“No-new-tax” Property Tax Increase
All other factors being held equal, property taxes will increase by 3.4 percent by eliminating Minnesota’s Homestead Credit—a policy conservatives successfully pushed during the 2011 special legislative session. The worst hit properties will be in greater Minnesota. Particularly hard hit will be farmers.
These findings are based upon a recent analysis conducted by the non-partisan House Research Department. This analysis is based on 2011 data and assumes no increase or decrease in local government levies. Because local levies are held constant, local spending decisions cannot be blamed for the resulting property tax increases. Rather, the increases are entirely due to the conservative plan to eliminate the forty-year-old Homestead Credit and replace it with a homestead “value exclusion.”
Conservative policymakers pushed this plan and incorporated it in their regular session tax bill that Governor Dayton vetoed. In the absence of a budget agreement, a state government shutdown ensued. In order to end the shutdown, conservatives insisted on a variety of cuts to property tax relief programs, including the elimination of the Homestead Credit. Governor Dayton worked to refund some of the proposed cuts, but signed the legislation to limit the shutdown’s cost and harm.
All Minnesotans who own and live in homes valued under $413,800 receive the Homestead Credit. Its elimination led to an annual reduction of $260 million in state-paid property tax relief. In an attempt to soften the Credit elimination’s blow, conservatives offered a homestead “value exclusion.” This “exclusion” reduced the portion of homestead value that was subject to taxation.
Unfortunately, there is no way of removing $260 million in property tax relief without causing property tax increases. The value exclusion reduced the tax base of Minnesota local governments, thereby forcing tax rates higher even if local governments did not increase their levies. The result was higher property taxes not only for homeowners, but for all other classes of property.
Click here for the Minnesota Department of Revenue explanation of how the Homestead Credit elimination and value exclusion translates into higher property taxes.
Total statewide residential homestead property taxes will increase by 3.2 percent as a result of the Homestead Credit elimination and value exclusion, all other things being equal. Ironically, however, other classes of property will see much higher property tax increases. The hardest hit class of property is agricultural, which will see a statewide property tax increase 6.6 percent. Statewide property tax increases will be 4.6 percent for rental properties, 3.8 percent for seasonal-recreational properties, and 2.6 percent for business properties.*
We've provided analysis of the property tax increases that will result for every city and township in the state as a result of the Homestead Credit elimination and value exclusion. The information in this analysis is grouped by House legislative district and Senate legislative district—sorted by the last name of each representative. The information is based on the House Research Department simulation referenced above.
The resulting property tax increases will hit greater Minnesota harder than the seven-county metropolitan area. The total property tax increase in greater Minnesota resulting from the Homestead Credit elimination and value exclusion will by 5.3 percent. The residential homestead property tax increase in greater Minnesota will be 4.8 percent.
This analysis does not take into account reductions to city Local Government Aid, County Program Aid, and other property tax relief programs pushed by conservatives during the 2011 regular and special legislative sessions. Total property tax increases in 2012 as a result of the tax bill passed during the 2011 special session are anticipated to be $376 million or 4.6 percent based on a recent House Research Department analysis. This analysis is summarized in a recent Minnesota 2020 report.
Once again, “no-new-tax” policies are producing property tax increases, as conservative lawmakers push the state’s budget problems on to the backs of property taxpayers and local governments. Sadly, the “no tax policy” applies only to state taxes, such as the progressive individual income tax, which is based on the ability to pay. As shown repeatedly in the past, conservative policymakers are more than willing to compel regressive property tax increases by slashing property tax relief programs. The elimination of the Homestead Credit is the most recent example.
*Due to a complex interaction between the Homestead Credit elimination/value exclusion and the fiscal disparity tax base sharing program, the long-term tax increase for business property will actually be somewhat greater than 2.6 percent.