Monday, August 5, 2013
A newspaper headline this past week declaring that “property taxes could drop” in Minnesota made for interesting reading. Although the figure mentioned, $121 million for next year, was only an estimate, my initial reaction was, “Yes, they should go down, because other taxes are going up.”
Keep in mind that property taxes are set by local governments, such as counties, cities and townships, school districts and other local units such as watershed or hospital districts. Members of those governing boards study their individual situations and determine the level of funding necessary to operate their entity for the coming year. Then they set their levy, and the taxes are collected the following year based on the value of residents’ real property that lies within each taxing entity. Money from the state, mainly in the form of Local Government Aid (LGA), has long been used by cities and counties to help balance their budgets without relying entirely on local property taxes.
With the state facing financially difficult times in recent years, the amount of LGA received by local units of government has gone down. That, however, will be changing next year. Funded by the recently-passed $2 billion tax increase at the state level, this state aid will increase by $80 million for cities in Minnesota and by $40 million for counties. Townships are also due for some of this state money as they will receive $10 million annually, starting in 2014.
But that’s not all. Also passed in the recently-completed legislative session was an exemption for cities and counties from paying the state sales tax on most purchases. According to figures from the Department of Revenue, that should result in a savings to those local units of approximately $172 million. I carried a bill giving cities and counties that tax break, but I was surprised they received both the large increase in LGA and the sales tax exemption.
Homestead credits were also expanded, and the property refunds that taxpayers receive directly from the state will also increase.
So, putting all those pieces together should result in lower property taxes. But, again, it’s up to local officials to determine what they will do with the increased state funding. Many have actually cut employees or programs in recent years in order to balance their budgets, so it’s going to be interesting to see how they handle this.
Also keep in mind that increases in state spending must be paid for. The sales tax extension on the labor portion of farm and other commercial repairs went into effect July 1. A new 4th tier income tax bracket goes into effect this year, giving Minnesota one of the highest tax rates in the nation. And a new tax on commercial storage is set to go into effect next April, although there is much discussion it will be repealed before it goes into effect. In addition, several other tax increases, ranging from car rentals to automobile registration, from digital downloads to satellite reception, and some internet sales, will be going into effect.