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Minnesota property tax increase could mean lower state aid

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ST. PAUL – The future of state aid that many local Minnesota governments depend on may be at stake in the next few weeks as property taxes appeared to be headed up.

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By mid-December, city, county and other local officials decide how much property tax they will collect. Those decisions come on the heels of the Democratic Legislature and governor sending them large bundles of new money in the name of property tax relief.

If taxes go up, local governments may see less state aid in the future. That could lead to service cuts or property tax increases, much like Minnesotans have experienced for a decade.

“People have a right to expect lower property taxes,” state Rep. Paul Marquart, DFL-Dilworth, said.

But many Minnesotans probably will not see lower bills.

A state Revenue Department report earlier this month indicated that property tax levies statewide could rise nearly 2 percent statewide. Cities expect to raise tax levies 2.1 percent, counties 1.5 percent, townships 2.1 percent, schools 2.6 percent and other taxing districts 2.3 percent.

Democratic Gov. Mark Dayton and others are concerned that the preliminary numbers show 63 percent of cities and 77 percent of counties plan higher property tax levies.

Democrats did not think that would happen. They thought that millions of dollars in additional state aid they sent to local governments would result in property tax cuts.

“There will be a number of legislators who seize on any increase as evidence that local governments are (big) spenders and they will take every dollar and spend it and get more and more and they will take every dollar they can get,” Dayton said. “So they are going to undermine the case we have been making.”

With Dayton saying that increases will “seriously undermine our case,” Revenue Commissioner Myron Frans plans to talk to local government leaders who propose raising tax levies in the hope that they will trim their tax levies.

The latest Revenue Department numbers come from preliminary property tax levy decisions local officials have made. Each governing body needs to make a levy final decision by mid-December. State law does not permit preliminary levies to go up, only stay the same or shrink.

Statewide, preliminary levies always are higher than the final ones. They usually fall a percentage point or less, which if it happens this year tax means levies would rise a bit.

The preliminary levies are a mixed bag, Dayton said. “We reduced property tax increases, but our goal was to reduce property taxes.”

Senate Tax Chairman Rod Skoe, DFL-Clearbrook, said even if levies increase, “the average property taxpayer probably will not see an increase.”

A higher levy does not always mean higher homeowner taxes. For instance, if business property value increases more than home value in a community, businesses would pay a higher percentage of taxes and home property taxes could fall. The situation is different in each community.

Frans and Dayton said that, despite their concerns, they understand the need for higher taxes.

Frans said in Ada, for instance, he learned that when Local Government Aid was falling in the past 10 years, the city decided to buy a new police car every six years instead of every five years. With higher LGA coming, city officials plan to return to the old purchase schedule to try to prevent equipment problems.

Even if property taxes rise, Gary Carlson of the League of Minnesota Cities and those representing other forms of local government say that new money is needed after 10 years during which state aid often fell, or at least did not keep up with inflation.

The levies announced this month, at less than a 2 percent increase, easily could have been 6 percent or 7 percent hikes without the additional state aid, Carlson said.

Salary freezes, hiring caps and other cuts have hampered local governments, Carlson said. “At some point, and maybe it already has started, there is some pressure to fill some of those jobs, to undertake some of those projects, to kind of get back to the traditional flow of services.”

Local governments have held down property taxes for years, said Beau Berentson of the Association of Minnesota Counties. “We are still dealing with a decade of underinvestment, underfunding.”

Don Davis, INFORUM

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