Matt Entenza and Jeff Van Wychen: Significant, widespread tax relief in Minnesota
ST. PAUL — Significant property tax relief is on the way for East Grand Forks residents, with the typical homeowner seeing a 21 percent tax reduction in 2014. This is the first time in 12 years that Minnesota property taxes will go down.
This property tax relief is due to a significant shift from past state fiscal policy. Under a decade of “no-new-tax” dogma, state lawmakers balanced recurring budget deficits by cutting aid to cities, counties, and school districts, forcing Minnesota’s local leaders to cut services and raise property taxes.
In addition, these state policymakers eliminated the homestead credit and cut the renters’ property tax refund. As a result, state aids and credits to the city of East Grand Forks were cut 34 percent over the past decade in constant 2014 dollars, and city property taxes increased 17 percent over that time.
The 2013 Tax Act, passed by the governor and progressives in the Legislature, reversed this trend by increasing state aid to Minnesota school districts, counties, cities and townships by more than a half-billion dollars in the current biennium, which helped local governments recoup steep aid losses endured since 2002 and reduce or hold down increases in their 2014 levies.
In addition, the 2013 Tax Act targeted property tax relief to homeowners through a powerful enhancement to the property tax refund program, now called the “homestead credit refund,” and through increases in the renters’ property tax refund. These programs target relief based on a taxpayer’s ability to pay and have long been a preferred way of providing property tax relief for lower- and middle-income households.
The 2013 Tax Act increased funding for the homeowner refund by $108 million — nearly 30 percent — for the 2014 tax year. This additional property tax relief was directed to households in the middle of the income spectrum, ranging from $19,500 to $105,500 annual income.
Based on nonpartisan House Research Department data, Minnesota 2020 found the typical homestead property tax will decline from 2013 to 2014 in all 12 regions of the state. The average reduction statewide will be $114. The typical East Grand Forks homeowner likely will see an even bigger drop of about $400.
While the bulk of property tax relief will go to homeowners in 2014, greater Minnesota businesses and rental properties (including apartments) also will see tax relief. Throughout greater Minnesota, taxes on these properties will decline by about 1 percent from 2013 to 2014.
Property taxes are among the most unfair taxes because they aren’t based on the ability to pay. The Minnesota Legislature and Gov. Mark Dayton helped restore a degree of fairness to Minnesota’s tax system by investing in the homestead credit refund, Local Government Aid and other forms of property tax relief.
In addition to providing the first statewide property tax reduction since 2002, these actions will also ensure that Minnesota schools, police and fire departments, libraries, roads and bridges and other public investments that are cornerstones to vibrant communities and local economies are adequately funded.
Entenza is senior fellow and Van Wychen is director of tax policy at Minnesota 2020, a progressive think tank.