St. Michael’s Commercial and Apartment Properties Could be Taxed Higher in 2012

The Minnesota State Legislature made a move in the 2011 special session that aimed to ease the local tax burden on property owners that make up the golden nugget of politics these days – the middle class.

However, by repealing the Market Value Homestead Credit, the legislature might have created a situation that hits business owners in the checkbook during a time when many can least afford it.

Why the program was repealed

To balance the state’s budget, legislative leaders from the Minnesota GOP looked to the program for answers. Created in 2001, the market value homestead credit was supposed to allow the state to cut homesteaded property (most private, single-family homes and townhomes) and then reimburse local governments cities and counties the amount of the cut (although the state often didn’t pay the local governments the full amounts they were owed). The credit applies to homes valued less than $413,778 that are homesteaded—or the homeowner’s primary residence.

But to protect these homeowners from a property tax increase, the state and counties will be looking at taxing lower property values (which is happening statewide anyway).

“It was a strange program anyway,” said St. Michael City Administrator Bob Derus. “The intention was there, but when the state started having shortfalls, cities weren’t getting the payout anyway. To that end, it ended up being one of the worst tax policies ever put into play.”

The State Applied Credit checks stopped coming during the Pawlenty administration, particularly after 2003, when the state started seeing budget shortfalls. That left cities and counties wondering what to do when preparing a budget for the next fiscal year.

In fact, the state started reducing payments to cities to balance its budget in 2003, and then did so again in 2005, 2006, 2008, 2009 and 2010, according to a fact sheet on the program from the League of Minnesota Cities.

“Not having the program made creating the next [2012] budget much easier,” Derus said.

Still, some cities were seeing large reimbursements.

Concerns for business owners

Derus is concerned that what cities will see now is a “disproportionate burden” placed on agriculture and commercial land.

“That sliding scale doesn’t help anyone with land over $400,000. The ultimate solution is to rewrite the property tax formula at the state level. They just haven’t been able to do that yet,” Derus said.

Gov. Mark Dayton has pinned the end of the program on Republicans, who “asked for the repeal” of the program, he said.

“They wanted it, they got it. They’re responsible for it,” Dayton said a few weeks after the unpopular shutdown.

Sen. Amy Koch (R, Buffalo) said the repeal was short of the reform Republicans wanted.

"There was no reform,” the majority leader said. “There were no reductions. There was no tightening of the belt for state government. There was just, ‘We have a hole to fill and we're going to figure out which taxes we're going to raise to do it.'"

State Democrats are already filing paperwork to re-instate the program in 2013.