Is tax relief still a possibility?

As it seemingly is every year, freezing or reducing the statewide property tax levy on commercial-industrial property was Job One for commercial real estate industry lobbyists at the state Legislature this past session.

But unlike those other years, this time they can claim at least a partial victory in their unflinching efforts to battle what many building owners regard as the most onerous tax they have to pay -- the state "general levy," which was first introduced in 2001 as part of large-scale reforms of state finances.

In this business-friendly Legislature dominated by suburban and exurban Republicans anxious to do whatever they can to lower the tax burden on "job creators," real estate industry backers were rewarded with a receptive audience at the Capitol.

For the first time, most legislators largely agreed the general levy not only shouldn't be raised, but indeed be rolled back. It was music to the ears of Kaye Rakow, director of public policy for the Minnesota chapter of the National Association of Industrial and Office Properties.

"I can't even tell you, we were so taken aback that after all these years of beating back increases, we now have a decrease in the tax," she told an audience of local commercial real estate industry members last week.

Whether the general levy reduction will actually become law, of course, is still undecided. It was part of the nine budget bills passed by the Republican-controlled Legislature in the closing days of the session that were vetoed by Democratic Gov. Mark Dayton. It's now part of a stalemate over a $5 billion budget shortfall that could result in a state government shutdown.

But that hasn't completely dulled the feeling of accomplishment shared by Rakow and other commercial real estate industry supporters.

"Every year since 2002, with the exception of one, there have been proposals to increase that tax," she said. "The main line that has been used is that businesses aren't paying their fair share. Those proposed increases were anywhere from 25 to 35 percent."

This year, though, the story was much, much different.

Within the first days of the session, Sen. Geoff Michel, R-Edina, chairman of the Jobs and Economic Growth Committee, and four other members introduced Senate File 1, which targeted the state general levy on commercial-industrial property.

The levy was adopted in 2001 as part Gov. Jesse Ventura's property tax reforms that replaced the general education property tax levy with general state funds. The amount of property taxes paid by building owners to their local counties went down, but the creation of a new statewide general fund levy on business and cabin properties was also part of the deal.

Since then, NAIOP says the amount property owners have paid into the statewide levy has risen from $592 million in 2002 to an estimated $779 million in 2010, up more than 31 percent in eight years.

The bill passed by this year's Legislature would cap the amount garnered by the general levy at $739 million starting next year, and then reduces it each year until it is eventually eliminated entirely by 2025.

Rakow said what helped make the bill's supporters' case was committee testimony in which leaders of small manufacturing businesses who owned their own buildings testified about the tax's impact on them.

One of them was Steve Wise, co-owner and chief financial officer of Cass Screw Machine Products of Brooklyn Park, who told legislators the $45,000 he had to pay to the state in property taxes was a burden that was affecting his ability to compete.

NAIOP maintains the statewide property tax is especially onerous on owner-occupied buildings. Unlike cases where landlords rent out the space and can pass the tax burden along in higher rents, businesses that own their own buildings have to write twice-yearly checks to the state -- something that "produces passion," Rakow said.

In his veto of the tax bill, Dayton didn't specifically mention the general levy provisions. But spokeswoman Katherine Tinucci said the governor believes the problem with the Legislature's take on it is that it comes coupled with substantial cuts in state aid to county and city governments.

The Legislature is seeking to cut $800 million in aid to local governments, twice as much as sought by Dayton, which the governor says will trigger higher local property taxes that would more than offset any relief gained under a reduction in the statewide levy.

"Governor Dayton has always been interested in protecting businesses from increased property taxes but under the budget bill he vetoed, in 2012 there would have been a net increase in business property taxes paid even if the general statewide levy were capped," Tinucci said.

So what's next for the general levy? Another commercial real estate lobbyist, Rich Forschler of the Faegre & Benson law firm, told attendees at last week's Minnesota Commercial Association of Realtors event that a compromise probably won't be reached until a government shutdown is imposed this summer.

"I don't see this governor signing an all-cuts budget, and I don't think this Legislature led by Republicans are going to approve a new tax or a rate increase in the existing tax," he said. "So I think you're going to end up somewhere in the middle."

But probably not before a shutdown, he predicted.

Don Jacobson is a St. Paul-based freelance writer.