Even if that rarest of political events happens this year – a year without new taxes – thousands of St. Paul homeowners will see their property taxes rise anyway.
Meanwhile, most homeowners in the Twin Cities suburbs would see a big drop in what they pay if lawmakers did not impose new taxes.
“Even if no levies change, there’s going to be a wide range of impacts on a homeowner’s tax bill,” said Matt Smith, finance director for the city of St. Paul.
How do property taxes change without the usual method of politicians reaching into the pocketbook? It’s happening through a little-known Minnesota state policy, meant to protect homeowners from spiraling taxes, that is being phased out. And many homeowners could be in for a surprise.
For years, the state has employed something called “limited market value,” which applies to residences, agricultural land and cabins. It creates a split between the actual value of a home and its taxable value.
Even if a home’s value skyrocketed, the taxable value increases were capped at a set percentage each year. In some cases, the gap reached tens of thousands or even hundreds of thousands of dollars.
But limited market value is going away. And with it, tax bills are rising steeply on homes where the taxable value is quickly closing in on the market value. (Homeowners who see huge increases can apply for tax refunds through the state’s “circuit-breaker” rules.)
As local governments begin announcing their budgets over the next several weeks, St. Paul homeowners are already starting behind the eight ball. Without any new tax increases, a typical $191,900 home will have its property taxes rise $54.
But many suburban homeowners would see triple-digit decreases. Here are a few examples for typical, median-value homes: in Mounds View, taxes drop $145; taxes on a Roseville home in the Mounds View School District drops $173; and in North Oaks, one of the wealthiest communities in the state, the decline is $366.
In fact, the only two Ramsey County cities where homeowners would typically see an increase are St. Paul, which has the lowest average home values in the county, and the 1.1-square-mile city of Gem Lake, which has the second-highest home values and sees an even larger spike than St. Paul.
“It’s not something that we as a city did, so we can explain it to our citizens that way,” said Gem Lake Mayor Paul Emeott, who pointed out that local homeowners were hit with a 70 percent tax increase this year to help cover legal costs related to a municipal secession effort.
This year, just 18 percent of the homes in St. Paul were not capped to some degree by limited market value, according to figures provided by Ramsey County. Next year, that number is expected to balloon to 54 percent, which will contribute to likely tax increases next year.
This week, Ramsey County officials proposed a 5 percent levy increase. Despite last year’s $30 million, voter-approved school levy, St. Paul Public Schools expects a $7 million budget shortfall partly due to declining enrollment. And St. Paul is facing a $15.8 million deficit, making it likely that the city is facing a second consecutive significant tax hike.
In an attempt to blunt the impact, two St. Paul Democratic-Farmer-Labor legislators, Rep. Michael Paymar and Sen. Dick Cohen, introduced legislation this year to extend the phase-out of limited market value – scheduled to sunset in 2010 – in effect creating a softer landing for St. Paul homeowners.
“It’s an obscure property tax law,” Cohen said. “It’ll come as a real shock to people.”
The bill got nowhere. Though St. Paul officials testified that something should be done to ease the impact on city homeowners, the organization Metro Cities opposed the bill.
Metro Cities Executive Director Louie Jambois said that limited market value helped homeowners at one point, but that its time has passed.
“If someone gets a break, that means someone else pays more in order to provide the services that government provides,” Jambois said. “Now would be the time to let the market side of property values work.”
Compounded with potential levy increases, local taxpayers could be in for some eye-opening arithmetic when they start adding up next year’s bill.
Jason Hoppin can be reached at jhoppin (at) pioneerpress (dot) com or 651-292-1892.
by Jason Hoppin, Pioneer Press
