Tax hike hits hard

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December 6, 2010
By: Jake Weyer
Jake Weyer
// This year’s double-digit property tax increase has Minneapolis residents fuming //

City Hall was deluged Nov. 18 with calls from property owners shocked to find notices of double-digit property tax increases in their mailboxes a day earlier.

City Assessor Patrick Todd said he had to start routing calls through the city’s communications office because he had enough to bury him all day. Some City Council members were equally swamped.   

“The phone is ringing off the wall today,” said Council Member Meg Tuthill (10th Ward).  

The proposed tax increase is the city’s response to growing pension obligations, cuts to Local Government Aid (LGA) and recertification of Tax Increment Financing (TIF) districts that fund neighborhoods and pay Target Center debt. The hike is based on a 7.5-percent, $20 million levy increase, which translates to an actual tax increase of roughly 10 percent to 20 percent for most Minneapolis property owners.

“The tax levy is different than what your property taxes are,” explained Council Member Betsy Hodges (13th Ward) Nov. 17 at her ward’s budget meeting. “How it affects you is going to depend on a whole bunch of factors.”  

The most significant of those factors is property value, which is based on city assessments. Properties with lower values pay less in taxes, while properties that maintain or increase their value pay more.

Citywide this year, the values of commercial, industrial and apartment properties are well below the value of residential homes, even though residential properties as a whole are also down. That means homeowners are shouldering more of the tax burden, even if their properties lost value this year. Homeowners whose properties maintained or gained value are expected to pay the most.

Shock and outrage

At a packed public hearing about the proposed increase Nov. 18 in City Hall, homeowners expressed shock and outrage about the tax statements many of them received only a day earlier.

City Council President Barbara Johnson (4th Ward), who presided over the meeting, said the county was responsible for mailing the statements. Mayor R.T. Rybak added that the timing was bad and even caught the city off guard. He said steps were being taken to address the problem.

The public hearing was the second of three. The first was in August before the Board of Estimate and Taxation, which voted to approve the 7.5-percent levy increase. The final hearing will be Dec. 13, when the City Council is expected to vote on the levy.

“When we vote, we will do it with the public input in mind no matter if we get it that day or before that,” Johnson said.

Council members got an earful of input at the meeting from residents concerned about their ability to afford living in the city.

Mike Matthews, a 13-year Fulton resident, bluntly told the mayor and council members that taxes have driven him out of his home.

“I just came to introduce myself, to say hi, and I’m also saying goodbye, because we’re going to be moving to Edina, across the street, a little rambler,” said Matthews, whose tax statement showed an increase of more than 13 percent. “I just can’t afford these taxes anymore.”

David Holland, who lives in a Stevens Square condominium, said he thought the increase in property value and taxes on his statement was a mistake.

“I went door knocking because I was outraged,” he said.

Logan Park resident Ray Dehler said his statement showed an increase of nearly 17 percent, with no increase in home value. He urged council members and the mayor to take another look at the budget.

“I’d like the city to take a look at non-essential services... just make sure we have our non-essential services cut first,” he said.

Ann Berget, a 43-year resident who lives in Kingfield, said her statement showed a 17.5-percent increase, which would be added to a 100-percent hike she’s seen since Rybak took office.

“I don’t know if anyone during that period has experienced wage increases that would offset those burdens,” Berget said. “I have not. And I’ve been employed the whole time. I’ve been really fortunate.”

One repeated concern from speakers was the difficulty residents on fixed incomes would have paying the tax increases. Some attendees were also worried about the city’s ability to attract new homeowners. At least one resident said she couldn’t afford her house if buying today.  

The majority of meeting attendees were from Southwest Minneapolis, but the city’s assessor, Patrick Todd, said in a private interview that the highest tax increases were spread throughout the city. He said roughly 30 percent of Minneapolis properties saw a tax increase between 10 percent and 15 percent and another 37 percent saw a hike between 15 percent and almost 20 percent.

“So unless 67 percent are sitting in that Southwest quadrant, it’s pretty well dispersed across the city of Minneapolis,” he said. “You just can’t concentrate it in that area.”

‘An incredibly tough situation’

Rybak and Johnson both expressed regret for the proposed increase at the end of the public hearing, with Rybak saying the city faced “an incredibly tough situation.”

Several factors came together at once this year to contribute to the increase, they said.  

“I don’t mean to make excuses, but I just want to repeat some of the challenges that we have,” Johnson said.

The biggest factor this year, she said, is debt owed to the Minneapolis Police Relief Association, the Minneapolis Fire Relief Association and the Minneapolis Employees Retirement Fund. The city has fought mismanagement of the funds in court and won, but litigation is ongoing. The city does not have control over the funds.

Rybak said in his budget address in August, and it was repeated at the meeting, that he would have proposed a decrease in the property tax levy if not for pension debt. Still, other factors have driven property tax increases.

TIF districts that paid Target Center debt and funded neighborhood groups expired in 2009, returning their value to the general tax base and providing property tax relief for 2010. But the city voted to recertify half of those districts to continue meeting the needs of the Target Center and neighborhoods, contributing to higher property taxes in 2011.

Additionally, the city has seen a $54 million reduction in Local Government Aid (LGA) during the last three years, prompting the city to recover that revenue through property taxes. The outlook for future LGA is increasingly foggy.

The final factor is a significant shift in the market value of commercial and residential property values. In 1997, commercial and industrial properties accounted for 56 percent of the city’s property taxes, while residential properties made up 33 percent and apartment buildings paid 11 percent. In 2011, residential properties are expected to pay 56 percent of the tax total, with commercial and industrial properties making up 35 percent and apartments covering 9 percent.  

This is the first year in recent memory that commercial and residential property values are both down, said Minneapolis Budget Director Heather Johnston. Even if the commercial market made a slight comeback, it could have a significant impact on what is expected of homeowners, she said.

Council hearing

The City Council will host its final public hearing on the property tax levy Dec. 13 at 6:05 p.m. in room 317 of City Hall, 350 S. 5th Street. It will vote on the levy and the city’s 2011 budget at that meeting.