If you think your property taxes are rising rapidly, it's not your imagination.
According to a new report from nonprofit think tank Minnesota 2020, Brainerd homeowners have seen their property taxes increase by a staggering 56 percent since 2002 in inflation-adjusted dollars. Baxter residents have seen a 21 percent jump. And homeowners are being hit around the state. The average homeowner property tax in Minnesota has increased by 29 percent since 2002.
However, revenue for K-12 education, police and fire protection, roads, parks and recreation, and other public services and infrastructure has declined over the same period. Why are we paying more and getting less?
The No. 1 reason: state aid cuts.
In Minnesota, all income tax revenue and 95 percent of sales tax revenue go to state government. In exchange for its near monopoly on major taxes, the state is charged with sharing a significant portion of these dollars with local governments to help hold down local property taxes.
However, the state of Minnesota has responded to the ongoing budget crisis by cutting back on the income and sales tax dollars that it shares with counties, cities, towns, and schools. Over the last six years, total state aid to all Minnesota local governments has fallen by $2.4 billion in constant 2009 dollars. In response to this loss of funding, local governments have been forced to cut budgets and increase property taxes to address gaping budget holes.
State government has shifted a disproportionate share of its budget problems on to the backs of local governments and local property taxpayers through excessive state aid cuts. Because of state aid cuts, local government revenue has fallen much more rapidly than state government revenue.
And homeowner property taxes have grown about two times more rapidly than all other types of property taxes after adjusting for inflation. On a statewide basis, the more rapid rate of growth in homeowner property taxes is also due to state tax policies that have shifted a larger share of the property tax on to homeowners over time.
Since Governor Pawlenty came to office, the state of Minnesota has been in a recurring budget crisis. During the first five years of the Pawlenty administration, per capita state tax revenues fell by five percent after adjusting for inflation, with another eight percent decline anticipated in the current fiscal year. While real per capita state spending has also fallen, the spending decline has not been nearly as great as the drop in revenue.
Minnesota is now confronted with yet another budget deficit even larger than that experienced in previous years. If the state continues to respond to its deficit problem through large cuts in aid to local government, we can expect the same results: higher property taxes and less funding for schools and other public services.
Rather than continuing to shift the state's budget problems on to local governments and local property taxpayers through disproportionately large state aid cuts, Minnesota 2020 urges state policymakers to consider a balanced approach that involves prudent reductions in state spending combined with increases in progressive state taxes, such as the state income tax. Unlike property taxes, income taxes do not fall disproportionately on low and moderate income families who have the least ability to pay.
Moreover, state policymakers need to come clean about the true cause of rising property taxes in Minnesota. Since 2002, the rapid growth in property taxes in general and homestead property taxes in particular is primarily the result of state policies, not local spending decisions. True reform to the property tax and state aid systems will not come about until policymakers acknowledge-or citizens compel them to acknowledge-the real causes of property tax increases.
Jeff Van Wychen is a Minnesota 2020 research fellow focusing primarily on property tax and state and local budget issues. For the last 23 years, Jeff has been a policy analyst for various local governments and nonprofit organizations.
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