Minn. lawmakers hope property tax help will stick

Minnesota legislators used to catching heat from constituents for rising property taxes that are largely out of their control think they've settled on a way to ease the blowback.

In their now-finished session, they heaped hundreds of millions of new dollars into state allowances to schools and local governments while also bolstering programs that supply direct-to-homeowner tax credits. Majority Democrats who crafted the new tax law signed last week also temporarily imposed limits on how much cities and counties can raise through local levies and restricted schools from seeking more money through tax referenda.

The caps mark a stark shift in direction for a party that railed against past efforts to tie the hands of local officials when it comes to taxes.

"When you're putting that kind of resources in, then I think it's appropriate to ask for a one-year limit in the levy," said Senate Taxes Committee Chairman Rod Skoe, DFL-Clearbrook. "It's appropriate to let all this stuff settle out for a year before we see other levy impacts."

Because property tax levels are set the calendar year before payment is due, the moves virtually assure no steep climb in the tax bills voters will be facing when the 2014 election rolls around. Two months before that election, some homeowners also will get written notice from state government reminding them of tax credits they can claim.

The new law puts $120 million more into a property tax refund program for homeowners -- making 116,000 more people eligible and entitling about 315,000 existing recipients to larger checks. The average refund is projected to climb from $830 to more than $1,000. The program is open to people with a household income of $105,000 or less who pay a certain percentage of their earnings in property taxes.

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The focus on reining in property taxes was a central campaign plank for Democrats, who gained control of both chambers in the last election. But state lawmakers have little control over how much is charged because levies are predominantly set by local officials and school leaders.

That's why they set aside another $120 million in extra aid to cities and counties, which they hope will contain property taxes that have jumped over the years. The money helps local governments pay for police, fire, snowplowing and other services. It is spread out through a complex formula, so not every recipient gets an even cut. It flows to all but roughly 80 to 90 cities with populations exceeding 2,500 people.

The state also exempted local governments from having to pay sales tax on supplies or other purchases, a collective savings to them estimated at $100 million or more per year.

In exchange for the help, the Legislature dictated that new local levies be held to 3 percent or less. Some cities would have to freeze their tax rates if their new state allowance is considerably higher than the prior year. There are built-in exceptions for municipal governments dealing with natural disasters or are paying off previous debt obligations.

Cloquet Mayor Bruce Ahlgren, president of the Coalition of Greater Minnesota Cities, said he and his peers are thrilled to be getting more money after watching the state freeze or reel back its aid over the years. He said local officials said they could keep a lid on property taxes if the state proved a willing fiscal partner, and the limits just assure that.

"By putting levy limits on it they'll make sure we keep our promise," Ahlgren said. "We would anyway."

He said the extra aid he expects for his city equates to what would come in through a 5-percent property tax increase that local officials won't need to impose, and could possibly prompt a levy decrease if everything lines up right.

Some experts are watching for possible side effects from the restrictions.

"Levy limits can create all kinds of weird incentives and perverse incentives," said Gary Carlson, who lobbies for the League of Minnesota Cities.

In the past, some local leaders felt pressure to raise taxes up to the limit because they feared losing ground if the caps hung around. Skoe, the senator, said he has no intention of extending the one-year limit.

Rep. Linda Runbeck, R-Circle Pines, said the hefty infusion of new money to cities could lead them to create or expand programs in ways they can't afford later on without a continuing state commitment -- or higher property taxes.

"It gets out of control once you signal we're going to be able to spend again," Runbeck said. "The search for innovation or finding ways to be efficient will subside because the new spigot of money is open."

For schools, the year freeze on operating referendum also expires after one year. School districts that hadn't decided before June 30 to ask for voter approval for new tax dollars to supplement their classroom aid won't be able to. The state is allowing certain school board-approved levy increases, but many districts will have those costs absorbed by the state anyway.

Schools that are seeking renewal of expiring levies will be permitted to go ahead as planned -- a concession from lawmakers that Bob Meeks of the Minnesota School Boards Association said made the broader restriction palatable.

"If they didn't have that provision in there you'd have districts screaming at the top of their lungs," Meeks said.