City dreams buckle under taxes' weight

  • Article by: RICHARD MERYHEW , Star Tribune
  • Updated: February 16, 2011 - 6:24 AM

Falling home values and rising property taxes unnerve Minneapolis homeowners.

Steve and Rachel Maves with their four children Thursday evening outside their south Minneapolis home. The kids are, from left, Charlie, Lola Bea, Caroline, and Christina.

Photo: Jeff Wheeler, Star Tribune

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For more than 20 years, Carol Becker has listened to the protests of Minneapolis taxpayers. She had never seen one cry.

Until December, when three elderly women teared up as they took turns telling a packed City Hall hearing that their property tax bills have pushed them to the edge.

"I've never seen that type of anger and frustration," said Becker, an elected member of the city's Board of Estimate and Taxation. "This is real pain for real people."

Homeowners across the Twin Cities metro area are feeling the weight of a tax burden that's falling more and more on their shoulders. But perhaps nowhere is the stress greater, and the stakes higher, than in Minneapolis, the state's most populous city, its business center and the place that has long prided itself on having the means and the will to be the region's sports, entertainment and convention hub.

Many homeowners are facing double-digit tax percentage increases in 2011 -- and the prospect of more hikes to come. Under that pressure, deep frustration is replacing the pride of a city long willing to pay for the extras.

Some people talk of moving out, if they can. Others are struggling to better communicate their anger to city leaders they often perceive as deaf to their concerns.

"Is there something going on here?" asked Becker, an out-of-work homeowner who testified herself at the December hearing. "I'd say 'yes.' It's not just one-year crankiness."

Mayor R.T. Rybak, no stranger to tough budgets since taking office in 2002, admits this year has been one of the most trying for the city.

"State cuts and pension issues have especially made it hard for us to balance the budget without passing on taxes that I think are way too high,'' he said. "People are very afraid."

Council Member Robert Lilligren, who represents neighborhoods south of downtown, also has noted the change of tone.

"In my ward, there are many people who would say, 'Tax me more if I get a cop on the street. Tax me more if my street gets better lighting. Tax me more if my street gets paved,'" he said. "They see a value in being taxed for something if they get something in return. But I think now we're at a breaking point."

Nearly a decade in the making, the situation has been shaped by forces partly beyond the city's control.

It started with a change in classification rates by the Legislature that resulted in a shift of the property tax burden from commercial and industrial properties to residential. A run-up in home values followed, bringing a steady climb in property taxes. Ongoing cuts in state aid to local governments, along with the city's financial commitment to sports and entertainment venues and its obligation to pay into public pension funds added to the burden.

Then came the recession, job losses, wage cuts and the housing crash. City, county and school districts have struggled, looking to tax increases as part of the solution.

Even so, public jobs and services are being cut, making the tax increases sting even more.

"I was born and raised here and have never left the city and I don't particularly want to. But the tax situation is something they need to address," said Joyce Suek, 59, who faces a double-digit percentage tax increase on her home near Lake Nokomis. "I can afford it. Some people can't. And I won't be able to afford it forever."

Beyond city limits

The frustration bubbled over that December night at the packed City Hall budget hearing that ran past midnight. Seventy-five people signed up to speak; two-thirds addressed the tax issue.

Many scolded the mayor and council members for what they saw as poor management and for not cutting deeper at a time when homeowners are making their own tough choices.

"I think there has to be a more creative way to not only cut the rate of growth, but to also actually cut the budget," said Scot Pekarek, 37, a Realtor and rental property owner whose home is in the East Calhoun neighborhood.

Others said they simply can't afford to pay more.

"I didn't lose my job. I'm not out of work. But I'm just thinking, 'In a down economy, this is acceptable behavior by my local government?'" said Steve Maves, a 37-year-old engineer who also faces a double-digit percentage tax increase on his south Minneapolis home.

The pain will be felt outside Minneapolis, too.

"Things don't stop at the border," said Mark Haveman, executive director of the Minnesota Taxpayers Association. Minneapolis has "benefits that other cities take advantage of."

Tens of thousands of workers commute to Minneapolis each day. Thousands more show up at night to take in sports and entertainment venues and retaurants.

"While they're here, we take care of them," said John Stiles, communications director for Rybak's office. "If there is a fire alarm in their building, Minneapolis firefighters are going to respond. If you come to a Twins game and you have heart palpitations, you get a paramedic from Minneapolis to respond. And if you have an accident on the street, Minneapolis cops will respond ...

"There are a lot of benefits to hosting these people. But the burden falls on Minneapolis property owners."

Two fears

After hours of testimony that December night, the City Council approved a $1.36 billion, 2011 budget that raises citywide tax collection by 4.7 percent, down from the 7.5 percent maximum increase proposed in August. The council also cut the city workforce by 80 people, including 32 firefighters and 24 police officers.

The vote offered no reassurances.

"There are two fears here," Becker said. "One is that we're getting screwed. And the second fear is that it's going to get worse."

The city projects its tax need will increase by 5.5 percent to 6.7 percent in each of the next five years.

In an economy where few can dream of annual salary increases of that magnitude, some owners are feeling that the math is against them.

"You can't pay your mortgage, you can't pay for your utilities. You can't pay for your food, "said Becker, who was laid off from her job in finance at the University of Minnesota in September. She said she feels "closer and closer to that buzz saw."

No easy answers

How bad it gets over the next year depends on how much the Legislature cuts from the current $87.5 million in local government aid to the city. The outcome of the city's ongoing effort to merge several closed pension funds for police and firefighters into a statewide fund also could have a long-term impact.

Knowing the squeeze may well get worse, the mayor plans to meet with neighborhood groups in coming weeks to talk about budget and tax issues in hopes of finding solutions to ease the pain.

"There are no easy answers to holding down property taxes and continuing to fight to lower crime and fix the potholes in a period where all the buildings are worth less and there are huge cuts from the state and there are huge pension debts," Rybak said. "But part of my job is to get the right balance."

The mayor's long-term strategy is to attract businesses downtown to fill up office buildings and increase their market value, boosting the tax base.

"The more people in the city, the more they share the burden," Stiles said.

There are signs the downtown business climate is improving. Vacancy rates downtown declined slightly in 2010 while employment was up, according to Sam Grabarski, president and CEO of the Minneapolis Downtown Council.

"We're not out of the woods yet," Grabarski said. "But Rybak is correct -- if downtown thrives, it really helps in sustaining the neighborhoods and the police and the fire protection throughout the whole city."

For Steve and Rachel Maves, good news can't come soon enough. They bought their Phillips area home for about $180,000 eight years ago, seeing it as the perfect place to raise their four children.

"We just love the diversity," said Rachel Maves, a stay-at-home mom. "The city is a very rich place for families to be."

Their home's value has dropped from a high of nearly $200,000 to about $165,000 in 2010. Their property taxes are still rising.

Steve Maves said some neighbors have told him that they'd be gone if not for the sluggish real estate market. He and his wife have thought about moving, too.

"We're feeling trapped," Maves said..

"It makes me think 'Do we believe it's going to get any better?' If it's not, I should just take my huge loss and leave now instead of sticking around and, in five years, being in an even worse situation."

Richard Meryhew • 612-673-4425

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