Property tax forecast: 12% hike in 2006

09/22/2005

Anthony Lonetree,
Star Tribune
September 22, 2005

Minnesota homeowners face potentially bruising property tax bills next year, according to state experts who are forecasting an average increase of nearly 12 percent in 2006.

A key contributor to the higher bills emerging from budget deliberations now underway in cities, counties and school districts are recent changes in school funding formulas.

While Gov. Tim Pawlenty and the Legislature agreed this year to put new money into the bedrock per-pupil school funding formula, they also called for a significant chunk of additional school funding to come from local taxpayers. In St. Paul, for example, the school board gave preliminary approval to a 22 percent increase in tax collections.

To help citizens better understand where their communities sit on the property-taxation scale, the Citizens League has rush-released its annual survey ranking communities by tax burden for 2005. In the metro area, Minneapolis finished atop the list.

Whether its tax is too high, however, is best left to individual citizens—and not the Citizens League—to decide, said Bob DeBoer, the organization’s senior program associate.

“We’re trying to create a basis for people to start to judge what they’re getting and what they want,” he said. “In the case of Minneapolis, people probably are pretty clear that there’s things you get [there] that you don’t get anywhere else.”

Still, he said, he hopes that citizens are asking tough questions of local budget-setters, whose plans are adding up statewide.

A report by the nonpartisan research staff of the state House has projected a $590 million, or 10.4 percent increase, in property taxes statewide, compared with 2005.

The figure includes all property types, from cabins to businesses to homes, and offers good news potentially for some parcels. Seasonal recreational properties, for example, could see a 2.2 percent property tax decrease statewide. The picture’s not so good for homesteads.

According to the House report, issued in July, homeowners may see property tax bills producing an average increase, on a statewide basis, of 11.6 percent in 2006.

For 2006, the House research report has projected property tax increases averaging 11.8 percent, on a citywide basis, for Minneapolis homeowners. And they already pay the highest percentage of their property values in taxes, according to Citizens League calculations.

Just how high the bills could go will be clearer once the Minneapolis school district weighs in next week with its potential tax plan. Then, individual property owners will receive estimates specific to their parcels in Truth in Taxation notices to be sent in November.

Some Minneapolis taxpayers could see a big jump in the school part of their bill. The levy is expected to go up almost 10 percent, or about $11 million, mostly due to the state’s shifting of some school costs from state aid to property taxes. That’s a 14.2 percent increase for a $200,000 house. But if that house gains a fairly typical 15 percent in value, the school tax bite will increase by almost 33 percent.

Room to move?

Scott Croonquist, executive director of the Association of Metropolitan School Districts, said that many citizens may not be fully aware of just how much the governor and legislative leaders turned to the local property tax this year as a school funding source.

He said districts are prudent, but that the school finance system gives little discretion in altering the mix of state aid and local dollars: “It’s really a state policy decision,” he said.

In its report, the House’s research department noted that for many reasons, the levy projections used to estimate 2006 taxes were more speculative than usual, and that “particular caution should be used in relying on these estimates.”

For example, because of the boost in the per-pupil funding formula, the amount of additional tax money that school districts raise through referendums may be less than projected.

A look back at 2003

But to gauge the potential seriousness of the 2006 tax situation, consider that in 2003, when state-aid payments to cities and counties were slashed, and people braced for sharp property tax jumps in 2004, the House staff projected a 10.9 percent increase, on a statewide average basis, for existing homes—less than what’s being forecast now for 2006.

And while the 2004 increase eventually came in at a more modest 7.2 percent, DeBoer noted that circumstances then were different. City and county tax plans were the potential drivers at that time, he said, and with some cities getting little or no local government aid before the 2003 cuts, there was little reason for some to raise taxes significantly.

School finance is another matter, however, he said. State funding policies mean every district could be facing some difficult taxing decisions this fall.

For the full Citizens League report, go online to: http://www.citizensleague.net and under Category Weblog Archives, click on “taxes and tax policy.”