DFL legislative leaders want to resurrect a tax break they hope could drive down property taxes for many Minnesotans.
State Reps. Ann Lenczewski and Paul Marquart proposed legislation on Tuesday, for the upcoming session in January, that would bring back the market value homestead credit, a $538 million tax break that was scrapped in July to help resolve the state's $5 billion deficit.
The two said Minnesotans are only now realizing the change after state leaders finalized a last-minute budget deal to end the 20-day government shutdown. They revealed the proposal as local governments around the state are finalizing their levies and preparing to mail property tax bills, which could show steep increases.
"This is an issue that has been a sleeper," said Marquart, DFL-Dilworth.
The program saved homeowners as much as $304 a year and applied to houses valued to as much as $414,000. Lenczewski and Marquart said 95 percent of homeowners qualified for the break. Homeowners automatically received the tax credit, and then the state reimbursed local governments for the difference. But as the economy sank, the state didn't always reimburse the total value of the credit. Some communities would bank on full payment but wind up with less, leaving local officials scrambling to balance the budget.
Republicans argued that the state wasn't paying its full share anyway and that some cities preferred doing away with it.
Rep. Greg Davids, who heads the House Tax Committee, said earlier that the local communities didn't like the uncertainty and are better off without the tax credit.
As part of the budget deal, legislators created a new system that allows homeowners to exclude some of the value of their home from their tax assessments but which could force higher taxes for the remaining property owners in a county.
"The exclusion is a delusion," said Lenczewski, DFL-Bloomington.
She said the change amounts to a tax hike. "It's not a cut. It's not a shift. It's a tax increase."
Davids and other Republicans note that it's up to local governments to decide whether to raise taxes. Some local governments have already said they would learn to live with less, which means homeowners won't see any property tax hike.
Lenczewski and Marquart didn't offer a plan to pay for the program, which could be a significant hurdle during the state's fragile recovery. They are also seeking Republicans to sign on as cosponsors.
"I am open to any and all" ways to pay for it, Lenczewski said. "But this has to be a top priority."
Baird Helgeson • 651-222-1288