The myths of property tax reliefPublished 11:11am Wednesday, June 12, 2013
By Phil Krinkie
Former GOP state representative
Every year state legislators wish they could do something to stop the continuing escalation of property taxes. And why would the 2013 Legislature be any different than past years when it comes to property taxes? Every election cycle state legislators want to tell their constituents that they are going to do something to reduce residential property taxes. This year after the legislative session ended in May with more than $2 billion in tax increases, the Governor and DFL leaders proclaimed they had passed legislation that would reduce property taxes. Their claim is based on an increase in state aid payment to local government, combined with property tax credits of almost $400 million. But don’t count on your property taxes decreasing and certainly don’t spend the money until after you have taken a look at your 2014 property tax statement.
The fact is that Minnesota has the most complicated and convoluted property tax system (if you can call it a system) in the country and contrary to popular belief our residential property taxes per capita rank in the middle when compared to other states. Despite this truth, state legislators trek to St. Paul every year touting that they will lower homeowner’s property taxes. The stubborn fact is the total amount of property tax collections statewide continues to increase and so does the amount of money that legislators spend to buy them down.
Currently Minnesotans pay approximately the same dollar amount in property taxes as they do in income taxes. The reason that property taxes continue to increase despite efforts at the Legislature is threefold:
1. Property taxes are largely determined by cities, counties and school districts.
2. Property taxes are based on property values. Even in times of declining market values cities and counties raise tax rates to offset the decline in home values.
3. Local government spending continues to increase regardless of the amount of state aid and legislators refuse to impose strict spending limits.
An example of this was in 2001 when the Legislature removed the general education levy (a state mandated property tax for K – 12 education). As a result residential property taxes were reduced on average by 20% statewide. The startling response by local units of government was to increase property tax levies dramatically. Within two years the attempt to reduce property taxes by a billion dollars was wiped out as a result of higher spending by cities, counties and school districts.
A recent newspaper article in Austin, Minnesota highlights what will soon happen all across the state. At an upcoming City Council work session they will discuss whether to spend the additional local government aid from the state or use the money to decrease property taxes. My guess is they will spend it because the $120 million increase in state aid to cities and counties will come with no strings attached.
Another windfall to cities and counties from this year’s tax bill is that they will no longer be required to pay sales taxes on their purchases. This change in tax policy is estimated to save cities and counties more than $120 million per year. However, it is unlikely that homeowners will see an equal reduction in their property taxes. Past studies have shown that there is little correlation between state aid payments and local property tax rates. None the less, legislators pontificate endlessly about how they have increased state aid to cities, counties and school districts, which in turn will result in lower residential property taxes. But as legislators vote to increase the amount of state aid to local units of government they also continue to pick winners and losers in the property tax arena. In 2011, over 670,000 Minnesotans collectively received more than $460 million in property tax refunds. This property tax refund program helps select groups of homeowners and renters pay less at the same time that legislators increase state sales and income tax rates. This year legislators increased these property tax refund programs by $135 million, once again, hiding the true cost of local government spending for over half a million Minnesotans.
While legislators spent hundreds of millions in an attempt to hold down residential property taxes, they do nothing to hold local government spending in check or bother to consider business property taxes. Minnesota has the highest commercial/industrial property taxes in the country. As a result, commercial/industrial properties pay 31 percent of the total state property value. In contrast, residential homesteads make-up 51 percent of the market value yet they pay only 43 percent of the total in property taxes. Therefore the states system of taxation shifts the property tax burden from homeowner to businesses.
As a result consumers pay more for goods and services because of the high property tax on businesses. One more example of how legislators hide the cost of local government spending for homeowners. Few people understand how this Ponzi scheme of taxation really works so legislators continue the game of shifting and concealing the cost of local government programs.
But as the old saying goes; “the proof is in the pudding.” And I’ll bet you that you will see your property taxes going up and up over the next couple of years. The term “property tax relief” is like Santa Claus and the Easter Bunny, everyone wants to believe, but everyone knows in the end it won’t come true. When it comes to property taxes Minnesota legislators are like little children at Christmas time, they believe if they wish hard enough it will come true.
Phil Krinkie, a former eight-term Republican state rep from Lino Lakes, is president of the Taxpayers League of Minnesota. email@example.com