Minnesota property taxes will go down about $49 million for residents who qualify to state aids and credits this year, according to a new report.
The report by a nonpartisan legislative office shows that property taxes would go up $124 million without aids and credits, but new property tax and renters credits will more than offset the increases.
The report has set off a new round of high-stakes political fighting in St. Paul. Legislative Democrats have pledged to lower property taxes through more state aid to local governments and through direct property tax relief in the form of aids and credits.
In a letter to constituents, House Speaker Paul Thissen, DFL-Minneapolis, credited Democrats' work for lowering property taxes for the first time in 12 years.
Homeowners will get some of the largest reductions in property taxes in 2014, about $171 million, or about 5.2 percent lower than last year. But owners of agricultural property, public utility land and commercial property could see their property levy edge up.
Republicans are zeroing in on a similar property tax report for 2015. That report shows property taxes will go up next year, even with aids and credits. However, analysts caution the 2015 numbers are highly speculative and make a rough guess and what local governments will do with their property tax levies.
“We knew farmers and rural landowners were going to be hit hard with property tax increases, but now it appears that homeowners in all tax brackets can expect to pay more despite promises the Democrats made over the past two years,” said state Rep. Paul Torkelson, R-Hanska, who sits on the House Property and Local Tax Division.
Minnesota’s property tax rates are a combination of levies of local government, schools and the state, which means they can vary wildly from community to community.
“The Democrats raised taxes on Minnesotans by more than $2 billion, and vowed this would actually help property taxes go down,” said state Rep. Greg Davids, R-Preston, ranking Republican on the House Taxes Committee. “This report proves they didn’t keep their word and now Minnesotans are going to pay an even steeper price.”
The lead author of the report cautioned that the figures for aids and credits are only estimates based on their best guesses as to how many Minnesotans apply for the tax relief.
The year-to-year comparison for actual taxes paid between 2013 and 2014, the numbers Republicans are highlighting, are the only numbers analysts know for sure, said Steve Hinze, a legislative analyst in the research department of the Minnesota House of Representatives.
Calculating aids and credits, as Democrats are counting on, gets murkier, he said.
The numbers “are actually pretty speculative because there is a new initiative aimed at getting more eligible taxpayers to apply for refunds this year, and no one really knows how successful it will be,” Hinze said.
Democrats say the only number that matters is what Minnesotans actually pay, which will be lower once they receive their aids and credits.
Many Democrats are especially happy that the some of the steepest tax reductions for homeowners and renters are in the rural areas.
Rep. John Persell, DFL- Bemidji, wrote a letter reminding constituents that property taxes were soaring as former GOP Gov. Tim Pawlenty cut millions from local governments.
Now, he said, legislators and DFL Gov. Mark Dayton “moved Minnesota in a different direction” and are lowering property taxes for the first time in years.
Republican gubernatorial candidate and former House Speaker Kurt Zellers is claiming credit for getting DFL Mark Dayton to “surrender” after the government shutdown three years ago.
"Democrats, political pundits, special interest groups, and even many Republicans predicted that we wouldn't hold to our principles," Zellers said Monday, marking the three-year anniversary of the end of the shutdown. "But I did not surrender and the GOP legislative majorities did not cave. Instead, it was Governor Dayton who surrendered to us after two weeks."
Dayton and the Republican-led Legislature could not agree on the budget and sent the state into a three-week partial government shutdown, the longest in state history. The state faced a multibillion-dollar deficit and the two sides could not agree the best way to patch up the budget.
Dayton wanted more than $2 billion in tax increases mostly on high earners. Zellers and other Republicans refused to raise taxes and instead wanted to borrow money from K-12 public schools and sell bonds backed by the state’s tobacco settlement.
Dayton eventually agreed to accept the Republican plan, though remained sharply critical of the borrowing.
While Dayton did not get his way in the shutdown, Minnesota voters jettisoned enough Republicans in the next election to give Democrats control of both the House and the Senate. Zellers lost his leardership position, too.
After their historic gains, Dayton and legislative Democrats eventually did raise taxes on high earners and smokers to balance the state budget. The economic recovery allowed to state to repay all of the money borrowed from public schools.
Zellers said he still believes the tax increases were bad for Minnesotans.
"I understood that it was wrong to force middle-class families to pay more for government during an economic downturn,” Zellers said. "I'm the only candidate who has proven his strength and his commitment to conservative principles to be able to beat Dayton and the liberal interest groups again in November."
Minnesota tax collections surpassed expectations by $168 million over the last year, boosted largely by stronger than expected income and sales tax revenue.
