About 60 percent of Minneapolis homeowners could see a higher property tax bill as a result of Mayor Betsy Hodges’ proposed 2017 budget, based on preliminary estimates released Monday by city staff members.
City Council members peppered finance staffers with questions at an initial hearing on the budget, presaging concerns that may resurface as the council wades deeper into the plan this fall. Some asked for more detail about the tax effect on homeowners and apartments, while one questioned the need for some proposed spending increases.
Hodges’ proposed $1.32 billion budget for 2017 spends 7.6 percent more than this year. It adds about 59 new employees, or 148 after factoring in hires for one-time construction projects.
The mayor has proposed a 5.5 percent increase in the amount the city collects in property taxes, $16.3 million more, largely to cover increased spending from the city’s general fund. The discretionary general fund accounts for about a third of the city’s overall budget.
Since the levy is spread out over the entire tax base — across residential, commercial and apartment properties — the effect on individual properties depends on a variety of factors, including whether a property is increasing in value.
But early analysis by city staff members shows that about 40 percent of just over 100,000 residential properties in the city would see flat or decreasing taxes, while about 60 percent would see an increase. Precise numbers weren’t released, but charts showed that nearly 35 percent of homeowners might see their property tax bill rise more than 5 percent.
“What’s surprising about this is the number of homes that are in the greater than 5 percent increase” category, said Council Member Andrew Johnson, who asked for more detail about homes seeing increases significantly higher than 5 percent.
Increases will be felt differently in different areas. Data released earlier this year from the city assessor’s office show that home values are rising fastest in several neighborhoods with expensive properties, such as Marcy Holmes, the North Loop and Nicollet Island-East Bank, as well as lower-cost areas hit by the foreclosure crisis, such as Midtown Phillips, McKinley and Phillips West.
“A 5 percent increase on very high-value homes is different than a 5 percent increase on very low-value homes,” said Council Member Lisa Bender. “Just in terms of the real dollar amounts that people are spending on property taxes.”
A single-family home at the median value of $190,500 paid about $1,108 in city property taxes this year.
Apartment values are also rising dramatically, however, and increased property taxes are generally passed on to tenants through higher rents. About half of the city’s population is renters. Council Member Jacob Frey asked for more detail about how the budget would affect apartment properties.
Council Member Lisa Goodman questioned the need for the general-fund increase. “There’s no real explanation for why we need $13 million more in spending, other than we want it,” Goodman said.
Hodges has proposed about $6.7 million in new, ongoing general fund spending, about $3.7 million of which would go to public safety. Offsetting the boost would be $2 million savings in reduced health care costs.
Hodges has also proposed another $7 million in one-time general fund spending that would include $2.6 million for affordable housing, plus new money for an Inclusive Engagement Action Team, Creative City Making and the Climate Action Plan. Another $500,000 was budgeted toward the operating reserve of the new Downtown East Commons park.
“There’s many good things in here,” Goodman said. “Some of them, though, are not totally necessary.”
The city’s chief financial officer, Mark Ruff, said that the one-time expenses are largely being funded out of the city’s fund balance, so cutting them would not necessarily reduce the city’s property tax levy.
Individual departments will present their budgets starting Sept. 22, and the budget is scheduled to be adopted on Dec. 7.