Last fall, the newly elected Minnesota legislature did quite a bit of talking about reforming property taxes. I haven’t heard much about it since the session started. Ah, yes, you say. Just wait, the session isn’t over. I guess we can hope that some meaningful reform will come about. My definition of meaningful reform is – simplify, simplify, simplify! The system is so complicated that almost no one can understand it or try to explain it to the average citizen. If we look at the topic historically – reform has come because of a huge public outcry. That does not seem to be happening at this time. Rep. Paul Marquart tried to get some movement going. He set up a special website for citizens to comment on ways to reform the system. I hope he got lots of suggestions.
Information from the Fall, 2006 issue of the Fiscal Focus, a newsletter of the Minnesota Taxpayers Association, states that meaningful property tax reform has happened several times. The first came during the time of the “great depression”. It is hard to imagine today, but there was a time when valuations on property did not enjoy double digit increases year after year. In fact valuations decreased and along with that the ability to generate revenue for governmental units decreased. It must have been devastating to live during that time and see the value of your home and/or business get smaller and smaller each year. The true and full value of taxable real estate in Minnesota fell from $4,525 million in 1924 to $3,327 in 1944. Along with that, there was the issue of per capita income of Minnesota taxpayers. Instead of getting wage increases every year; people were glad to go to work at jobs and receive less in wages than they did the year before. The depression had such a dramatic effect that it took more than eleven years for per capita income to recover. (Per capita income in 1929 was $1,443 and in 1940 it was $1,424.)
At that time over three fourths of all state and local taxes in Minnesota were derived from property taxes. With less money to run the government, there were few choices. The obvious one was to cut spending. There were other suggestions, namely to enact an individual income tax. This idea was dropped at first – but did come into fruition at a later date. With help from a friendly press, taxpayers prevailed and expenditures were cut appropriately. There were 67 counties that had county taxpayer associations. They met with local officials and reviewed budgets and helped to plan reductions.
The next time period for reform was during the mid 1960’s and 70’s. In 1967, the legislature enacted a sales tax at a rate of 3%. The proceeds were to be dedicated entirely to property tax relief. Other taxes were also increased and property tax relief was provided in the form of a new homestead credit and many other credits for various groups. Additional aids were granted to cities and to school districts. However, in the years that followed there was a substantial increase in local levies and citizens asked for limits on local levy increases. This issue kept the Minnesota legislature in a special session in 1971. They adjourned on May 24, started a special session the next day and did not adjourn until October 30. (There was a recess from July 31 to October 12.) The result was what has sometimes been called the Minnesota Miracle. They raised the state share of the cost of funding schools to 70%, expanded homestead credit, eliminated the state property tax and passed a local government aid program. They also enacted levy limits for all local governments. Corporation and individual income taxes were increased and the sales tax went up another 1%. The end result over the next decade showed that while property taxes increased slightly; other non property taxes were picking up the difference. There was one added benefit during the 1970’s. That was the fact that personal income was rising rapidly. From 1971 to 1981 per capita income nearly tripled.
During the 1970’s, efforts focused on tinkering with the classification system to shift the tax burden away from some citizens and more toward others. In 1997 and 1998, the legislature acted to decrease the disparities between residential and business property. In 2001 reform suggested by Governor Ventura resulted in the least distance between these two classes of property since the late 1970’s.
Reforming the property tax system means different things to different people. Usually organizations want a smaller tax burden. A smaller burden means less spending and fewer programs. I do not find it realistic to expect less overall spending in a state that is increasing in population. More people generally equates to more needs. Do the citizens really want less in regard to government? Do we want fewer choices for our students? Is there a state university campus that should be eliminated? Do citizens want fewer police or deputies on patrol? Do they want fewer snowplows clearing streets? Should cities have fewer parks and expect volunteers to mow the grass; street lights every third block, and eliminate swimming pools and ball fields? These suggestions might bring property tax relief; but to me, reform is a different issue. Reform puts a balance or type of fairness into the system. For example, the removal of funding of schools with ag land to me was a reform. It goes without saying that land does not produce students, but homes do. This type of reform should be the goal. Add to that a complete renovation of the system to make it simpler and easier to understand. Strive for fairness, balance, simplicity and understanding in a property tax system. end
