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Half of all outstate Minnesota homesteaders are getting all local government services for the cost of a Big Mac a day, or less.

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Property taxes: You deserve a break today? Perhaps not

  • Article by: D.J. Tice
  • February 28, 2014 - 6:33 PM

To hear them tell it, DFLers at the State Capitol rode to the rescue of Minnesota homeowners last year, ensuring tax relief after a decade of punishing increases in onerous property taxes, especially in outstate areas.

Talk of tax cuts is all the rage this year in St. Paul. So it might be instructive to ponder recently released information suggesting that the property tax rescue may not have been altogether successful — or even necessary.

Property taxes in Minnesota, to put it simply, are complicated. About three people could fully explain why your property taxes are what they are, but you still wouldn’t understand it.

The DFL’s theory is simple, though. Republicans, they say, crimped state aid to cities, counties, school districts and other local entities over the past decade, and this forced local officials to hike property taxes painfully. Reopening the state aid spigot would, DFLers promised last year, allow the locals to reduce the burden.

Hundreds of millions of dollars in various aids duly gushed forth from the 2013 Legislature (including a welcome boost in direct refunds to taxpayers). Local governments also got an exemption from sales taxes worth scores of millions more each year.

Trouble is, property taxes don’t seem to be falling much. Last fall, preliminary estimates actually showed a slight overall increase in local levies. Many local officials, explaining that they’d been madly cutting budgets for years, readily found things to spend the new money on.

But after state officials made it clear they didn’t appreciate being exposed as snake-oil peddlers, there were adjustments.

The final levy calculation, reported Friday, shows that total property taxes in the state, after refunds and credits, will decline by about one-tenth of 1 percent. Let the celebrations begin.

The moral of this story isn’t mysterious, says Mark Haveman, executive director of the Minnesota Center for Fiscal Excellence, a business-backed tax policy think tank.

“No matter how much they [state leaders] want to control it,” Haveman says, property tax levels are set by local officials. State policymakers “can cajole and arm-twist, but it’s still a local tax.”

And some things aren’t hard to predict. What happens when politicians get the chance to increase spending without themselves having to raise taxes? Any guesses?

Nonetheless, it may be perfectly reasonable for some local leaders to boost spending, and even to raise local taxes, especially after some lean years. We happen to have excellent evidence that property taxes in Minnesota, on the whole, aren’t all that crushing a burden — and especially not in outstate Minnesota.

In January, the state Revenue Department released its latest, updated “Voss” report. Named for a former legislator, the periodic study is formally known as the “Residential Homestead Property Tax Burden Report.”

Don’t nod off. Haveman rightly calls this research “government at its finest,” unmatched anywhere in America.

The Voss study links property tax and income tax records for more than 1.3 million residential homesteads across Minnesota. It shows how much homeowners are really paying in property taxes — and how what they pay compares with their income.

The latest data allow comparisons between property tax levels in 2007 and 2011, spanning the Great Recession. Haveman writes in his organization’s “Fiscal Focus” that it is “nothing short of amazing” how affordable property taxes overall have remained.

In Greater Minnesota, Haveman notes, the median homeowner (the one right in the middle) paid a total net property tax in 2011 (after all refunds and credits) of $1,309, or $109 a month.

So half of all outstate homesteaders are getting all local government services for the cost of a Big Mac a day, or less. That’s for schools, city and county services, everything — and it absorbed 2.26 percent of the median outstate homestead’s income. In the metro area, the median tax was $2,379 — notably higher, but still just over 3 percent of income.

What’s more, while median property taxes generally increased from 2007 to 2011, they fell overall as a percentage of income.

It’s important to notice the tricks property tax claims can play without that kind of context. For example, median property taxes jumped 16.7 percent from 2007-11 in the Arrowhead region of northeastern Minnesota.

Sounds ghastly. But that was a jump from $816 to $952 a year.

All this said, property taxes really are complicated. They vary dramatically, and some homeowners do bear unreasonable burdens.

But the Voss data again call parts of the usual story we hear into question. It shows that metro area property taxes are significantly higher than those outstate, even compared with incomes. And while confirming a particular property tax problem in Minneapolis, it shows that the largest population of heavily burdened homeowners is found in metro suburbs (with property taxes above 5 percent of income). They are particularly easy to find in southwest suburbs like Eden Prairie and Plymouth.

It all suggests, Haveman agrees, that the state should stop scattering dollars far and wide, where they may be allowing some to avoid paying a reasonable price for the local services they demand. Instead, property tax rescue missions should be focused even more on targeted programs that do a better job of finding the actual taxpayers in duress.

 

D.J. Tice is at Doug.Tice@startribune.com.

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