What will the budget deal do to property taxes?

The nine budget bills passed by the Legislature and signed by Gov. Mark Dayton ended the state government shutdown. But they left one key question unanswered: Will local governments raise property taxes in response?

Not an easy question. Republicans and DFLers were as divided on that as anything walking out of the Capitol a couple weeks ago.

Local governments make the call on property taxes, so no one knows yet exactly what will happen. But here's a guide to what we do know.

The last best projection says property taxes will rise. In the hours before lawmakers voted on the tax bill , nonpartisan House researchers built a model and made some projections showing property taxes would rise nearly 5 percent.

Statewide, property taxes would be higher by $376 million, or 4.6%, according to the simulation. The overall tax impacts are +5.8% in Greater Minnesota and +3.9% in the Metro area. Overall tax change effects vary by region from a low of +2.4% in SW Hennepin County to a high of +7.3% in south central Minnesota cities.

On a statewide average basis, property tax changes vary by property type from +3.7% (on commercial-industrial property) to +7.4% (on apartments). Increases on other large property types are 4.5% on residential homesteads, 6.8% on residential non-homestead property, 5.6% on agricultural property, +3.9% on public utility property, and 3.9% on seasonal-recreational property.

That seems pretty definitive. DFLers hammered away at that during the debate -- the GOP's no-new-taxes pledge at the state level would put the screws to homeowners and businesses because local governments would raise property taxes. Projected out three years, the collective increase would approach $1 billion.

Tax committee chair GOP Sen. Julianne Ortman dismissed the assumptions used to make the projections. She said that they assumed cities and counties would raise property taxes to make up half of any local aid cuts, but that it hasn't happened in the past. When faced with aid reductions in 2010, "local officials did the responsible thing of not levying back those reductions," she said. "They didn't do it."

She also argued that the projection assumed increases in local government aid for 2012 and 2013 "that were never going to happen" and that local governments didn't build into their spending plans.

Local officials have kept property tax increases in check. Despite the worst recession in decades and perpetual worries about huge cuts in state aid, local governments have managed to balance their budgets without major property tax hikes.

"Going back to 2008 we've seen remarkably low property tax increases," said Gary Carlson with the League of Minnesota Cities. Given the lousy economy, "going to (property owners) for a tax increase is very, very difficult."

Dakota County Commissioner Tom Egan laid out the challenge to his county in an op-ed Thursday.

All in all, the estimated total loss to Dakota County for state fiscal year 2012 /calendar year 2011 is $7.9 million and an estimated ongoing annual loss into the foreseeable future of $4.3 million. The direct impact to Dakota County residents/taxpayers this year, which cannot be made up simply by adjustments, is $5.8 million.

Egan also chastised lawmakers. "The state, once again," he said, "has proven to be less than a dependable financial partner."

Bottom line, says Carlson: "We're definitely going to see further pressure on property taxes. This is the fifth consecutive year that we've had some level of reduction in the monies share from the state to the cities."

The state and local tax burden on Minnesotans is pretty stable. The data come from the state budget department's "Price of Government" report from March.

So for every dollar you earned in personal income last year, you paid about 15.8 cents overall to state, county, township, and school districts for services during that year -- pretty much what you've paid on average for the past seven years.

Not a perfect measure of the state's total tax burden. Still, it's a good barometer of the price citizens pay for government in Minnesota.

The data beyond 2011 are projections. If they hold true, Minnesotans will pay less per dollar than they do now in state and local taxes. That's assuming the economy improves and incomes rise faster than taxes.

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