The plan to help 1 million taxpayers faces big hurdles.
About 300,000 homeowners would get an extra $212 in relief each year, while another 100,000 homeowners would be eligible for the first time.
Hundreds of thousands of renters would see a bump, too, with relief averaging $179 per household.
The $250 million plan also would boost aid to local governments to slow or even halt the rise in property taxes, which Democrats say unfairly burden middle-class taxpayers.
“Property tax relief is a priority,” said state Rep. Jim Davnie, a Minneapolis DFLer who crafted the plan. “We heard an awful lot about property taxes [during the campaign] and we are responding to that.”
The proposal faces significant obstacles. It lacks a clear funding mechanism and the state budget itself still has a projected deficit of $627 million. Gov. Mark Dayton, who proposed a $500 per homeowner property tax rebate earlier this year, was forced to pull that plan back for lack of funding. He has yet to weigh in on the House plan.
Republican critics say the proposal is a gimmick by Democrats to send voters checks in an election year. They warn that Democrats will have to raise other taxes to afford the rebate, which favors metropolitan homeowners over farmers and business owners.
“We are driving people out of the state by raising taxes on job providers to reduce property taxes for some people who pay very little in taxes,” said state Rep. Greg Davids, R-Preston. “There’s no help for small businesses and no help for agriculture. That’s extremely problematic.”
Democrats contend that years of Republican cuts to local government aid forced cities and counties to raise property taxes to maintain services. Property taxes have soared 86 percent in the last decade, costing property taxpayers an additional $370 million.
The new plan is an attempt to resurrect at least parts of the old market-value homestead credit, which Republicans scrapped two years ago when they controlled the Legislature.
At that time, Republicans also eliminated the benefit for renters who earn more than $55,000 a year. Democrats want to restore the program for all renters. Renters with household incomes below $17,930 would get an additional refund of $130 to $380. All others would see an increase of $10 to $80 a year.
Democrats have not outlined a way to pay for the program. House Democrats are expected to release the details of their tax proposal early next week, and are likely to include a menu of tax hikes — including a surcharge on high-income earners — to pay for the property tax relief and other priorities, like early childhood education.
Davnie remains hopeful that a sizable share of the new tax revenue will be roped off for property tax relief.
“There will be a vigorous debate about revenues and then when we are done with that, there will be a cold, hard look at priorities for spending,” he said.
Davnie said the House’s need-based plan improves on Dayton’s original, one-size-fits-all approach, which would have sent a $500 check to nearly every homeowner in the state.
“It’s a more efficient stewardship of public resources that way,” Davnie said.
Democrats also plan to boost notification efforts, to ensure those who qualify for the property tax relief actually get it. They estimate that up to 40 percent of eligible homeowners don’t apply for refunds.
Under current law, about 420,000 homeowners are refunded an average of $830. Of the 330,000 renters that get the renter’s credit, the average refund is $609.
Davnie said he expects the outreach efforts would bring in another 100,000 homeowners to qualify for the program.
Democrats who now control the House and Senate vowed throughout the campaign that they would make lowering property taxes a priority. Along with the direct relief for homeowners and renters, Democrats are proposing $88 million in additional aid to cities and counties to take pressure off local governments and reduce the need to raise taxes.
“It’s time that we provide some real property tax relief to Minnesotans,” said House Speaker Paul Thissen, DFL-Minneapolis. “This proposal will provide much-needed direct property tax relief to middle-class homeowners and renters across the state and boost job creation and economic growth.”
House Minority Leader Kurt Daudt said the program will be cumbersome to manage and ultimately is little more than an election-year giveaway.
“This certainly isn’t reform and it certainly isn’t making our tax system less complex,” said Daudt, R-Crown. “It might be good politics, but it is certainly not good policy.”
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