BUDGET BREAKDOWN // A new Journal series examining city finances

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July 4, 2011
By: Nick Halter
Nick Halter
Coping with property tax pain
A look at what’s driving the spike in tax bills

In 2002, the city valued Corinne Becker’s duplex in Northeast Minneapolis at $234,000. She paid $1,926 in property taxes.

In 2010, the city said her home was worth $266,000, though she had it appraised twice in June and both appraisers said it was worth $182,000. Her tax bill for 2011 more than doubled from 2002 to $4,320.

Becker thinks her home is somewhere between the city’s appraisal and the two private appraisals. Whatever the value, her property taxes — if divided over the year — add about $350 a month to her living expenses.

Working a full-time job while paying for a $12,000 master’s program at the University of St. Thomas, Becker, 43, says she can’t remember the last time she bought clothing at
a retail store.

“What I try to do is save money all year long and pay the (property tax bill) all at once,” she says in her kitchen while playing with her
two dogs.  

Becker’s experience is not unlike many Minneapolis homeowners. While their home values have decreased or stagnated, their taxes have gone up. Becker is paying 13 percent more for property taxes this year than she did last year, even though her home’s market value went unchanged.

Many residents are asking how they can be paying more taxes when their homes are worth less than two or three years ago.

The problem, however, is complex and extends beyond the leadership of City Hall. Property taxes not only pay for city services, they also pay for the Minneapolis Public Schools, Hennepin County and the Metropolitan Council.

The state plays its own role in property taxes. Policies in St. Paul have the power to alter tax levies. And, of course, a sagging economy, home foreclosures and vacant commercial space has exacerbated the problem.  

The city increased its levy by 4.7 percent in 2011, but homes with the same value as last year were hit harder than that. For example, the city portion of Becker’s property tax bill increased by 16.5 percent.

This is because of many factors.

The city recertified half of a tax increment financing district in 2011.  

Simply put, the city’s action removed value from the property tax rolls that would have otherwise funded city services. Instead, special state legislation allowed the city to create a new district that generates about $10 million annually to pay off debt on the Target Center as well as to fund neighborhood revitalization.

The city bought the Target Center in 1995, and as part of its agreement with the Timberwolves it is required to maintain it as a first-class facility. That means not only paying for the arena’s debt, but also spending money to make improvements to the facility.

The city is also faced with an expiring neighborhood funding program and by recertifying the TIF district, the city can continue to give money to neighborhoods.

While those two expenditures were either necessary or highly important to the City Council, the city missed out on significantly lowering the tax increase this year. Becker, whose sister Carol is a member of the city’s Board of Estimation and Taxation, blames state policies passed during the Jesse Ventura Administration that shifted tax burdens from commercial taxpayers to homeowners.

Homeowners paid 33 percent of all property taxes in 1997. In 2011, they will pay 56 percent of property taxes, though other factors such as rapid home value increases in the mid-2000s have contributed to that. Commercial tax rates are still much higher than home tax rates.  

City officials point to state cuts to Local Government Aid as well as increasing pension obligations from two closed retirement funds that pre-date the City Council and Mayor. Others say rising salaries and benefits packages of public employees are also to blame.

The city has a $1.36 billion budget, but that number isn’t a true indicator as to how much the city spends. Much of the city’s revenue comes from services it provides, such as water, sewer and garbage collection.

In total, the city will collect $281 million in property taxes in 2011.

A large percentage of property taxes go toward the city’s general fund. The general fund’s expenditures go toward police (21 percent); parks (17 percent); pensions (14 percent) fire (9 percent) capital projects (7 percent) and public works (5 percent), among others.

Bryn Mawr resident Michael Martens said he doesn’t mind his tax dollars going toward police patrols, firefighters and street repairs. But he says the city needs to tighten its belt when it comes to administrative expenses.

Martens’s three-bedroom rambler is valued at $242,500 and his property tax bill for 2011 was $4,303. In 2002, he paid $2,186 in property taxes.

The 61-year-old self-employed commercial mortgage broker said he has had to take on a roommate and cut down on restaurant visits in order to deal with rising property taxes as well as other rising costs. Martens said he has considered moving out of the city, but because he is self-employed he’s not sure if he would qualify for a loan.

“The city’s budget is so complex,” he said. “I’m not sure anyone reads it except the people who use it.”