Some of the state’s biggest commercial property taxpayers, such as Mall of America, Xcel Energy and other large and often out-of-state corporations with significant real estate holdings in the metro area, would be the biggest long-term recipients of a House Republican plan to cut $2 billion in taxes.
“The biggest beneficiary is going to be Nader Ghermezian, who’s not even an American citizen,” said Rep. Ann Lenczewski, DFL-Bloomington, referring to the Canadian developer whose family owns Mall of America. Other major beneficiaries, just in Hennepin and Ramsey counties, include utility company Xcel, large property developers from Bethesda, Md., and Chicago, Hilton Hotels, and such major Minnesota companies as Best Buy, Target and 3M, according to data compiled from House researchers and the counties.
Republicans say that of their total tax cut bill, three-fourths of the benefits would go to individual Minnesotans, including Social Security recipients, military retirees, people with college loans and every Minnesotan who files taxes.
Things change after two years. That’s when the temporary $1,000 personal exemption the GOP wants would end, while the major cut in the statewide business property levy would remain in place.
While initial costs are pegged at $453 million over the first two years, eliminating the business property tax would cost $1 billion during the second two years and nearly $1 billion a year when fully kicked in.
DFLers say the bill, which the House is expected to debate Wednesday, is a bait-and-switch that would give tax relief for Minnesota families now, but reserve the bigger, permanent savings for large corporations — many of them out-of-state — in the future.
Republicans counter that their plan would give relief to small businesses burdened by the statewide property levy and begin to phase out what they deem to be a bad policy of the state encroaching into a revenue source — property taxes — that should be reserved for local government.
“It’s just out of control,” said Rep. Greg Davids, R-Preston, the chairman of the House Taxes Committee.
“For some folks, 40 percent their property tax bill goes to the state. We need to start pulling it back and getting rid of it.”
Mark Haveman, executive director of the Minnesota Center for Fiscal Excellence, said the total statewide business property tax was $592 million when first enacted as part of a broad property tax overhaul in 2001. Since then it has grown to $856 million in 2015.
Jeff Van Wychen, a consultant to local government who was an aide to Gov. Mark Dayton on fiscal issues during his first term, said the increase for homeowners has been far worse — more than 80 percent since 2002 vs. a 45 percent increase in the statewide business property tax. “There’s no need to concentrate all property tax relief on businesses,” he said.
The statewide business levy drives commercial property taxes above those of other states in the Upper Midwest, especially on rural properties and properties worth $1 million and more, surpassing Chicago property taxes, according to data compiled by Haveman.
Van Wychen said that according to an Ernst & Young study, Minnesota business taxes as a percentage of all state and local taxes are slightly below the national average, meaning businesses here are doing no better or worse than other taxpayers.
Save it for the locals
Davids maintains that property taxes are a local revenue mechanism that should be reserved for local governments. Big property tax bills levied on businesses stir resentment and make it more difficult for local government to raise money to fund vital local services, say opponents of the statewide levy, which was enacted in 2001 as part of a deal that also cut business property taxes.
Lenczewski, who was the chairwoman of the Taxes Committee when the DFL controlled the House, said the phaseout of the business statewide levy would drive the cost of the bill way up, from $2.4 billion in the first biennium to $4.5 billion in future years, and that the biggest winners would be big companies, mostly in the Twin Cities and western suburbs like the one she represents.
“This is creating deficit spending with no way to pay for it,” she said in a recent hearing.
Phasing out the statewide business levy, at a cost of nearly $1 billion annually once complete, would require future Legislatures to cut spending or enact politically difficult tax increases.
Davids said the tax debate encapsulates the differences between the parties: “It’s a basic philosophical divide: Does government know what’s best to do with this money, or do individuals?”
Staff writer MaryJo Webster contributed to this report.