Revenue collections had lagged slightly the last few months, but surging state income tax payments allowed state to take in $235 million more than state budget officials estimated for that period.
Corporate income taxes were down slightly, but higher than expected sales tax revenue helped make up for it. The corporate tax is the most volatile, and wild swings are not uncommon.
Minnesota budget officials warn that the U.S. economy hit "a deep pothole” at the beginning of 2014, resulting in the worst quarterly performance since the depths of the Great Recession in early 2009.
Economic experts attributed the drop to a sharp swing in the trade deficit, a surprise fall in health care spending and extreme winter weather. The bad weather slowed consumer spending, housing, and industrial activity.
Economists say the economy is staring to improve rapidly, with faster employment and income growth, along with improving home and vehicle sales.
Minnesota and Wisconsin residents who live in one state but work in the other could soon have their income taxes dramatically simplified as part of a new tax reciprocity proposal.
Minnesota revenue officials on Thursday offered to lower Wisconsin’s annual payment by $1 million if the Badger state approves of the agreement by Sept. 30.
‘That millions dollars is part of Minnesota’s strong desire to reinstate income tax reciprocity,” said Sen. Roger Reinert, a Duluth Democrat who has worked with other border legislators for an agreement. “This really is us extending a hand and saying, ‘Work with us.’”
Wisconsin and Minnesota have not been able to broker a new arrangement since the four decade old income tax reciprocity agreement lapsed at the end of 2009. Suddenly, 80,000 residents who lived in one state but worked over the border had to file income taxes in both states.
Wisconsin revenue officials could not immediately be reached for comment.
The deadlock has come down to money.
Minnesota revenue officials studied the issue and determined that about 56,000 Wisconsin residents work in Minnesota, more than double the amount of Gopher state residents who cross the border for work.
Minnesota's study concluded that Wisconsin needs to pay about $92.5 million a year due to the difference.
The problem is, that’s about $4 million more than Wisconsin officials believe they should pay.
Minnesota made similar offers in 2012 and 2013, but both offers included the $4 million gap. Wisconsin officials rejected both proposals.
This year, Minnesota legislators decided to see if an additional $1 million might sweeten the deal.
“It really is a desire on the part of border legislators who are trying to make it a little smoother,” said Minnesota Department of Revenue Commissioner Myron Frans.
Differing tax rates between the two states also aggravates the problem.
Minnesota limits the credit it offers consumers for taxes paid in another state to the amount they would pay if they lived in state. Frans said he does not believe Minnesota taxpayers should subsidize Wisconsin’s higher effective tax rate.
Wisconsin officials have said their residents already pay enough.
Reinert and other border legislators said they still routinely hear from residents frustrated with having to file two state income tax forms.
Business owners, Reinert said, are just as frustrated that they have to keep two sets of tax records for employees who live across the border.
The issue boiled over in 2009 as the economy tanked and budget officials in both states were desperate for money.
Wisconsin delayed its payments to balance the state budget, creating a deeper hole for Minnesota's budget officials.
Then-Gov. Tim Pawlenty grew frustrated and let the program expire, saying that Wisconsin’s 17-month delay was too much for Minnesota’s shaky budget.
The new agreement allows Wisconsin to make four equal payments a year, minimizing one-time blows that can be difficult in a sagging economy.
For state leaders, the issue has become a balance between protecting state money and promoting convenience for taxpayers.
Frans said the governor authorized the new $1 million dollar offer, but they refuse to make a deal unless it is fair for all Minnesota taxpayers.
Minnesota still has reciprocity agreements with Michigan and North Dakota.
DFL Gov. Mark Dayton is traveling to Washington, D.C., Wednesday to push for federal money for the Lewis & Clark fresh water pipeline in southwest Minnesota.
Dayton will attend a meeting hosted by U.S. Sen. Amy Klobuchar, D-Minn., with U.S. Secretary of the Interior Sally Jewell. The governor, U.S. Sen Al Franken, D-Minn., and other members of Minnesota's congressional delegation plan to stress the water project’s economic importance to southwestern Minnesota.
Minnesota's political leaders are pressing the federal government to commit funding to reduce or eliminate any additional costs to area residents and local governments.
Minnesota legislators approved an agreement at the end of the last legislative session that speeds the full payment for the $77 million project, which means local communities don’t have to wait for the full federal portion.
On Thursday, Dayton and ten Minnesota business leaders will meet with senior White House officials for a roundtable discussion on Minnesota’s rebounding economy.
Later that afternoon, Dayton will attend a celebration at the White House to honor the Minnesota Lynx for winning their third WNBA Championship in 2014.