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Another Captain Renault moment for the Minnesota property tax

The Minnesota property tax is the Casablanca of the state tax system – full of political intrigue, high entertainment value and moments when we are “shocked” to find out about behaviors that are in fact entirely predictable.

Give credit where credit is due: no tax provides as much political intrigue and entertainment value as Minnesota’s property tax. For starters, after a legislative session filled with passionate commentary and testimony about out of control, soul-crushing property tax burdens, voters promptly turned around and approved school referenda levies at a record-setting rate. (88% or 50 of 57 school districts.) Wednesday morning quarterbacks argued, undoubtedly with some merit, that very low turnouts in many areas aided these self-inflicted tax increases. But one thing is absolutely certain – although levy approval would mean higher property taxes, taxpayers still stayed home en masse. Staying home was also a vote – a vote of apathy regarding the prospect of paying higher property taxes.

On the heels of this interesting development, the Department of Revenue now reports that in spite of $400 million in additional property tax aids and credits and $485 million in added K-12 education funding over the next biennium, local levies could go up by about $150 million in 2014 – around 2%. Even if the final approved increases are ratcheted down a bit from these preliminary numbers, it’s another in a long history of “Captain Renault” moments for property tax policy: a sense of “shock” over behaviors and outcomes well understood.

What both these developments show is that regardless of how much some citizens and policymakers may wish otherwise, the property tax is fundamentally a local tax, reflecting local decision making and preferences. As such, the primary responsibility for controlling property taxes is with local governments, not the state. Local citizens get to evaluate the benefits, costs, and value proposition from property taxation. That’s a good thing, not a problem that needs to be fixed.

Yet the rhetoric suggests otherwise. The accompanying news release from the Department continues to make the property tax sound like some comic book villain — and a scourge that only the state can stop. Such statements make us wonder where the full-court press is to keep Minnesota’s sales tax revenues in check — after all, sales taxes are more regressive and no less disconnected from ability to pay than property taxes when you include the old refund programs that became even more generous this year. Of course, the bigger problem is that this line of thinking fundamentally won’t work, as state experience has proven over and over and over again. State aids will never be a substitute for responsible citizen engagement and oversight. In fact, history has shown that the time for maximum taxpayer attention is after the state has provided temporary relief to local governments. It is then that citizens are most oblivious to the decisions being made and the local cost structures being created which fuel future property tax bills.

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We could make “smart investments” — as many like to call government actions these days — in property tax system design, education, and transparency reforms to reestablish strong accountability relationships between citizens and their local governments. A blue ribbon commission of local officials gave us an excellent blueprint that is currently gathering dust.

But until then expect to be “shocked” even as transfers of cash to buy down property tax burdens continue unabated.

This post was written by Mark Haveman and originally published on Fiscal Fitness, the blog of the Minnesota Center for Fiscal Excellence.

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