The Property Tax:Where it’s been—and where it might be headed nextMatt SmithDakota County

MN Association of County AdministratorsMarch 21, 2012

“We all were sea-swallow'd, though some cast again(And by that destiny) to perform an actWhereof what's past is prologue; what to come,In yours and my discharge.”

William ShakespeareThe Tempest, Act 2, Scene I,

Every blip has a story

Real growth rates have varied over time

“A better tax system will be… …more understandable and predictable for taxpayers, so they know how much tax they’re paying & why, and what government is doing with those dollars.

…more fair, balancing citizens’ ability to pay and the cost and benefits of the government services they consume, and building confidence that the tax laws are being applied evenhandedly to all…

A fair tax system will eliminate unfunded mandates by assigning tax responsibility to the same level of government that defines what levels of service will be provided.”

Governor Jesse VenturaThe Big Plan: Service, not Systems , Dec 10, 2000

2001 policy objectives—and actionsAccountable: Make the property tax smaller and more “local”

• State assume basic (Gen Ed) education costs• Complete state funding of court administration• Require cities/towns to rely more on property tax• Transit funding from MVST instead of property tax• New state levy on ‘non-voting’ (CI, cabin) properties

2001 policy objectives—and actionsFair: Make the property tax more acceptable to all taxpayers

• Compress property classification rates to reduce tax disparities—especially for ‘local’ decisions

• New classification system introduced MVHC• Phase out limited market value• Target property tax relief based on ability to pay (circuit breaker)

2001 policy objectives—and actionsCompetitive: Make the tax less costly for jobs and housing

• Reduce high effective tax rates on businesses and rental residential property

• Make future policy discussions about interstate business property tax competitiveness a state policy (and budget) issue, not a local one

History of Major Taxes Percent ShareFY 1962 - 2008

0%

10%

20%

30%

40%

50%

60%

62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

Income Tax Sales & MVET Net Property Other Taxes

53.6%

31.9%

14.5%

0.0%

2001 ReformFY02 FY03

Income 29.7% 29.9% Sales 24.8% 26.0% PTX 29.3% 25.6% Other 16.2% 18.5%

Source: Minnesota Department of Revenue and Price of Government, February 2008

Minnesota Miracle

42.3%

26.5%

19.9%

11.4%

28.7%

17.0%

32.1%

22.2%

Slide from presentation by Eric Willette, MN DOR, to Governor’s 21st Century Tax Reform Commission, August 1, 2008.

Homeowner Effective Tax Rates and PTX % of IncomeCY 1997 - 2007

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

CY 1997 CY 1998 CY 1999 CY 2000 CY 2001 CY 2002 CY 2003 CY 2004 CY 2005 CY 2006 CY 2007

Res Homestead ETR Prop Tax % of Personal Income

2001 ReformCY01 CY02

Res Hmstd ETR 1.40% 1.10%PTX % of Income 1.32% 1.12%

1.67%

1.43% 1.52%

1.05%

Source: Minnesota Department of Revenue and Price of Government, November 2007

Homestead market value grow th averaged 12.6% betw een 2003 and 2007

Slide from presentation by Eric Willette, MN DOR, to Governor’s 21st Century Tax Reform Commission, August 1, 2008.

Property TaxMinnesota’s property tax rank is relatively low (either per capita or as a percent of income).

18

Chart 10Minnesota Property Taxes (State & Local)

Rank Among 50 states and DC, FY 1995-2006

3735 35

2426

24

2019

15

282728

15

181815

171514

0

10

20

30

40

50

1995 1996 1997 1998 1999 2000 2002 2004 2005 2006

Ran

k (o

f 51)

Percent of State Personal Income

Per Capita

Slide from presentation by Eric Willette, MN DOR, to Governor’s 21st Century Tax Reform Commission, August 1, 2008.

Due to Minnesota’s class-rate system, though, tax rankings for some business property types are high relative to homestead property tax rankings.

