Tax hike hits hard

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 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. 

Considering a move

Wedge resident Beth Solle isn’t sure she can afford to live in her neighborhood anymore. Her tax notice showed a bump of more than 17 percent, or roughly $800, over last year. That’s more than the total property tax payment she made after buying her house in 1989. Now her total payment is almost $5,000. 

“Especially in this economy, they should have been a little more sensitive,” Solle said. “I mean, 18 percent? That’s pretty harsh. If they would have kept it closer to 10, maybe we would all take a big swallow, but 18 is pretty steep.”

It’s steep enough that Solle, despite years of community investment, is looking to move. But she’s skeptical about her ability to sell in the current market. 

“I understand the value has gone up, so my property is at $291,000 right now,” she said. “Do I think in this market I could really get $291,000? I don’t think so, but that’s what their market analysis shows.”

Fulton residents Scott and Sue Grove are also worried about their ability to stay in Minneapolis, and the ability of anyone on a fixed income to do so. The value of their home didn’t change, but their property tax increase was still more than 16 percent. 

“What I’m trying to figure out is if it’s going to be $5,000 next year for a small little house here, it’s just not worth it to live here,” Scott Grove said.  

John Finlayson, a longtime Fulton Neighborhood Association member and local property assessor, said Southwest has remained a desirable place to live despite the implosion of the housing market, which unfortunately has led to higher property taxes.  

“God bless us, this is a high demand area,” he said. “People want to be here for all the amenities, for the lakes, the creek, shopping, the general good condition of properties, so we didn’t go down. North Minneapolis, it’s in the toilet.”

East Harriet resident Matt Perry, formerly the president of his neighborhood’s board, said that disparity illustrates how intricately the entire city is connected. Southwest residents might have felt immune to the foreclosure crisis until now, he said.  

“The health of the city as a whole affects us here in Southwest,” he said. “It highlights for me the dependency we have on each other.” 

But Todd, the city’s assessor, said the highest taxes weren’t limited to Southwest. 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.” 

A perfect storm

Minneapolis Budget Director Heather Johnston said several factors came together this year to produce the tax spike. That, in all likelihood, makes this year an anomaly, she said. 

The biggest factor is pension 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 the case is under appeal and much reform is still needed. Mayor R.T. Rybak, who lives in East Harriet, said that without pension debt, he would have suggested a reduction in the property tax levy for 2011. 

But other factors have also contributed to high property taxes. TIF districts that pay Target Center Debt and fund neighborhood programming were recertified this year. And $54 million in state aid reductions during the last three years have caused the city to seek more income from property taxes. 

Hodges said the continued reductions in state aid have to stop for property taxes to shrink.  

“We’re going to need a fundamental shift in the state-city fiscal relationship,” she said.  

She and Rybak expect the probable Governor-elect Mark Dayton to help with that.

The final factor is a market that shows residential and commercial property values falling together for the first time in recent memory. Even if the commercial market made a slight comeback, it would make a difference, Johnston said. 

The City Council will host a public hearing to discuss and vote on the proposed tax levy Dec. 13, 6:05 p.m., in room 317 of City Hall, 350 S. 5th Street.