Dear Neighbors,
I hope everyone enjoyed spending the Thanksgiving Holiday with loved ones. Our younger daughter visited us from California (and I made the turkey).
I use Melissa Clark’s basic dry-brined turkey recipe.
Property Taxes
Our proposed property tax statements for 2025 have arrived and you’re probably noticing significant proposed increases. These are a few of the things driving the proposed increases:
For all local governments (City, County, and School District) federal COVID relief programs are expiring and costs that were covered by these programs for the past few years will now have to be covered out of local property taxes (or from state funds – more on this, below).
In the case of the City, Bloomington is undergoing an expensive transition from an all-volunteer fire department to a hybrid paid/volunteer workforce and is replacing its 1960s era fire stations in the process. This has been covered extensively in the Bloomington Briefing.
There is a common misperception that your property taxes are driven directly by changes in the assessed value of your home, etc., if the value of your property goes up, your taxes will go up, commensurately. That’s the way it works in some states, but not in Minnesota. It’s actually more complicated than that, here (but it’s also fairer and more stable.) The basic process is as follows:
Step 1: The local government determines its budget.
Step 2: Revenues from non-property tax sources (e.g., service fees, utility fees and revenues from state and federal sources) are deducted from the budget to determine the “Levy”, the remaining amount to be covered by property tax payments.
Step 3: The Levy is divided by the local government’s total property tax base to calculate the amount to be paid in property taxes per dollar of tax base. The tax base for each property is, in turn, calculated by multiplying the assessed value of the property (as of the previous January) by the “Class Rate” for that property category.
- The class rate for home value up to $500,000 is 100%, so the assessed value and the property tax base for such a home are the same. However, the tax base on home value in excess of $500,000 is calculated at 125% of the assessed value,
- Most apartments are taxed based on 125% of their value, and
- Most businesses are taxed based on 200% of their value.
There are many small exceptions to this process, but this is basically how it works. Thus the primary drivers of your proposed property tax increase are, in rough order of importance:
- The local government’s proposed budget increase.
Budget increases are driven mostly by inflation-driven pay increases for local government workers and higher costs for infrastructure maintenance and improvement. The City’s increased costs for firefighting fall into this category as well as the need to maintain and replace the City’s aging infrastructure.
- Changes in the projected amount of state and federal financial aid the local government expects to receive.
As mentioned above, federal COVID relief funding is expiring, which is a big hit to all local governments, including school districts. On the other hand, increases in state aid will offset some of these revenue losses (as discussed, below).
- Changes in your share of the local government’s total property tax base.
The big change here is that the assessed value of office buildings has declined significantly as businesses shifted to telework during the pandemic and now require less office space. Bloomington has a lot of office buildings and, as their share of the tax base decreases, the portion of the levy born by residences will increase.
So, to be clear, if the local government’s levy remains the same and everyone’s property values go up by 10%, no one will face a property tax increase because everyone’s share of the tax base remains the same. The same thing is true if everyone’s property value decreases by 10%. However, if home values increase by 10% and business property values go down by 10%, then homeowners will be picking up a larger share of the bill (and we’re seeing that).
All that being said, these are some of the property tax relief provisions the DFL majority passed over the past two years to minimize the impact of these factors on your property tax bill.
- 2023
- The House DFL’s Tax 2023 bill delivered $648 million of property tax cuts and direct assistance to local communities. This included the expansion of the Homestead Credit Refund, targeting an additional $41 million of assistance over the biennium to homeowners who will benefit the most. Homeowners who faced exceptional property tax increases were eligible for “circuit breaker” relief of up to $2,500. The value limit for the Homestead Market Value Exclusion was increased from $413,800 to $437,100.
- It also contained an additional $100 million for Local Government Aid to cities and $100 million for County Program Aid to help local communities deliver critical public services while keeping property taxes in check.
- We provided unprecedented increases in the share of K-12 school funding provided by the State in the Education Finance bill, and indexed future state funding for education to inflation so you should see relief from future local school property tax levy increases. (Note: our schools are being especially hard hit by the expiration of COVID relief funding.)
- The Renter’s Property Tax Refund program was dramatically improved. By incorporating the credit into annual income tax filings, renters claimed an additional $378 million over the past two years.
- 2024
- Adjusted the special property tax refund so if your property taxes increased by more than 6% from 2022 to 2023, you’ll qualify for a refund of up to $2,500, regardless of your income level.
- Increased the Homestead Credit Refund and Renter’s Property Tax Refund by 20.572%.
- Permitted homeowners who have an ITIN (Individual Taxpayer Identification Number) to qualify for homestead status and claim the Homestead Credit Refund.
- Expanded eligibility for the Senior Citizens Property Tax Deferral program so more seniors can age in their homes.
Some of these savings are reflected on your property tax bill, and some of them will show up as reductions to your income tax bill.
I expect that property tax relief will continue to be an important bipartisan priority in the coming session and I’ve requested a slot on the Tax committee again this session so I can actively participate in the discussion. Most of the local sales tax proposals the Legislature has been fielding are intended to shift tax burdens from property taxes (or income taxes) to sales taxes (especially to sales taxes paid by non-residents of the local government) and I’m not a big fan of that approach.
Finally, it must also be noted that the proposed property tax increases shown in the “Truth in Taxation” statements that we received from the County are maximums. Local Governments can reduce the amount of their proposed levies but cannot increase them when they formally adopt their budgets later this month. You can weigh in with County Commissioners at their “Truth in Taxation Hearing” tomorrow at the Hennepin County Government Center at 6 PM and with the Bloomington City Council at their hearing at Civic Plaza at 6:30 PM on December 16th.
Keep in Touch
Don’t hesitate to reach out if I can provide any assistance. Please follow me on my Facebook page for further updates and invite your friends and family to do so as well.
Thanks for the honor of representing you at the Capitol.
Sincerely,
Steve Elkins
Representative, District 50B
Minnesota House of Representatives
rep.steve.elkins@house.mn.gov