Minnesota Budget Surplus Brings New Pressure for Property Tax Relief

Published February 1, 2007

If all politics is indeed local, there was no more political issue during the 2006 legislative campaign in Minnesota than property taxes.

From gubernatorial and state legislative candidates to city council and school board elections, rising property taxes and what to do about another year of increases already imposed was the dominating issue of the November elections. The issue was further complicated by the November 29 announcement from the state’s Department of Finance of a projected $2 billion budget surplus.

Taxes Up 8.2 Percent

Taxpayer advocates and property owners, who are facing an overall property tax levy increase of 8.2 percent this year, following increases that have averaged 7 percent over the past three years, are less than optimistic despite the state’s good fortune.

“Using the surplus for property tax relief sounds great, but the devil may be in the details. Anything short of permanent reform like TABOR-style [Taxpayer Bill of Rights] limits or a reverse referendum process may just lead to taxpayers getting ripped off,” said David Strom, president of the Taxpayers League of Minnesota.

Strom’s concern is echoed by incoming House Minority Leader Marty Seifert (R-Marshall).

“We’re going to look at property tax relief first and special interests second,” Seifert said.

Those special interests may be more formidable now that the Minnesota Democratic Farmer-Labor (DFL) party has regained the majority in the House and increased its margin in the Senate. Special interests helped torpedo direct property tax relief at the end of the 2006 legislative session by instead pushing for more state aid to local units of government and public school districts.

“Only increasing aid payments to local units of government or school districts won’t provide any relief” for taxpayers, Strom said.

Target Is Permanent Relief

“Our number one target for tax relief is permanent property tax relief,” said incoming House Majority Leader Tony Sertich (DFL-Chisholm). “One of the ways that we can accomplish that goal is by buying down some of the recent school levy increases.”

Part of the DFL’s reasoning for increased education funding stems from compromises made during the 2003 legislative session, when the state balanced a $4.5 billion budget deficit in part by shifting a portion of education funding to local levels of government.

Reliance on local referenda, combined with increased nonessential spending by city and county governments, has been the primary driver behind recent property tax increases, according to a 2005 report by the State Auditor.

Governor Proposes Tax Cap

But even with both houses of the state legislature controlled by Democrats, the final word on property tax relief may come from Gov. Tim Pawlenty (R).

A longtime advocate of holding state spending increases to a rate comparable to inflation plus population growth, Pawlenty will now recommend the same for property taxes, according to spokesman Brian McClung.

“The governor has proposed a reasonable cap on property tax increases, such as population growth plus inflation, and will be taking that proposal to the 2007 Legislature,” McClung told WCCO-TV in Minneapolis for a November 23 report.

Mark Giga ([email protected]) is director of outreach at the Taxpayers League of Minnesota.