We at Center of the American Experiment have long warned of looming budget squeezes in Minneapolis and St. Paul as a result of collapsing commercial property values. Simply put, declining values mean declining property tax valuations which mean declining commercial property tax payments which mean increasing residential property tax burdens. Both cities are seeing this play out now.
Yesterday, the Star Tribune reported:
The total value of property in Minneapolis dropped about 1% this year, according to the city assessor, marking the second consecutive year of decline.
New assessments mailed out earlier this month, which the city will use to calculate taxes payable in 2026, also signal the property tax burden will shift more to homeowners.
That’s partly because commercial property values in the city continue to decrease — especially in downtown, where they fell 9.5% from last year. Office buildings in the urban core are down about 22%, City Assessor Rebecca Malmquist said during a Monday presentation to the City Council.
This, sadly, is exactly what we have been predicting.
The report explains:
Each December, local governments decide the total amount they plan to collect in property taxes to fund services for the coming year. That amount, also known as the government’s property tax levy, is split up between taxpayers based on their properties’ assessed value and type.
Commercial and industrial properties make up about 16% of Minneapolis’ total value. But because such properties are taxed at a higher rate, they comprise nearly 27% of the city’s tax capacity.
Under the new assessments, homeowners shoulder more than 53% of the city’s tax capacity. That share has grown 6% since 2020, following the rise of remote work and a turbulent housing market.
The report goes on:
When asked to predict when the commercial real estate market might rebound, Malmquist said assessors act as historians, looking back at property sales and other data to estimate values.
“Our staff attend a lot of industry events with brokers and buyers and sellers,” she said. “I would say that just lately, we are hearing some optimism from those market players.”
That sense of hope, however, is not reflected in the latest assessments “because we are looking backwards,” she added.
Tempering that “hope,” however, is the fact that “The new values are based on sales that occurred between October 2023 and September 2024” and that “A handful of high-profile downtown office buildings, including the Wells Fargo Center and Ameriprise Financial Center, have sold for deep discounts in the time since.” The rise in residential property tax burdens in Minneapolis might not be over yet.