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As if the grim budget outlooks weren't enough for cities, along comes a property tax shift toward homeowners that stands to make budget decisions this fall even tougher.   And the reason is complicated.

 prepared for Ground Level, commercial-industrial assessed property values posted a year-over-year decline in 2010 for the first time since 1993.

(Residential homestead market values continued a decline begun in 2009.  Foreclosures and the deflating housing bubble are still responsible for the overall decrease in values.)

When commercial property values decline, homeowners as a group are on the hook for more of the total tax paid.  But add to that shift the fact that commercial property owners pay at a higher rate. In other words, for every dollar a homeowner pays, the owner of a commercial property with the same value pays $2.   So as commercial property values come down, the homeowners' share of the overall tax burden rises disproportionately.

 executive director Mark Haveman says cities are going to have a hard time explaining the effect to the public:

Haveman says one city has contacted him to find out how to adjust the levy to account for the loss of market value.

It's at least partly a problem of perception.  When property values decline people perceive that they are less wealthy even if their income hasn't changed.   And they therefore are less willing to pay higher taxes.  So if cities need to compensate for less revenue coming in from the state or elsewhere and they have higher expenses, increasing the total property tax levy even by 1 percent may be too much for some homeowners.

As the League of Minnesota Cities observed in 2009:

LMC policy analyst Lena Gould shared more on the trends in homestead market valuations.  Larger cities saw more of a dramatic drop in values, but smaller cities showed declines earlier.  Another comparison shows 52 percent of Greater Minnesota cities experienced a decline in property values in 2009 - 2010.  Almost all metro cities, or 94%, lost residential market value.

Minnesota News

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Nancy Lebens

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Commercial and industrial property values have started to decline in Minnesota, presenting homeowners with a doubly increasing burden at tax time.

City woes: Property value burden shifts to homeowners

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