Klemm: Market Value Exclusion good in theory
The Perham City Council approved a slight increase in next year's tax levy following a truth in taxation hearing Monday that drew a crowd of zero.
Despite the ill attendance, City Manager Kelcey Klemm presented the council with a breakdown of the budget, and an explanation of how the elimination of the state's Market Value Homestead Tax Credit hurt area residents and business owners.
Klemm didn't back away from the notion that the former tax credit cost the city money, but did say the system implemented as a replacement - Home Market Value Exclusion (HMVE) - doesn't work out as well for tax payers.
With the previous credit system, the state gave residential taxpayers a break by absorbing a portion of their taxes. The state then reimbursed cities, or at least they were supposed to.
The problem arose when states didn't reimburse local governments, as originally intended. Last year, the state credit absorbed $81,000 in Perham residential taxes, but the state only reimbursed the city for $25,000.
The new HMVE model exempts a portion of home value, creating a system in which residents are being taxed on a market value lesser than reality.
A Perham home worth $76,000 will now be taxed at a $45,600 market value rate. A $40,000 home will have $16,000 in market value exclusion.
Klemm said the theory behind the HMVE is good, but there are downfalls. It lowers the overall tax base in the community, affecting commercial properties (businesses, apartment owners) the most.
"They're paying for a bigger portion of the pie," he said.
Under the old tax credit system, Perham would have seen growth in its tax base of around 4 percent. With HMVE, that's not the case - the tax base decreased by roughly 4.5 percent.
While the city's portion of taxes will increase slightly for homeowners, it's businesses that will carry more of the burden.
A business worth $300,000 will see city portion taxes increase by about $165. Under the old credit system, they would have seen taxes decrease by about $66.
A home valued at $100,000 will see a $28 jump from what the old credit system would have cost owners.
Hearing nothing from the public, the council voted unanimously to approve the levy.