Thursday, February 17, 2011

Decreasing Increases in Property Taxes

It’s no secret property taxes have been going up. After the cuts in recent years to state-funded LGA (Local Government Aid), property taxes have risen by 3.2% in 2010, 5.6% in 2009 and an average of 6.9% for years 2008-2010. The Minnesota Department of Revenue estimates that for every $1 cut in aid, property taxes increase by 67 cents. As shown below, the biggest increases have been levied by the special taxing districts.

So my question is if property taxes have increased an average of 6.9% per year between 2008-2010 but only 3.2% in 2010, what has made the increases decrease? Did Governor Pawlenty substantially increase LGA in the final years of his term? Not quite. In 2008 a state law was passed putting a cap on increases in property taxes. The legal limit is the lower of a)inflation or b)3.5%. Last year (2010) it was calculated by inflation: 0.8%. Special levies for debt, public safety and certain other costs are not subject to the cap. (Source: MN Dept of Revenue) So property tax increases are shrinking but last year’s 3.2% is obviously well over the .8% cap. How can this be? This is because any jurisdiction over 500 residents exceeding the cap must hold a Truth-in-Taxation hearing where residents have greater input over the proposed budgets. For example, in 2010 the overall statewide city portion of property taxes was initially proposed with a 5.4% increase but the final increase was only 4%. (Source: League of Minnesota Cities) One would have to assume the Cap and the Truth-in-Taxation hearings have had an impact. Is this law a good thing? I’m sure local government leaders don’t like them as they are under more public pressure. So in short, the state has cut aid to local governments while restricting their ability to make up the difference. Perhaps with Governor Dayton in office whose newly released budget proposal makes no further cuts in LGA, the need to raise property taxes will diminish; or will it considering the budget must clear a Republican house and senate?

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