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Sticker Shock: Why Property Taxes are Going Through the Roof in Minnesota

February 10, 2008 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

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The average property tax on a Minnesota homestead is expected to increase by 71 percent from 2002 to 2008.  Even after adjusting for inflation in the cost of government services, the increase is nearly 30 percent.  Statewide, real homestead property taxes have grown over four times more rapidly than that of other classes of property.
The explosion in homestead property taxes has been mistakenly blamed on increases in local government spending and on a rapid growth in homestead values.  The real culprits are tax policies enacted by state government leaders.

Key Findings
 

  • The average Minnesota homestead property tax has increased by approximately 70 percent from 2002 to 2008.  Even after adjusting for inflation in government purchases, the average homestead property tax increase has been nearly 30 percent.
  • Growth in homestead property taxes from 2002 to 2008 cannot be attributed to growth in local government revenue.  Total statewide real per capita county and city/town revenue and real per pupil school revenue have all fallen over this six year period.
  • While homestead values have increased since 2002, this does not explain the growth in homestead property taxes on a statewide basis.  The homestead share of statewide estimated market value has declined modestly over the last six years.
  • The primary cause of homestead property tax increases from 2002 to 2008 is cuts in state aid to local governments.  Local governments have struggled to make up for the loss of state aid through a combination of cuts in public services, reductions in infrastructure investment, and increases in property taxes.
  • Real per capita local government revenue has fallen much more rapidly then real per capita state government revenue since 2002.  The burden of dealing with state budget deficits has fallen disproportionately on local governments and local property taxpayers.
  • Structural changes to the property tax system enacted by the legislature have also shifted a larger share of the property tax burden away from businesses and apartments and on to homesteads.
  • State policies are the primary cause of real homestead property tax increases over the last six years.  State leaders who are truly interested in accountability must start by recognizing this fact.

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