Fight over cabin property tax money back on at Capitol

Cabin home
A cabin home on Swan Lake, near Pengilly, Minn.
MPR photo/Tom Weber

It's hard enough to get a tax increase passed during such a bad economy, but it's even harder for Rick Skogen's bosses.

"It's not the number that's the sticking point. I think it's the concept," said Skogen, business manager for the Pequot Lakes School District.

Rick Skogen
Rick Skogen is the business manager for the Pequot Lakes School District, which has already made $400,000 in cuts in anticipation of whatever state funding is passed this year.
MPR Photo/Tom Weber

The district has already made $400,000 in cuts this year in anticipation of whatever K-12 funding lawmakers end up agreeing on.

An excess levy would really help his district because it would guarantee a local source of money that wouldn't be tied to state funding, Skogen said.

But right now, money from excess levies is only collected from homesteaders - those who live in a district year-round. It's not collected from cabin owners. Cabin owners pay a different tax - a state property tax. That money, estimated at $30 million-$40 million a year, goes into the state's main bank account in St. Paul.

Sixty-five percent of the land in the Pequot Lakes district is for second homes - so it'd be nearly impossible to even put a levy on the ballot, according to Skogen.

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"The public is smart, and the public is smart enough to know that 65 percent of the people aren't paying for a referendum, it doesn't matter to that property owner if the referendum is $500,000 or $5 million," he added. "At that point it becomes a principle.

"And if the principle is 65 percent of the people aren't paying, I don't think I'll vote for it."

Tax Conference Committee
A House-Senate tax conference committee met at the Capitol Monday morning. If any change to the cabin property taxes is to pass, it will likely be included in this year's tax omnibus bill.
MPR Photo/Tom Weber

One proposal at the Capitol would take cabin land off the state property tax and put it back on local school excess levies. But doing that would mean higher taxes for commercial and other business property. That's because businesses also pay that state property tax and they'd be taxed extra to make up for the loss linked to the cabins.

That's why the Minnesota Chamber of Commerce doesn't support the change. Business property taxes are already high and shouldn't go higher, according to chamber lobbyist Tom Hesse.

"We think the structure of the tax should stay the same and we're trying to avoid a $40 million shift of tax burden onto business property," Hesse said.

Gov. Pawlenty has repeatedly said he won't support any tax increases. If he interprets this shift as a tax increase on businesses, that could threaten the proposal.

One supporter of the change is a lobby group for cabin owners, the Minnesota Seasonal Recreational Property Owners Coalition. Cabin owners are demonized on this issue as people who don't pay taxes, according to the group's executive director Jeff Forester.

They do pay, he says, and plenty of them have seen huge jumps in those taxes in recent years. This change, he said, would shift the money they already pay to the state to the local district.

Forester supports the change but doesn't really think it will help schools.

"I think their funding issue is much bigger than the issue of whether or not seasonal property is included on their excess operating levy," Forester said. "It's a small matter, I think.

"I would love to see someone take a bit whack at a new state and local fiscal system in the state of Minnesota," Forester said.

It's an issue that has come up before but doesn't get much spotlight at the Capitol - in part, because it only affects those couple dozen districts with the most cabin land. But one potentially key ally is Sen. Tom Bakk, DFL-Cook. He chairs the Senate Tax Committee and in his community, a small town near Lake Vermilion, there are plenty of cabins.

Bakk suggests that even if the switch isn't made, the state should pony up some extra money for those districts.

"I hope to get something done for the districts that have a lot of capacity," Bakk said. "For instance, if more than 40 percent of your tax capacity in your school district is cabins that are off the levy, then the state ought to provide some kind of additional aid to those districts to help them get an excess operating levy past the voters."

Schools argue that even though the change wouldn't create heaping piles of new money -- it at least sends a signal that everyone will help pay for schools with local money. And that could convince more voters in high-cabin areas to support a levy in the first place, they say.