One thing you can say for sure about property taxes in Minnesota: They have soared in recent years.
The debate begins with questions of why.
With this particular tax, the buck never seems to stop. Cities and counties point to the State Capitol, saying that cuts in aid to local governments have left them with little choice but to bump up property taxes. Gov. Tim Pawlenty and his supporters point right back, insisting those local entities should slash spending instead.
Pity the poor voter trying to pin down a candidate on this complicated issue. There are so many pieces of Minnesota’s property-tax system, so many different levels of government involved, and so many important functions — from schools to parks to police — supported by the tax.
Still, it accounts for a big chunk of the total taxes we pay in Minnesota — about $8.3 billion this year. Of our Big Three Taxes, it ranks ahead of the sales tax and roughly equal to the personal income tax.
So, in this third installment of MinnPost’s tax series, we’ll look at the crux of the arguments. You can find the first article in our series here and the second one here.
Almost every Minnesota household pays property taxes: Homeowners pay, of course, and cabin owners too. Renters pay, but their landlords also pick up a big share of the tax for their buildings.
Without the property tax refund, the burden would fall severely on the lowest income Minnesotans. Even with the refund and a class adjustment for high-value homes, it’s regressive, according to the Minnesota Department of Revenue’s latest Tax Incidence Study. [PDF]
State and local taxes Minnesotans paid in FY 2009
In 2006, the effective tax rate for the 10 percent of Minnesotans with the lowest household incomes ($9,782 and under) was 4.2 percent. The rate was just 1.3 percent for taxpayers at the top of the income ladder ($123,938 and higher).
There’s a regional component to the who-pays question. If you live in a metro area, you are paying for more of your local government services through the property tax than residents of greater Minnesota.
As for businesses, property taxes are the largest single burden of all state and local taxes. But business owners are partially shielded from local property tax increases because the state levy accounts for the bulk of their bill and it isn’t rising in tandem with local taxes.
Pushed problems to local governments
The parameters of the property-tax debate were sharply defined last week in give and take over a report published by the left-leaning think tank Minnesota 2020.
From 2002 to 2010 Minnesota’s property taxes jumped by 26.8 percent in inflation-adjusted dollars, a faster average annual growth than had been seen in at least a generation, says the report by Jeff Van Wychen. He has worked as a fiscal analyst for the city of Minneapolis and the League of Minnesota Cities.
Homeowners have shouldered a hefty share of the increase. And their burden would grow even heavier next year as school districts across the state bid for a new round of levy increases.
The added weight in your property tax bill can’t be explained by extravagant spending increases in schools, city halls and county board offices. In the last eight years, state aid to local government declined by $2.6 billion in constant 2010 dollars, the report said. And local property taxes replaced about two-thirds of that loss.
In other words, cities, counties, schools and other local entities closed a significant share of the gap on their own by spending down reserves, cutting services and learning to operate more efficiently.
“During the last eight years, the state has pushed its budget problems off to local governments, forcing both service cuts and property tax increases,” the MN 2020 report concludes.
In particular, it takes aim at Gov. Tim Pawlenty’s “no new taxes” policy, saying it has “led to more regressive taxes at the local level and deep cuts in education, infrastructure and public services.”
Finding new strategies
Not so, said the St. Paul Chamber Area Chamber of Commerce in a sharply worded rebuttal. The chamber didn’t argue with the finding that property taxes have skyrocketed. Its beef was with blaming state cuts in aid to local governments.
“While these cuts may be part of the equation, cities, counties and school districts have a responsibility to find new ways of doing business that put the taxpayers’ interests first,” Chamber President Matt Kramer said in the statement.
He argues that local governments could save taxpayers considerable sums if they would share more services.
Some are going for the sharing idea. For example, Arden Hills, Shoreview, Vadnais Heights, Gem Lake, White Bear Township, Little Canada and North Oaks are contracting with the Ramsey County Sheriff’s Department for law enforcement services.
Other entities, though, have “clung to the solutions from decades passed, ignoring the new realities of the 21st Century economy,” Kramer said.
The idea of saving money by sharing services has bipartisan support, and it is taking hold across the state as libraries, school districts and counties team up for everything from office-equipment purchasing pools to broadband networks. Pawlenty and DFLers alike have worked to help lead and facilitate that movement.
A tough equation to crack
If only your property taxes could shrink through such important management innovations, you would have clear-cut demands to bring to candidates for local and state offices this year.
The property-tax equation is far more complicated than that one factor. Another weighty factor comes from changes the Legislature enacted in 2001, shifting a good share of general education funding to the state. The short-term impact was a drop in local property taxes.
Over the long-term, though, the state has not delivered the aid to school districts that was anticipated back in the years when state coffers were fat. Since 2002, the state aid fell by $1,366 per pupil (in constant FY 2011 dollars) while school property taxes increased by $1,012 per pupil, said the Minnesota 2020 report.
Options and influence
Despite the complexities, voters/taxpayers do have options and considerable influence over property taxes. A study by the Minnesota Taxpayers Association [PDF] makes some useful points:
• Your property tax could be lower if you pay more local fees, or other local taxes, or if you are willing to pay higher state income or sales taxes so that the state could afford to pay more state aid and reduce local reliance on the property tax. This is what the state did beginning in the late 1960s and early 1970s — using proceeds from increased sales and income taxes to “buy down” property taxes.
• Too many of us let public officials, our neighbors, or others worry about the details and decisions that ultimately determine our tax bills. But don’t assume that your interests are being represented. Learn how the property tax system works and get involved in the local budgeting and tax process.
• Thanks to property tax reforms earlier this decade, nearly 100 percent of the local property tax bill on places of residence is now either under your direct control through voter-approved levies, or indirectly through your local elected officials. You can control your property tax bill, and now, you have more incentive to be involved.
• In November, your local governments will mail a “Truth-in-Taxation” notice to you, describing the impacts their budgets may have on your future property taxes. Don’t wait for that notice to get involved. Start earlier in the year by contacting local governments and finding out how to participate in the budget process.
Personal and gritty
That is helpful advice as far as it goes. But many of the factors making up the property tax still involve judgment calls based on individual values and political perspectives.
I’m all for pressuring my local officials to work more efficiently, but I’ll fight any further cuts in actual services at my beloved libraries and parks. You insist that school athletic programs are sacred. Our neighbor wants nothing more than seeing cops on the beat and filling the potholes.
This tax defines the point where democracy gets personal and gritty.
Sharon Schmickle writes about national and foreign affairs and science. She can be reached at sschmickle [at] minnpost [dot] com.