As Minneapolis home values fall, some taxes increase

If property values are falling across much of Minneapolis, why are so many owners getting walloped in their tax bills -- with some increases of more than 20 percent?

Melissa Paulson is among those feeling the sting. She lives in the Standish neighborhood, not far from Lake Hiawatha. Her home's value held steady, but her proposed tax bill jumped by 17.9 percent. In low-key but heartfelt testimony last week, she asked the City Council to remember people like her who have lost jobs when it decides how much to spend next year.

The paradox of falling or stagnant values and rising taxes is complicated but happens because some properties hold their value better than others.

The proposed bills sent to city residents like Paulson also include taxes for other governmental bodies, including Hennepin County and the Minneapolis school district. But the city levy is the largest share of those bills.

Earlier this year, a city board set the maximum increase in total property tax collections for 2011 at 7.5 percent, although Mayor R.T. Rybak said he hopes to hold that to 6.5 percent. Both figures are actually less than most increases since Rybak took office, but a combination of circumstances is piling more of the burden on homeowners, especially on the South Side.

Last year, every major property category in the city plummeted in value faster than residential property. So even though residential values dropped 4.2 percent overall, homeowners will shoulder 56 percent of the city's 2011 tax burden, compared with 54 percent this year.

The burden would be less if the city slashed spending, but draconian steps such as limiting operations to essential services such as public safety and streets have yet to be seriously discussed at City Hall. Officials say the city has trimmed the number of workers and maintain that it is spending less than 10 years ago, when inflation is factored in.

When it comes to who's getting walloped in the residential sector, it also depends on where you live. In general, homes in the Longfellow community and nearby Standish-Ericsson held their values better than most other parts of the city. Longfellow's Cooper section, for example, was the only residential area in the city where the median home value didn't fall between 2009 and 2010, in the assessor's eyes.

In contrast, the median residential property value in most North Side neighborhoods dropped by at least twice the citywide percentage, topped by Hawthorne neighborhood's 16.2 percent decline.

But even in neighborhoods with generally falling values, some properties buck the trend. For example, City Council President Barbara Johnson lives in the Victory neighborhood, in a house that faces Victory Memorial Drive. That's a relatively desirable area, so her property value held steady while the neighborhood's median value dropped by 4.7 percent. That means her tax bill will jump by about $700.

Little more than a mile to the southeast, near Folwell Park, many homes are seeing drops in their tax bills for next year, in some cases by double-digit percentages. That's because of plummeting values.

That helps to explain, Johnson noted, why no one from the North Side showed up at the council hearing last week at which some South Side property owners complained about tax bills rising by 15 to 20 percent.

About one-third of the tax increase comes from a short-term blip. About 98 percent of Minneapolis homeowners saw flat to lower taxes on their 2010 bills, according to city figures. The main reason is that millions of dollars were restored to the city's general tax base with the expiration of some tax-increment financing districts; TIF is a tool the city uses to encourage business or housing growth.

That revenue helped absorb a 2010 tax increase that's in the same range as what's being considered this year. But now the city has locked up some of the tax base of those expired TIF districts in new districts that will keep it off the general tax rolls for 10 years. The money will be used to pay off Target Center debt and to fund neighborhood programs, so it won't be there to help absorb the 2011 increase. More than 90 percent of residential owners will pay more next year at a 7.5 percent levy hike.

Paulson faces a bill that's $377 higher next year. She told the council:

"I'm just hoping that you don't forget our faces, that we are here and we want to be active members of the community and we want to be able to continue to pay our taxes. If there are things that are unnecessary costs that we could possibly prolong until the economy gets a little more stable, I would really like to think that you guys would consider that and maybe give some of us a break."