Agenda - Council - 06/23/1998 - Laserfiche WebLink

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I I I I I I I I I I I I I CITY FINANCE IN MINNESOTA Just two years ago, Minnesota cities, school districts, and counties were faced with the likelihood of large reductions in state aids, due to the deteriorating financial condition of the State. Since that time, the State has incurred budget surpluses amounting to billions of dollars. Thus far, these surpluses have primarily been used to implement property tax reform initiatives. This has been great for Minnesota property taxpayers, but municipalities haven't received a significant benefit from these windfalls. Every indication is that the current 1998 legislature will continue the trend of compressing property tax class rates, implementing levy limits, adding significant tax increment restrictions and penalties, and returning excess funds collected directly back to taxpayers through rebates, credits, or other types of tax relief. The following is a brief summary of the 1997 legislative issues and changes relating to city government finance in Minnesota. Property Tax Reform - The Legislature implemented a number of initiatives aimed at providing various forms of property tax relief and reform. Class rate changes - Class rates were compressed for several classifications of property including residential homestead, commemial-industrial, apartments, and seasonal recreation property which will spread levies more evenly across existing classes. Commercial/Industrial (C/I) properties benefitted from some of the largest reductions while the class rate for market- rate apartments was also decreased and certain low-income housing will now be treated as a single classification. In addition, target class rates were set for commercial-industrial, apartment, and nonhomestead residential single rental unit property to further reduce those class rates in the future. Education Homestead Credit - An education homestead credit providing each homestead property with a credit equal to 32% of the property's general education tax was established. The credit is limited to $225 per homestead. The credit is deducted by the County Auditor at the time the property tax statements are determined so that homeowners are not required to file an application to receive the credit. ProperW. tax rebate - Minnesota homeowners will receive a 20% rebate of their 1997 property taxes paid, while renters will receive 18% of the portion of their rent that constituted property tax payments (about 3.6% of the total rent paid). There is no maximum on the rebate amount. It is claimed on 1997 income tax returns that are filed in 1998. General education levy reduction - The statewide general education levy was reduced by $93,000,000 per year for taxes payable in 1998 and subsequent years. This basically increased the state's share of education funding from 60% to 65% of the total school levy. The fiscal year 1999 levy is expected to require a rate of 35.5% as compared to a rate of 37.4% for fiscal year 1998. This estimate will likely be even lower as a result of the additional property tax reform measures as discussed are taken into account. I Limited market value - The maximum amount that a qualifying property owner's market value can change from one year to the next has been changed from 10% or one-third of the difference between the current assessment and the preceding assessment to 10% of the preceding year's value or one-fourth of the difference. Property. tax abatement - Local governments are allowed to abate their own tax on a particular property if its expected benefit at least equals the cost to the district and finds that doing so is in the public interest (because it will preserve tax base, provide jobs, redevelop blighted areas, ,I -1-