Jettisoned tax break sets off feud

Minnesota homeowners will lose a popular tax break this year, a change quietly lumped into the hurried budget deal that ended the 20-day government shutdown last month.

Elimination of the Market Value Homestead Credit will save the state $365 million in lost revenue, but cost some homeowners and businesses several hundred dollars a year in higher property taxes.

The change is just coming to the attention of many voters, but it has already triggered a bitter exchange between DFL Gov. Mark Dayton and the Republican chairman of the House Tax Committee over blame for its demise.

The tax credit, which was originally designed to help low- and middle-income homeowners, was eliminated as part of the budget deal to wipe out a projected $5 billion deficit. The program gave homeowners a property tax break of as much as $304 a year depending on the value of their property.

Under the new system, qualifying homeowners can get some of the value of their home excluded from their tax assessments, but that could force higher taxes for the remaining property owners in the county.

"That's going to cause some real wrangling for these cities and counties as they deal with the changes," Minnesota Revenue Commissioner Myron Frans said Monday. "It's a ripple that really flows through the entire system."

The change is getting new scrutiny now that legislators are back in their home districts and Minnesotans have time to digest the budget.

Dayton, however, says Republicans came up with the idea and pushed it in the final days before the budget agreement.

Davids' contention rattled Dayton, who unsuccessfully fought for six months to raise taxes on high earners -- in part to avoid property tax hikes for middle-class Minnesotans.

The governor sent a stern letter to Davids on Thursday telling him his account is "completely and absolutely untrue."

In his letter, the governor said Republicans who control the Legislature inserted the provision in their first budget proposal, "which I vetoed."

Dayton said that none of his budget proposals included a reduction or cut of the homestead tax credit. The governor said he agreed to the elimination as part of the compromise with legislators to end the shutdown, but said he didn't agree with the idea, adding: "I ask you describe accurately who proposed and insisted upon those actions."

Republicans first proposed the idea, Davids said, but Dayton included the provision in his first offer during final budget negotiations.

"So we are both right," said Davids, from Preston.

Delinquent taxpayer

The idea behind the credit was that counties would grant the tax break to homeowners, and then be reimbursed by the state. The problem came as state revenue sank over the last decade and the state often didn't fully reimburse counties most years. As a result, taxpayers got the full break, but counties had the uncertainty of crafting budgets without any idea how much money they'd get back -- if any at all.

Over the years, "the state became counties' largest delinquent taxpayer, by far," Davids said.

Davids said the governor should take responsibility for the budget he signed.

"I find it interesting that he signed it into law, but he doesn't take responsibility because he doesn't like it," Davids said. "There are things in there I don't like, but I voted for it."

Davids, who has been in the Legislature 20 years, said the first-term governor is still learning how things work around the Capitol.

"He's new here," Davids said. "He will get over it."

Dayton spokesman Bob Hume said that Dayton has served in state government for 11 legislative sessions, beginning more than 10 years before Davids won his seat.

The dust-up over the tax break is expected to be the first of many as Minnesotans feel the full effect of the new budget and elected leaders seek political cover -- and begin fermenting their arguments for the next election.

"This is just the first round," said Senate Minority Leader Tom Bakk, DFL-Cook.