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Tax bills may shock homeowners
by Laura McCallum, Minnesota Public Radio
November 28, 2002

State revenue officials say if local governments approve the levies they're proposing for next year, homeowners will see their property taxes increase by an average of 15 percent. ()

Some Minnesota homeowners recently experienced sticker shock when they opened their proposed property taxes for 2003. State revenue officials say property taxes could increase by $451 million, the largest increase in several years. The reason is the property tax reforms passed by the Legislature in 2001. Some DFL lawmakers would like to revisit the changes, but Republican leaders say they stand by the reforms.

St. Paul, Minn. — Last year, Gov. Jesse Ventura led an effort to overhaul the state's property tax system. Joined by House Republicans, Ventura said the changes would result in double-digit property tax cuts for homeowners, businesses, farmers and apartment owners. Now, state revenue officials say if local governments approve the levies they're proposing for next year, homeowners will see their property taxes increase by an average of 15 percent. Farms will get a six percent increase; businesses, a two percent increase; while taxes on apartments will go down about four percent. Acting Revenue Commissioner Dennis Erno says the property tax reforms of 2001 were designed to make the property tax a truly local tax, and the increases are largely due to local tax increases.

"We saw a number of voter-approved referendum levies for schools," Erno said. "And if you look at the metropolitan area, we had 27 referendums on the ballots, and 20 of those 27 were approved."

Erno says voters approved more than half of the 63 outstate levies. School levies make up about $200 million of the statewide property tax increase, the rest is a combination of proposed local levy increases and increases in property value. The director of the Minnesota Taxpayers Association, Dan Salomone, says the 2001 reforms made Minnesota's property tax system more fair by bringing business rates more in line with the rates for homeowners.

"It wasn't too many years ago that our relationship was such that business was paying five times more than residential property in terms of tax per dollar of value and that was way out of line with the rest of the country," Salomone said. "And now we're more in step with the rest of the country, and we have more local freedom to deal with the levy."

Salomone says another reason for homeowners' increases is that the 2001 reforms phased out so-called "limited market value" over six years. That capped the annual increase for homeowners at 8.5 percent. Salomone says phasing out limited market value will cause property taxes to reflect homes' true market value.

But fairness is in the eye of the beholder. Senate Democrats argued last year that shifting the property tax burden from businesses to homeowners was unfair. Senate Majority Leader John Hottinger, DFL-Mankato, says their concerns are proven out in homeowners' property tax bills.

"This is a lesson I think that it's important to listen to not only the people who are trying to sell you the deal, but those who have concerns about the deal," Hottinger said.

Hottinger says many DFL lawmakers would like to revisit the property tax reforms, but it might be tough, with the state facing a budget deficit that could top $3 billion. Any buydown of homeowners' property taxes would cost money, which is in short supply at the Capitol. And efforts to roll back the reforms will face resistance from Republicans. Gov.-elect Tim Pawlenty has said he's not interested in revisiting the changes. House Speaker Steve Sviggum, R-Kenyon, says his caucus stands by the reforms, although he says it's possible there could be some tinkering.

"You know, we want to see also where those increases are coming from. You know, which levies, whether they were voter-approved levies, you know, that certainly changes the situation than if they're not voter-approved," Sviggum said.

Tax experts say if homeowners don't like their proposed property taxes, they should complain to their local officials. The Revenue Department's Dennis Erno says homeowners should go to their local Truth-in-Taxation hearings, which begin next week. Attendance at such hearings has typically been light, but Erno says it might improve in light of the proposed increases.

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