Local Officials Ready For Property Tax Fallout

Minnesota local government officials are bracing for a taxpayer explosion when TnT statements arrive in mailboxes next month.

Officially known as “truth in taxation” statements, the letters will show changes, with possibly dramatic property tax increases in some cases, to reflect a new law.

Cloquet City Administrator Brian Fritsinger summarized the change for his community: “We don’t get any more dollars as a city, but the tax impact (to homeowners) will be approximately 7 percent” higher property taxes.

The situation came in July about when the Republican-controlled Legislature passed and Democratic Gov. Mark Dayton signed a tax bill as part of a budget package ending a 20-day government shutdown.

Tucked into the bill, and nearly unnoticed at the time, was elimination of the state homestead market value credit program, which for years lowered property taxes, especially on lower-value homes. It required the state to send money to local governments to make up for the home tax credits.

The new law excludes some home value from property taxes and says counties, cities, schools and other local governments no longer will get state payments required by the old law. That is a revenue cut for them.

“There is a tremendous amount of variation around the state,” the Minnesota Revenue Department’s Jason Nord said, adding that tax increases could vary from 1 percent to 20 percent if local governments raise property taxes to make up for loss of state money they would have received under the old law.

Statewide, local governments are losing more than $260 million.

In general, Nord said, it appears poor, rural communities will be hardest hit.

Because the new law excludes from taxes some home value, in suburbs with higher-value homes and plenty of businesses, owners of expensive homes and businesses will make up for the tax cuts on other homes.

Communities with few businesses or pricey homes will not be able to shift taxes. That leaves local governments with a choice between cutting services to keep taxes the same as before the law changed or raising taxes to prevent a budget cut.

“Every county seems to be handling this differently,” said Clay County Commissioner Jon Evert, immediate past president of the Association of Minnesota Counties.

Some local governments simply plan to increase taxes as much as they are losing due to the tax change, saying state officials, not local ones, made the change. Evert, however, said that Clay County will not do that.

“We feel we can’t pass that whole 9 percent (increase) on to the citizens, so we are going to absorb about 5 percent of it,” Evert said.

Clay County lost $1.7 million when the law changed, he added.

In Worthington, City Administrator Craig Clark said that his city is losing $204,000.

Since the city has many low-value homes (the average value is $76,700), businesses will pay more. That will make it more difficult to attract new businesses, Clark said.

In Stevens County, even if no taxing jurisdictions ask for increases to their levies, taxes across the county would rise about 4.5 percent to make up for the $600,000 that will not be coming from the state, officials there say.

“The state’s not going to give us homestead credit money, so the local taxing jurisdictions will have to come up with it by directly taxing property owners to replace this loss of income,” Stevens County Auditor-Treasurer Neil Wiese said.

Until the truth in taxation statements arrive, it is impossible to say how the change will affect individual homeowners and how upset they will be.

“Things will change again in late November when people start getting their truth in taxation statements and they can see when it is starting to hit home,” Nord said.

“This does rank up there” with the most confusing tax change in recent Minnesota history, Nord said. “There is a lot of complexity in the property tax system.”

 Contributors to this story include Forum Communications’ newspapers Alexandria Echo Press, Pine Journal of Cloquet, Park Rapids Enterprise, Red Wing Republican Eagle and Morris Sun Tribune.