The problem
Property taxes have become a hot topic in Minnesota as bills have soared in recent years. Alpha News reports:
Two months ago, an Alpha News/RMG Research poll of registered voters in Minnesota found that 60% of respondents were very concerned about rising property taxes — another 27% of those surveyed said they were somewhat concerned about rising property taxes.
Last year, Hennepin County approved a 7.79% increase to its overall property tax levy, Ramsey County approved an 8.25% increase, and Anoka County approved a 9.4% increase.
In recent months, more than 250 Minnesota mayors signed a letter saying unfunded mandates from state government are forcing them to choose between cutting services or increasing property taxes on their residents.
One reason for these hikes has been reckless spending by local governments. Hennepin County, for example, will spend more than $40 million on “disparity elimination,” a catch-all term for eliminating perceived inequalities that supposedly exist in the county, 60% of which will be funded by those just increased property taxes. Ramsey County is planning to hire two racial and health equity administrators at salaries of $94,452 to $141,684, while the median household income in the county was $81,004 in 2023.
Another factor driving these property tax hikes is the passage of unfunded mandates by state government. As former Triton Schools Superintendent Craig Schlichting explained in the Dodge County Independent in February:
An unfunded mandate is any policy or requirement that is created by legislation without sufficient funding to cover the cost of implementation.
One example of an unfunded mandate is summer unemployment for hour wage-earners who do not work year-round. For the first two years, the state allocated $135M toward unemployment payments for these staff, which was not enough to cover the projected expense until 2027 as the money has already been estimated to run out before this next summer is over. This will end up costing the Triton School District about $50,000 each year.
Public school employees contribute to the Teachers Retirement Association for all certified and licensed staff. The contribution rate is increasing from 8.75% to 9.5%, with no state aid to help pay for it. For Triton this cost will be about $45,000 each year.
Paid Family Medical Leave will be paid for through an employment tax of 0.7% on wages, with the costs allowed to be shared between the employers and employees. There is no state aid to support this increase for employers. For Triton School District, this increase will cost about $28,000 each year.
There are several new curriculum requirements for school districts to adopt and implement, including personal finance, Civics, Mental Health, Ethnic Studies, Holocaust and Genocide, and Cannabis Use and Substance Abuse. There is no state aid to support the costs of curriculum materials and teacher training. The cost of those could easily reach $50,000 or more.
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When you start to look at the combined impact of all those mandates and increased expenses as a district, we have no other choice than to cut staff, and to ask the legislature for help. The cost of the mandates for our district adds up to about $300,000, which is not offset by the increases in funding that we received.
In Scott County, which is proposing a roughly 10% hike in property tax levies, Deputy County Administrator Dan Lenz told the Star Tribune that “the county has to cover about $864,000 in higher costs from the state due to the new paid family leave law and changes in social service programs.” This is in addition to “another $510,000 after the federal government passed down more costs, including those related to the Supplemental Nutrition Assistance Program (SNAP), also known as food stamps.”
A solution
What is to be done?
“This week,” Alpha News reports:
…Republican lawmakers in the Minnesota Senate unveiled a package of tax relief bills — among those pieces of legislation is a proposal from Sen. Michael Kreun that would blunt the rapid pace of property tax increases.
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…Kreun said he is introducing legislation that would cap property taxes. Under Kreun’s proposal, any locality with a population greater than 2,500 would not be allowed to raise its property taxes beyond the rate of inflation plus 50% of population growth.
For example, if the rate of inflation is 3%, and a locality’s population grew by 1%, then that jurisdiction could impose a maximum property tax increase of up to 3.5%.
If that jurisdiction wanted to increase property taxes beyond that amount, Kreun’s proposal would require that locality to put the matter before the public for a vote.
Current law already requires local school districts to gain public approval before they adopt a property tax increase. Kreun’s bill would require all of Minnesota’s major population centers to get public approval before implementing a larger property tax increase.
“This bill to cap property taxes, along with pausing any new mandates on our communities, will help keep the American dream affordable for our state,” Kreun told reporters.
This is very similar to a proposal we made in North Dakota last January to “Cap local government spending growth at the annual rate of inflation” with “an allowance for an increase in the local taxing authority’s budget above the rate of inflation in emergencies…via referendum.” Given that local governments have to balance their budgets, capping taxes is basically the same as capping spending. This proposal is, in fact, a local version of our proposed TABOR for Minnesota, which would “limit the increase in state government spending to the growth rate of inflation plus the growth rate of the population.”
Of course, this only goes so far if you have a state government determined to load unfunded mandates onto local government. We have advocated for ditching these and Alpha News reports that Republicans are advocating for:
…a restriction on property tax increases and a pause on new mandates issued to local governments. [Kreun] noted that Senate Republicans are committed to pausing new mandates on local governments.
Together, this looks like a reasonable package.
Still more to do
This is not a cure-all for the property tax problem. Local governments will still face cost pressures on their budgets and, as long as people want their local governments to provide particular services, they will need to accept the taxes required to fund them: All property taxes are, after all, are payments for locally provided goods and services.
Even so, these measures are a welcome step in the right direction.