 28% came from property taxes. The nearly $11 billion is only a fraction less than the almost $12 billion collected in state income tax.

In 2020, only 7% of property tax revenue went to state government; 60% of property taxes collected ended up going to counties and school districts with an additional 24% heading to cities.

"It kind of makes my head explode a little bit trying to think of how (the new proposal) would work," said Heidi Tumberg, finance officer for Detroit Lakes. "(Property taxes) are what funds all of our main core functions as a city."

She said police officers, street improvements, city hall and staff, and many other vital pillars of city government are all funded through those property tax dollars.

Tumberg said the city's general tax levy to cover much of the city's function is about $6 million with a majority of that funding coming from property taxes, however, the amount of LGA the city is expected to receive in 2021 is only $537,000.

"Yes, property taxes can be really burdensome to lower income families and someone trying to afford a home of their own," she said. "But before we do something extremely major like that we really need to think through it and figure out how to make it work in a way that doesn't create other unintended consequences."

Members of the state GOP also may not be so eager to give up budget controls to the state, said Rep. Steve Green, R-Fosston.

"It sounds pretty cool, and if there was a way to do it without eliminating the last bastion of local control, it would be way more appealing," said Green. "But what would happen is, we would lose all control. All of our funding then would be coming from the state and your counties would be at the mercy of the state for everything."

Green said he agrees that property taxes fluctuate all the time and can be unfair in the ways they are implemented, but giving away local budgetary controls to the state "doesn't sound appealing."

"If a plan was in place … that would keep our local controls to be able to make our own budgets based on our own area, then the whole thing would work," he said. "But right now, it's just kind of a dream."

In the end, Eken said his proposal should end up on a general election ballot so Minnesotans have a chance to weigh in on his proposal.

"I think it would be a great draw for Minnesota to be able to tell people that we don't have a property tax," said Eken. "It'll be a boon to the economy, I think. Now, we're going to have to pick up the lost revenue on the income tax side, but, still, to have one category of tax, the most regressive tax eliminated, I think, will do more good for our economy than the income tax will do harm."

What do you think? Take our online poll of the proposed ballot question and show us which side of the property tax divide you fall under.