I believe the ongoing discussion of property taxes and what role the state should have in providing relief will be aided by a bit of a reality check.
We all love to hate property taxes, and political partisans have repeatedly pointed out that they have gone up almost $2 billion during the Pawlenty administration.
These politicians are careful not to mention, however, that property values have gone up more than $139 billion. That’s a very good thing. A house is not a liquid asset, but the growth in home equity has made it a more active asset and a sensible option for financing home improvements, college tuition or other expenses. In fact, the Federal Reserve reports that Americans have borrowed $826 billion in home equity loans.
What I’m afraid we’re really saying when we complain about rising property taxes is not that we want dirtier water or longer response time from police and fire. I’m afraid what we’re really saying is that we still want all of our city services; we just want someone else to pay for them.
Here’s what I want to say to you: Be careful what you wish for.
Before I tell you why, I want you to know some things about the state of property and property taxes in Minnesota.
Most cities receive state aid
First, very few cities in Minnesota pay all their own bills. Most receive local government aid (LGA) from the state general fund. There are cities that receive almost twice as much LGA as they raise in local property taxes. And even though state subsidies to local government have increased 4 percent since 2003, local elected officials — who, remember, determine how much you pay in property taxes — have not seen fit, in most cases, to reduce your local tax burden by a comparable amount.
Second, Minnesota maintains property-tax refund programs for both homeowners and renters. These programs are also referred to as “circuit breakers,” providing targeted relief to taxpayers whose property taxes are high relative to their incomes.
Third, tax rates on all property classes as a group have fallen every year since 1997, from 2.45 percent ($2.45 per $1,000 of valuation) to 1.30 percent in 2008. Homestead tax rates for 2008 are 1.05 percent statewide, well below the pre-2001-reform level.
Fourth, the state has taken over most of the cost of K-12 education from local government. This year its portion of school funding will be 79 percent, the third-highest percentage in the country.
Finally, we all have sympathy for our seniors, who might have to make serious sacrifices to pay their taxes. According to the National Council on Aging, 81 percent of Americans aged 62 and older own their own homes; 74 percent of them own them free and clear, representing $2 trillion worth of home equity. The Legislature is discussing how to help seniors with reverse mortgages.
I will grant that the formula for calculating state aid to local governments needs reform. There are property-poor cities that need more LGA than they get, and there are property-rich cities that should be embarrassed to get anything at all. The important point to remember, however, is that no one is printing money in St. Paul. Whether it is income tax, sales tax, or property tax, it all comes out of our pockets one way or another. All levels of government have to share the load — and justify it to their constituents.
A recipe for accountability
If we ask the state to take on more of the cost of our local services — in other words, ask the taxpayer in a metro suburb to pay for garbage pick-up in a town outstate, we lose an important tool for holding our local elected officials accountable. Let the residents of our cities and towns decide to plow the snow at 2 inches rather than 1, or staff the library with volunteers to balance their budget. I’m comfortable knowing that my city council member or county commissioner is a little uncomfortable knowing he might run into me in the grocery store, where I will tell him exactly what I think about my property taxes. That’s accountability.
Finally, when significant amounts of a city’s services are paid for from the state general fund rather than from local coffers, how realistic are the voters’ assessments of the true cost and value of those services?
The truth is that property taxes are an important part of the total tax mix. They are more stable than individual income, corporate income, and sales taxes, which fluctuate with changes in our economy. They can be adjusted more immediately to manage changing conditions or needs. They reflect local preferences about spending. They offer, and require, local control and accountability in tax matters.
And even if I do say so myself, it’s much easier for one concerned citizen to have an impact on five city council members than he can have on 201 legislators. My advice regarding property tax reform: Be careful.
Bill Belanger served eight terms in the Minnesota Senate, representing parts of Bloomington, Burnsville, and Savag, and was long-time lead Republican on the Senate Tax Committee. He served previously on the Bloomington City Council for 12 years and as vice mayor.
Want to add your voice?
If you’re interested in joining the discussion by writing a Community Voices article, email Susan Albright at salbright [at] minnpost [dot] com.