State property tax changes translate into higher taxes

Cook County Auditor-Treasurer Braidy Powers is working hard to help property owners know what to expect after the State of Minnesota changed the way it determines property taxes. In comparison with this year’s bills, our 2012 bills are not going to be pretty.

Previously, the state reimbursed counties for each homesteaded property worth $413,800 or less in an amount based on the value of that property, and this reimbursement was passed down to each property owner. The maximum credit was $304, and that was for properties valued at $76,000. As of next year, rather than sending counties reimbursement for homesteaded properties, the state will exclude from taxation a certain portion of a property’s value.

Forty percent of the value of homesteaded properties worth up to $76,000 will be exempt from taxation—an exemption of up to $30,400. For properties worth between $76,000 and $413,800, the state will reduce that $30,400 exclusion by 9 percent of each dollar in value over $76,000. Properties worth over $413,800 will not get the exclusion.

This change will save the state about $260 million a year and bring in about $277,000 less per year to Cook County.

The taconite credit people get in Cook County will continue. It can be a maximum of $289 throughout the county except for Schroeder, where it can be up to $315.

According to information from the Minnesota House Research Department and Minnesota Department of Revenue, “Under the old credit law, the state was reducing the taxes paid by homesteaded property …[by]… promising to pay that portion of the tax to the local taxing districts (i.e., your city, county, school, and other local taxing districts). However, in seven of the last eight years, the state did not pay the full credit amount to at least some local governments, due to its budget problems. This meant each year many local governments were left with a deficit in their budgets because of the state’s inability to pay the amount it owed.

“The state is no longer providing a homestead credit and instead the entire levy is being paid by local property taxpayers. The new homestead exclusion lowers the tax base, which has led to increases in the property tax rates of most local taxing jurisdictions. A property tax rate is calculated by dividing the property tax levy by the total tax base. For properties that are non-homestead, including commercial and industrial property, the higher property tax rates are likely to mean higher property tax bills even if their values have declined. For properties that are homestead, the new homestead exclusion may not be enough to offset the increases in tax rates and the elimination of the homestead credit, thus many homestead properties as well will experience tax increases.”

For a house in Tofte, for example, a $150,000 house that had a tax bill (including county, township, hospital, fire district, Economic Development Authority (EDA), Arrowhead Regional Development Commission (ARDC), sewer district, and school (ISD 166)—not including referendum— taxes) of about $259 would have a tax bill of about $372 just with the changes made by the state. However, with changes proposed by the various tax districts in Cook County and in the county assessor’s valuation of properties, the bill would be about $455.

The overall market value of property in Cook County decreased about 7 percent from the 2011 tax bill to the 2012 tax bill. Proposed levy increases are as follows: North Shore Hospital, 50%; Gunflint Fire District, 25%; Colvill Fire District, 5.1%; Cook County, 2.75%; City of Grand Marais, 1.8%; EDA, 0%. ISD 166 (Cook County Schools) is proposing to reduce its levy by 3.9%. Here are comparisons for properties of three different values in Tofte and Grand Marais, rounded to the nearest dollar. These amounts do not include the school referendum. The “all changes” line includes the changes the state is making plus changes in the assessor’s valuation of properties and in proposed tax district levies: