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Lawmakers hear cry for property tax changes

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Victor Vital was one of many frustrated homeowners who packed a St. Paul truth-in-taxation hearing to complain about double-digit property tax hikes. (MPR Photo/Laura McCallum )
Many Minnesota homeowners were surprised to find their property taxes will jump by double digits next year. Disgruntled homeowners have packed some truth-in-taxation hearings in recent weeks to express their outrage. Advocates of property tax reform hope that frustration will pressure legislators to overhaul the system, but a major change appears unlikely to happen next session.

St. Paul, Minn. — Truth-in-taxation hearings have turned into shouting matches in some communities, with angry taxpayers yelling at their local officials. Some homeowners report property tax increases of more than 50 percent.

While that's the exception rather the the rule, residential property taxes are estimated to go up 11.67 percent statewide next year, according to the state Revenue Department.

The increases are particularly difficult for people on fixed incomes, and the Minnesota Senior Federation has found that some of its members spend more than 10 percent of their income on property taxes.

Six times in the past three decades, homeowners' property taxes have risen more than 10 percent statewide. Last year's increase was less than 6 percent, and the estimate for this year is 11.67 percent.

"I get calls from people, 'Where do we go? Where do we go?' They don't know," said Marlowe Hamerston, who chairs the Senior Federation's tax committee.

Hamerston said the Senior Federation has been saying for years that property taxes should be based on income, not the value of a home.

"If we make the system fair -- which this system would be fair, because it's based on ability to pay -- we don't need all of the property tax refund, all of the rebates, all of the monkey business that they use to make the system work now," Hamerston said.

The state spent more than $150 million on property tax refunds last year, and state officials estimate that number will grow to $175 million in the current fiscal year. The state also has a market value homestead credit used to buy down property taxes, which costs about $300 million a year.

Hamerston said if property owners paid 2 percent of their income to fund local government, the state could get rid of the rebates and tax credits.

But the Senior Federation's proposal is a tough sell at the Capitol, where there is a lot of talk about property tax relief, but not reform.

The chair of the House property tax division, Rep. Ray Vandeveer, R-Forest Lake, said he sponsored the Senior Federation's legislation to start the discussion. But Vandeveer said it's unlikely such an overhaul would happen in a short legislative session.

"It is a sweeping proposal," Vandeveer said. "It essentially turns the property tax into an income tax."

Vandeveer said while the Senior Federation plan may be too ambitious for legislators to tackle next session, he does expect plenty of debate on how to reduce property taxes.

"Politically, it is an issue in a lot of areas, so I'm not ruling out anything at this point," said Vandeveer. "There has been a lot of discussion, especially on the K-12 levy, as far as mitigating that."

Vandeveer said he's not opposed to property tax relief, as long as it goes directly to homeowners. He said if the state tries to fix the problem by increasing funding for local governments and schools, the money gets spent on local services, and taxpayers don't get a break.

Other legislators say if the state hadn't cut funding for local governments during lean budget times, cities, counties and school districts wouldn't have had to raise property taxes.

Senate tax chairman Larry Pogemiller, DFL-Minneapolis, said state decisions over the past few years have led to a greater reliance on local property taxes.

Pogemiller believes the state has largely undone the "Minnesota Miracle" of the 1970s, which reformed the property tax system. He said property tax relief won't fix the problem.

"That's a band-aid, that's one-time money," said Pogemiller. "It took a few years to unravel the bipartisan solution that we did have, and it's going to take us a few years to rebuild that."

According to the state Revenue Department, double-digit property taxes are unusual, but not unprecedented, since the Minnesota Miracle. Six times in the past three decades, homeowners' property taxes have risen more than 10 percent statewide. Last year's increase was less than 6 percent.

Gov. Pawlenty has said that property tax increases are largely driven by local spending decisions, and his Revenue Commissioner, Dan Salomone, has noted that rising home values account for much of the increase for homeowners.

Pawlenty hasn't proposed any property tax relief or reform at this point, although he'll come out with a supplemental budget proposal early next year.

The state has about $300 million in a tax relief account left over from last year, and many lawmakers want to use that for property tax relief.

But it's possible that money may be swallowed up, after a judge's ruling that the state can't collect a 75-cent-per-pack cigarette surcharge, expected to bring in about $400 million over two years.