Hold on, folks — don’t hit the panic button quite yet. It’s too early to assume that your property tax bill is going to rise in 2014.
At the same time, it’s safe to assume that Minnesota property taxes will not decline as much as DFL leaders claimed at the end of the 2013 legislative session.
The state Revenue Department reported this week (PDF) that preliminary levies set by local governments for next year would increase statewide property taxes by $153 million, or 2 percent. Leading the way were school districts with preliminary levy increases totaling 2.6 percent.
So much for the $400 million in property tax relief that DFL legislative leaders claimed they provided when the 2013 session ended. Forget about even the $121 million in tax reductions that the Revenue Department forecast in July.
Still, there are a few things to keep in mind:
‘Preliminary’ figures will change
First, the preliminary levies by local governments are just that — preliminary. They are used by the counties to compute parcel-specific tax estimates that are included in “Truth-in-Taxation” notices, which must be mailed to every property owner before Nov. 25. These notices provide the dates, times and places at which the final levies must be approved. Local governments have until Dec. 27 to set their final levies for 2014.
Second, the amount of the overall increase or decrease in state property taxes is meaningless for individual property owners. The 2014 taxes they pay will be depend on the cumulative levies set by their individual city, county, school district and special-purpose districts. Many taxpayers will be affected by the 68 local school operating levies that were renewed or increased by the voters in the Nov. 5 election.
Certain types of properties — including seasonal cabins and commercial-industrial — also are subject to a state property tax.
In addition, the taxes of a home or business owner could be affected by any change in the valuation of their property, as well as by changes in the values of other properties within the taxing jurisdiction.
Steve Hinze, a property tax expert for the Minnesota House, says, for example, that agricultural land values in greater Minnesota have grown “a heck of a lot faster” than the home values, which could result in a shift in tax burden from homes to farms in many tax jurisdictions.
Finally, the Revenue Department’s estimates don’t take into account the $135 million in additional tax relief made available to homeowners and renters directly through the Property Tax Refund (PTR) program. It provides refunds based upon the taxpayer’s income and the size of his or her property tax bill (or, in the case of renters, the amount of rent that is presumed to go for property taxes).
About three-quarters of currently eligible households will see an average $219 increase in their refund, and another 112,000 new households will now qualify for a refund, according to estimates made at the end of the 2013 session by the Minnesota Budget Project, an initiative of the Minnesota Council of Nonprofits.
Having said all that, it’s no shock that local property taxes appear to be rising — despite legislative approval of $130 million in additional aid to cities, counties and townships and despite the $129 million sales tax exemption provided to them.
LGA ‘inefficient’ property tax relief
As many tax policy experts have argued, increases in Local Government Aid (LGA) are an inefficient way of delivering property tax relief, and such relief tends to evaporate very quickly.
Mark Haveman, executive director of the Minnesota Center for Fiscal Excellence, says the best study of the impact of local government aid (LGA) was done by the nonpartisan Legislative Auditor’s office in 1990. “It found that cities used 82 percent of the additional aid to finance increased spending and 18 percent to reduce property taxes,” he says.
To ensure that Minnesotans see some property tax relief next year, the 2013 Legislature did impose a one-year limit on local property tax levies. The stated purpose was to prevent cities and counties from raising their levies more than 3 percent, minus the additional state aid they receive.
However, the levy limits appear to have flaws and may not be entirely effective. “There was a lot of pressure on legislators not to make that 3-percent limit too tight,” Hinze says.
In a statement this week, state Revenue Commissioner Myron Frans applauded efforts by the city of Minneapolis and Dakota County to reduce their 2014 levels, and said he plans to encourage other cities and counties to do the same.
Taxpayers themselves have an opportunity to participate in the process (PDF). Before adopting their final levies next month, local governments are required to hold a public meeting no earlier in the day than 6 p.m. and provide an opportunity for the public to speak. That information will be included in the Truth-in-Taxation notices.