politics

Many Minnesota homeowners are learning that their property taxes are expected to rise even as the housing market slumps, a reflection of rising city costs, lagging assessments and a changing system that gave a break on taxes in previous years and is producing a burden now.

The system, called the limited market value program, was created by the Legislature in 1993 in an effort to protect property owners from the tax impacts of sharp increases in property values. The program was supposed to end after 2001, but the Legislature feared that doing so in a hot housing market would sting homeowners with sharply increased property taxes.

Instead, it began phasing out limited market value with the goal of ending it in the 2009 assessment year.

But the phaseout, combined with a sharply slumping housing market, is creating especially jarring variations in proposed taxes this year.

"You're going to have people on the same block, some of whom will have a big increase in taxes and others who will have little increase or a decline," said Matt Smith, an authority on taxes for the city of St. Paul.

Many of those expected to be hit with steep tax increases are feeling the impact of the phaseout of limited market value. The system slowed the growth in the taxable value of properties when home prices were skyrocketing. Now that previously unrecognized value is showing up on tax notices, along with higher taxes.

The phaseout means that a home's taxable value can rise each year to equal an ever greater portion of its actual market price -- a process that will continue until the two are identical. By 2009, all properties must be at their full market value for tax purposes in 2010.

Combined with the swoon in the housing market, the result in some cases is that a home's taxable value can continue climbing while its market value falls, particularly among homes that jumped most in value in earlier years.

In Minneapolis, the owner of a typical medium-priced home whose market value rose during the housing boom but flattened over the past two years could see a 12 percent increase in city property taxes. Meanwhile, the owner of a less expensive home that increased less in price before leveling off might see a 1 percent decline.

In St. Paul, most homes can expect to see increases of between 10 percent and 20 percent. But single-digit increases are expected in about a third of the city's planning districts, and median-valued homes in the St. Anthony Park neighborhood are likely to see a 4 percent tax decrease.

'It seems odd'

Such disparities and confusion over the taxation process have frustrated some homeowners who recently received estimates of their 2008 taxes in the mail and found increases that surprised them.

"When you have your taxes not performing what the market is doing, or what your house is worth, it seems rather unreasonable," said Brent Nelson, 33, of Minneapolis.

Nelson bought his home for $235,900 in 2005, near the peak of the housing boom. But in the past two years the home's market value has remained at $242,000. Meanwhile, its value for tax purposes rose from $191,400 to $220,100, still making up for limits placed on it during the boom years.

Nelson is looking at a 16 percent city property tax increase at a time when some of his Whittier neighbors are dropping prices on homes they're trying to sell.

"It seems odd that it's going up that quickly," he said.

Another problem is that taxes payable in 2008 are often based on property values as of 2006. So some bigger-than-expected tax bills don't reflect the continued slowdown in the housing market through 2007.

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