Property tax burdens are shifting away from homes

For the first time in 12 years, Minneapolis homeowners will shoulder a smaller share of the city's property tax burden next year.

St. Paul is following suit. There are signs that other parts of the state may be following in a foreclosure-induced dampening of home values.

This doesn't mean taxes for homeowners will drop. But it does mean that businesses will pay some of the taxes that homeowners otherwise would.

"That's a nice shift," said Minneapolis Assessor Patrick Todd.

The trend had been in the other direction in Minneapolis and statewide. In the mid-1990s, residential property taxpayers in Minneapolis represented just one-third of the city's tax capacity.

Residential property now makes up almost 57 percent of city tax capacity for taxes paid this year.

It will ease back to 54.5 percent for taxes paid next year, according to the city assessor's 2008 report.

That's because commercial property value grew about 6 percent in value last year. But residential property value fell by about 6 percent. Foreclosures and tight credit resulted in an oversupply of houses for sale compared with demand from buyers, driving down prices.

In St. Paul, residential property value dropped almost 7 percent in 2007, while commercial-industrial properties rose by about 6 percent, according to 2008 assessments.

Statewide, for taxes payable this year, residential values went up, but not as fast as other property classes. The Department of Revenue doesn't have statewide 2008 assessment totals yet. But the residential share of tax capacity statewide has leveled at 59 percent for three years, after rising from 40 percent for taxes paid in 1995.

Tax capacity is a measure of property worth. For residential homes, for example, the tax capacity is the same as market value up to $500,000, but value over that level counts at a higher amount toward the house's tax capacity, which tends to raise the tax paid. But for businesses and apartments, there's a bigger multiplier effect that results in a much higher tax capacity than a house of the same value.

Also affecting the business tax base was the 2001 Legislature's tinkering with property taxes. As a result, the share of net tax paid by businesses statewide has shrunken in comparison to other classes of property. But they still pay higher taxes for equivalent value than homeowners do.

"Homeowners, none of them have any kind of a clue how much commercial-industrial subsidizes their property tax," said Kaye Rakow, director of public policy for the Minnesota chapter of the National Association of Industrial and Office Properties.

Minneapolis City Council Member Paul Ostrow, chairman of the council's Budget Committee, said Minneapolis can't afford to let its tax burden fall too heavily on either homes or businesses. Otherwise, the city becomes less competitive for new development, he said.

Staff writer Anthony Lonetree contributed to this report. Steve Brandt • 612-673-4438