Archive Hosted by the AFL-CIO

Limited Property Tax Hikes for 2011?

December 06, 2010 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

Minnesota property taxes are expected to increase by 2.6 percent from 2010 to 2011, based on preliminary levy information compiled by the Minnesota Department of Revenue—relatively modest growth by the standards of the last eight years.

Increases in how much the state says it will give some communities (certified aid) have no doubt mitigated property tax increases, although fear that the state will not deliver on its aid commitments partially undermines the efficacy of aid programs as a property tax relief mechanism.

In the last few weeks many homeowners have received proposed levy statements regarding possible 2011 property tax hikes. Local governments are required to certify their proposed property tax levies—sometimes referred to as “truth-in-taxation” (TnT) levies—in September of the year before the taxes are payable. 

Local governments can later reduced their proposed levies, but they cannot increase them. For this reason, final certified levies are sometimes less than proposed levies; on a statewide basis, final 2010 levies were 0.4 percent less than the proposed levies.

Population growth and inflation should be considered when looking at levy growth, while proposed statewide property taxes are growing by 2.6 percent in nominal (i.e., unadjusted for inflation) dollars, the growth rate is only 0.2 percent in real (i.e., inflation-adjusted)* dollars per capita.

There is significant variation in property tax growth from one level of local government to another. Counties will have the lowest rate of property growth; in fact, the real per capita levy of Minnesota counties will decline from 2010 to 2011. Special taxing districts (which include the Metropolitan Council, watershed districts, housing and redevelopment authorities, etc.) will see the largest levy growth.

Figure 1 shows the percent change from the 2010 final levies to the proposed 2011 levies for counties, cities, towns, school districts, and special taxing districts in nominal dollars and real dollars per capita or, for school districts, per pupil.†

Figure 2 shows the distribution of the total 2011 proposed levy by type of local government.

Not surprisingly, there is significant variation in the size of levy increases (or decreases) from one jurisdiction to the next, as different communities confront different fiscal circumstances and local demands. For example, among counties Stevens had the largest nominal levy increase at 14 percent, while McLeod County saw the largest reduction at 3 percent.

Tables accompanying this article show the 2010 final and 2011 proposed levies for all counties, cities, and school districts. (.pdf files) These printouts distinguish between “net tax capacity levies” and “referendum market value levies.”

To make a long story short, referendum market value levies generally fall more heavily on homestead property than do net tax capacity levies. Referendum market value levies are most common among school districts.

There is also significant variation in the level of tax increase by type of property due to uneven changes in property values. In some communities, business property values have fallen more rapidly than residential property values from the 2009 assessment (used to calculate taxes payable in 2010) to the 2010 assessment (used to calculate taxes payable in 2011).

As a result, a smaller share of the total levy in these communities will be borne by business property, while a larger share will be borne by residential property, thereby contributing to larger residential property tax increases. More information on this trend will become available as statewide valuation information is released in coming months.

What explains the relatively low property tax hike anticipated for 2011—which approaches zero after taking both inflation and population growth into account—after much larger increases during most of the preceding eight years? Caps on local property tax increases, referred to as “levy limits,” were likely irrelevant in most communities. Budget cutting in some jurisdictions played a role in holding down statewide levy growth, although it was not the only factor.‡

Increases in certified aid levels likely play a major role in holding down 2011 tax increases. After large reductions through unallotment or statutory changes in each of the last three years, city Local Government Aid and County Program Aid will increase significantly in 2011 based on the amounts certified to cities and counties last summer. While certified 2011 aid to cities and counties will be far less than in 2003, it will be significantly greater than the final 2010 funding level.

While there will be no increase in real per pupil state aid for school districts from FY 2011 to FY 2012 (which corresponds to tax payable years 2010 and 2011), the large cuts seen in previous years have been avoided, at least so far. From FY 2003 to FY 2011, real per pupil state aid to Minnesota public schools declined by 13.9 percent; the decline from FY 2011 to FY 2012 will be only 0.4 percent based on state projections.

The increases in certified state aid for 2011—or at least the absence of large cuts—no doubt played a role in holding aggregate statewide property tax increases to modest levels. However, there is no guarantee that current law aid levels will materialize. Given the massive state budget deficit, some local elected officials are likely increasing (or not reducing) property taxes out of fear that the state will not deliver on its aid commitment to local governments. After the experience of the last several years, in which aid was repeatedly cut even after aid amounts were certified by the state, no one can blame local officials for hedging their bets.

While there is significant variation from community to community and from taxpayer to taxpayer, overall levy increases in 2011 will be modest. However, the situation could have been much better.

Uncertainty in state aid payments—the fear the dollars certified by the state to local governments will not actually show up—undermines the efficacy of state aid as a vehicle for providing property tax relief and creates instability in the funding of local services.