Chart 11 Minnesota's Commercial and Industrial Property Tax Rankings

12

26

3 59 11

141411

7

242019

23

18

2630

25

0

10

20

30

40

50

1998 2000 2002 2004 2005 2006 2007

Ran

k (o

f 51)

Commercial($1,000 K)

Industrial ($1,000K), 50% personalproperty

Industrial ($1,000K), 60% personalproperty

Source: Minnesota Taxpayers Association, (50-State Property Tax Comparison Studies), Urban 19

Slide from presentation by Eric Willette, MN DOR, to Governor’s 21st Century Tax Reform Commission, August 1, 2008.

Effective Tax Rates 1990-2008

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Commercial-Industrial Non-homestead residential Residential HomesteadAgricultural Total All Properties

Slide from presentation by Eric Willette, MN DOR, to Governor’s 21st Century Tax Reform Commission, August 1, 2008.

Post-reform issues identified (almost immediately):• Can/will the state sustain commitment to fully fund K12 from

its general fund?• How will the state property tax be managed?• Will ‘local’ tax and spending decisions be allowed to be local?

(Levy limits forever?)• How can we better inform/engage taxpayers?

• Intergovernmental fiscal relations: • Adversarial? • Cooperative partnership?

Who gets the property tax?

The current slices

Taxes went down dramatically—for a year

School funding mix

School revenue sources ebb and flow more than total

State aid role is diminishing for cities and counties

The state property tax will be hard to repeal

From the Big Plan to now:• Increasing reliance on property tax in the overall state-local

revenue system• Appropriate role for the property tax is again murky• Increasing regressivity in the overall tax system • New concerns about business competitiveness and property

taxes

If anyone is keeping score…

Derived from MN DOR data:http://taxes.state.mn.us/legal_policy/pages/research_reports_tax_rankings_historical_tables.aspx

And not just here, apparently

What Myron is probably hearing

Citizens’ Jury on Minnesota Property Tax Reform August 2-6, 1999, sponsored by the MN Department of Revenue, produced by the Jefferson Center.

The Citizen Jury’s verdict:

Citizens’ Jury on Minnesota Property Tax Reform August 2-6, 1999, sponsored by the MN Department of Revenue, produced by the Jefferson Center.

Property Tax Working GroupProgress to date

Kathleen Gaylord Dakota County CommissionerFeb. 1, 2012

Property Tax Working GroupCharge:• Examine the property tax calendar

• Determine the efficiency of various components▫ Classifications▫ Credits, Aids▫ Exclusions, exemptions▫ Abatements

• Final report to the Legislature February, 2013

Can we shorten the cycle?

Does it need to be this complex?

Where we are today

• Consensus for simplification/understandability▫ Reduce the number of Classifications

Consolidate agricultural land & buildings classificationsProvide the same benefits to ag and non-ag homesteadsEliminate classifications (i.e. partial interests, relative, cross county line, tiering.)

▫ Four basic classes

• Confine the property tax to local government▫ State funding for state mandates

▫ Eliminate the State General Tax

Where we are today

• Improve Property Tax Informational Notices▫ Include the new MV Exclusion and show both

the EMV and the TMV

▫ Better timing/coordination of notices

▫ Provide basic budget information

▫ Add email and website addresses

▫ Provide web based detail on budgets and levies

• Modify the Truth-in-Taxation Process▫ Engage taxpayers electronically vs. published

notices & in-person meetings

Policy questions for counties• Can we frame the statewide service vs. local property tax

tradeoff as well as K12 has?• Could statewide financing and local delivery long co-exist?

Should they?• How much direct connection to the state budget do we want,

and where?• How do we value the tradeoffs between the unpopularity of

the local property tax vs. its stability for financing locally popular services?

• Where do we want to ‘compete’ for resources: locally or in the state budget process?

• How to best support simpler, less-costly administration of the property tax?

END