Decisions made this fall will have an important impact on the property taxes Minnesotans pay in 2020.
School boards, city councils and county commissioners are putting the finishing touches on budgets for next year and how much local property owners will have to pay to fund those plans. In some communities, voters will also go to the polls Nov. 5 to decide things like school levies and other local proposals.
Each year, Minnesota’s state and local governments collect more than $10 billion in property taxes. The money goes to pay primarily for local services like school teachers, snowplow drivers or maintaining community facilities.
Despite the obvious impact on residents’ daily lives, property taxes are often misunderstood, says Mark Haveman, executive director of the Minnesota Center for Fiscal Excellence.
“It’s always been the most hated tax,” Haveman said. “Its reputation is a bit misrepresented.”
While the services that property taxes pay for are typically straightforward, the way the taxes are calculated can be confusing. They’re also often paid in big lump sums, like through a mortgage escrow account or from a property owners’ bank account.
“It is an incredibly visible tax,” Haveman said. “It’s BAM, Oct. 15, there it is.”
Despite the reputation, property taxes account for less than 20 percent of the $55 billion in state and local taxes residents and businesses pay annually. The biggest revenue generators are income and sales taxes, and much of that money goes into the state general fund.
How much a resident pays locally is decided by the taxable value of their property and the rate voters and local leaders have set to tax it. Counties, cities and schools are the largest recipients of property taxes, but some also pay for things like streetlights and storm-water controls.
Each fall, local officials set preliminary levies that essentially cap the amount a local tax can increase for the coming year. After that ceiling is set, local leaders cannot increase the levy beyond that amount when they sign off on the final levy rate in December.
State law allows for limits on how much community leaders can raise local levies each year. Caps on local county and city levies expired in 2014 and have not been replaced, but the state Department of Education continues to provide guidance to school leaders about how much levies can increase each year.
If local officials need a big funding increase for services or want to fund a big project, like a new school or community center, they typically will ask voters to approve a tax increase at the ballot box.
If taxes become too great of a burden for a property owner, Minnesota has tax refunds and rebates that are among the nation’s most generous, Haveman said.
In 2019, Minnesota had roughly $600 billion in taxable property value. That includes homes, farms, apartments and businesses, but also things like forest lands, mines, resorts and railroads.
Residences account for more than half of the state’s taxable properties. Agricultural lands make up another quarter and the rest comes from industry, commercial and other properties.
While housing is the biggest slice of the property tax pie, businesses can have an important impact on the amount of money a local community receives in property taxes. The Legislature also has control over a state property tax that raises about $844 million a year, primarily from businesses, for the state’s coffers.
Historically, property tax collections have risen steadily as property appreciates in value, but things slowed down during the Great Recession.
When it comes to the overall property tax burden, Minnesota falls in the upper half of the 50 states in terms of cost.
A recent study by the Lincoln Institute of Land Policy and Haveman’s Minnesota Center for Fiscal Excellence found Minnesota’s property tax rates were near the national average for homeowners, but slightly higher than average for businesses.
States like Oregon and New Jersey typically have the biggest residential tax bills because of high property values and an increased reliance on property tax revenues to fund government services.
“Minnesota is less reliant on the property tax than the national average,” Haveman said. “It’s a very unpopular thing to say, but we like the property tax. It gets people involved. It’s a fantastic tool for civic engagement.”