 


* All inflation adjustments in this analysis are based on the implicit price deflator for state and local government purchases, which is the appropriate measure of inflation for state and local governments.

† Population amounts used to calculate per capita growth are based on State Demographer projections. Pupil counts used to calculate the school per pupil growth is based on the most current projection of “adjusted daily membership” from the Minnesota Department of Education.

‡ The combined real per capita revenue base (i.e., the sum of levies plus certified property tax aids) of all Minnesota cities and towns is staying approximately flat from 2010 to 2011, while the real per capita revenue base of counties is falling modestly. Updated information on school district revenue change based on the November forecast should be available shortly.
 

Thanks for participating! Commenting on this conversation is now closed.

5 Comments:

  • Mike Downing says:

    December 6, 2010 at 5:27 pm

    Jeff,

    You have a very good understanding of our property tax system. Can you help us understand what we get in return for our VERY high property taxes for Ramsey County?

    My Township represents about 17% of my property taxes and my School District represents about 35% of my property taxes. I see what we get for these taxes. However, Ramsey County represents >45% of my property taxes and I don’t understand where it all goes.

    Where does it all go?!

  • Carol Becker says:

    December 7, 2010 at 5:09 pm

    Jeff, even though many cities may be seeing low tax increases, that doesn’t speak to the shifting of burden that homeowners are seeing. In Minneapolis, due to the 2001 property tax changes, homeowners saw an increased burden.  Due to the changes in how school referendums are calculated, homeowners saw an increased burden. When home values increased compared to commercial, homeowners saw an increased burden. When home values fell, commercial values fell faster, shifting burden to homeowners.  Adjusted for inflation, I am paying 60% more than I was in 2003. So even though your analysis is probably technically accurate, I don’t think it is reflective of what homeowners are bearing. I also think it is misleading for policy makers as homeowners are seeing a much different picture. I myself am facing a 17.5% tax increase next year on a flat home value. And I know next year will be even worse. Even though taxes overall are not going up much, we need to look at tax burden on homeowners and whether we have hit a breaking point or not.

  • Jeff Van Wychen says:

    December 8, 2010 at 1:01 pm

    In response to Mike and Carol—

    First, Mike:
    You raise a very important question, which I plan to address in a blog post later this week regarding the mandated costs that are borne by Minnesota counties.  I will paste the link to that blog post on this page when it is up.

    In addition, I would note that Ramsey County has an above average concentration of tax exempt property relative to other Minnesota counties due to state government buildings, the state fairgrounds, the St. Paul campus of the U of M, etc.  The large amount of exempt property in Ramsey County reduces the tax base of the County and shifts more of the County levy on to those properties that are not exempt, such as your residence.  This is may not be the major reason why your county property taxes are higher (please see the upcoming blog post), but it is a contributing factor in Ramsey County.

    Carol:
    I don’t disagree with your basic point.  In the article, I note that “In some communities, business property values have fallen more rapidly than residential property values from the 2009 assessment (used to calculate taxes payable in 2010) to the 2010 assessment (used to calculate taxes payable in 2011).  As a result, a smaller share of the total levy in these communities will be borne by business property, while a larger share will be borne by residential property, thereby contributing to larger residential property tax increases.  More information on this trend will become available as statewide valuation information is released in coming months.”
    I avoided saying more about the shift of taxes on to homeowners, pending the release of the 2010 assessment abstract (for taxes payable in 2011).  The new abstract, which should be out shortly, will allow a more detailed analysis of how changes in property values affected pay 2011 property taxes for homeowners and other property owners.  I will likely be writing on this subject in the future.
    On a related note, homestead property taxes have increased significantly for most of the last eight years, even though overall homestead values have not increased any more rapidly than the rest of the tax base.  Most of the homestead tax increases were the result of state policies that have shifted more of the property tax load on to homeowners over time.  For more on this, please see Minnesota 2020’s recent property tax report at: http://www.mn2020.org/issues-that-matter/fiscal-policy/minnesota-2020-property-tax-report-2002-2010
    In your reply, you note that there have been changes in how school referendum property taxes are calculated.  I have not heard about this and would like to know more.

  • Mike Downing says:

    December 8, 2010 at 4:15 pm

    Jeff,

    I look forward to your next article on the matter. Could you look into Hennepin County % of a Mpls property vs. Ramsey County vs. a St Paul or White Bear Lake property?

    A property tax reform colleague living in Mpls told me his Hennepin County taxes only represented about 18% while my Ramsey County represents 45%.

    Thanks, Mike

  • Rachel says:

    December 14, 2010 at 11:36 am

    Jeff has posted a blog with further detail on county property taxes: http://www.mn2020hindsight.org/?p=8419