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Here’s one way to reduce the number of undeveloped lots in Minneapolis

Land-value taxation would mean taxing land separately — and at a higher rate — than the buildings and other improvements that sit on top of that land. 

This lot on Hennepin Avenue is the type of property that could see increased taxes should cities like Minneapolis shift to a land-value tax that assesses the value of land at higher rates than improvements.
MinnPost photo by Peter Callaghan

It would be understandable if members of the Minneapolis City Council wanted to avoid talking about property taxes for a while. 

A dispute over the size of the city’s 2015 tax levy led to an acrimonious end-of-year debate. Yet not quite a month later, a council committee went there anyway, though in a way that could end up providing more revenue from property taxes, not less.

Last week, the Intergovernmental Relations Committee discussed an idea known as land-value taxation. In brief, it means taxing land separately and at a higher rate than the buildings and other improvements that sit on top of that land. Currently, land and improvements are lumped together and taxed at a single rate, with the building usually making up the vast majority of the total.

“This is an idea that has been floating around,” said committee chair Elizabeth Glidden. “It definitely has had some research and support from academics.”

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The local chapter of the group known as Common Ground USA has been quietly pushing the idea throughout the region. Employed in a handful of cities around the U.S. — though none in Minnesota — land-value taxation discourages leaving property undeveloped or underdeveloped (i.e. surface parking lots). Paying more in property taxes for fallow land, the thinking goes, would encourage owners to develop it.

In exchange, taxes on improvements would be lowered under the system, so that developers would not face a disincentive to build or improve buildings. Depending on how it is structured, the system could produce the same amount of revenue as the existing system, or even raise additional money, and could be applied across a city or in specific districts, such as the central business district. 

At least that’s the theory, which is supported by research done over the years by the University of Minnesota and the state of Minnesota. 

Any tax shift, however, would produce winners and losers, acknowledged Common Ground USA state chapter president Rich Nymoen. While a land-value system could be set up so most property owners broke even, owners of highly developed properties would likely pay less while underdeveloped and fallow land would pay more. 

In a 2012 article on streets.mn, Chris Keimig called the current system “essentially backwards” in terms of what it rewards and what it punishes. “It penalizes property owners for building or making improvements to their structures, while rewarding speculators and absentee landlords who would rather allow their properties to decay than make expensive (and annually taxable) improvements,” Keimig wrote.

Nymoen said he doesn’t think the Minnesota constitution would have to be changed to allow split-rate taxation, but he does think it would require legislative permission. The group is working legislators about introducing a bill, but nothing has been filed yet.

As far as the Minneapolis city council is concerned, the briefing was of interest but does not appear likely to lead to much action, given that land-value taxation isn’t part of the city’s official legislative agenda. “We think it’s a year or two conversation before we have any hope of a decision,” Nymoen said. “It’s a marathon, not a sprint.”