PHIL KRINKIE: Relief or no relief, property taxes stay highThis year after the legislative session ended in May with more than $2 billion in tax increases, Gov. Mark Dayton and the DFL leaders proclaimed they had passed legislation that would reduce property taxes.
By: Phil Krinkie, Grand Forks Herald
ST. PAUL — This year after the legislative session ended in May with more than $2 billion in tax increases, Gov. Mark Dayton and the DFL leaders proclaimed they had passed legislation that would reduce property taxes.
They based their claim on an increase in state payments to local government, combined with property tax credits of almost $400 million. But Minnesotans shouldn’t count on any actual reductions until after they have looked at their 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, lawmakers trek to St. Paul every year promising to lower homeowner’s property taxes. The stubborn fact remains that 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 about 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:
n Property taxes are largely determined by cities, counties and school districts.
n 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.
n 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 percent 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.
Another windfall to cities and counties from this year’s tax bill is that they no longer will be required to pay sales taxes on their purchases. This change is estimated to save cities and counties more than $120 million per year.
But it’s 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. Nonetheless, 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.
Of course, while legislators spent hundreds of millions in this 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 pay only 43 percent of the total in property taxes.
In short, the state’s system shifts the property tax burden from homeowners to businesses. So, consumers pay more for goods and services because of the high property tax on businesses.
It’s one more example of how legislators hide the cost of local government spending.
Few people understand how this Ponzi scheme of taxation really works, so legislators continue the game of shifting and concealing the cost of local programs.
But as the old saying holds, “the proof is in the pudding.” And I’ll bet Herald readers in Minnesota will see their 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 in the end, they know it won’t come true.
When it comes to property taxes, Minnesota legislators are like children at Christmas time: They believe if they wish hard enough, it will come true.
Krinkie, a former eight-term Republican state representative from Lino Lakes, Minn., is president of the Taxpayers League of Minnesota.