The Market Value Credit (MVC) is a property tax relief program devised by the State government to help relieve the property tax burdens of Minnesota property tax payers. Sounds like a good idea, right? Here’s how it works.
Residential homesteaded property benefit from the state-funded MVC property tax credit. The credit amount is equal to 0.4% of the market value of your home up to a maximum annual credit of $304/home/year. This maximum credit occurs at a home valued at $76,000. As the value of the home increases over $76,000 the amount of the credit begins to decrease. At a home value of $411,000 the value of the credit finally reaches zero.
Now here’s the really interesting part. Rather than issuing each homesteaded property owner a check for the amount of the credit, the State gives the credit as a subtraction from the gross tax on a property taxpayer’s annual property tax statement. So, if you look at your property tax statement, you will see your total property tax liability near the bottom of the statement, but you will not notice a subtraction for the MVC on your tax bill. The entire MVC money exchanging process happens behind the scenes.
So where does the money go? Well, the State isn’t giving the MVC directly to you – the taxpayer. They give you a credit, which is the same thing as the State lowering your local property tax liability. But instead of giving the money directly to you, the State reimburses the local governments whose taxes they lowered through the award of the MVC.
In other words, the State’s plan behind the MVC was that the State would lower local property taxes, take credit for tax relief, and then keep the local governments from squawking by making them whole by reimbursing them for the amount of the property taxes they lost in the whole transaction. Local governments don’t lose any money. Property taxpayers get tax relief. And State Legislators and the Governor can claim that they lowered property taxes.
At least that’s how it was supposed to work. Now, the Market Value Credit program is scam, and nothing more. Here’s why I say that.
In 2003, the State Legislature was reckoning its finances and things did not look good. They were dealing with a state budget deficit of historic proportions. $4.5 billion dollars, by most estimates. That year the Legislature made significant cuts in local government financial assistance programs, including the Market Value Credit. Almost all cities had the amount of their MVC reimbursed reduced. Cities like Eden Prairie had their MVC reimbursement reduced from $850,000/year to zero.
The 2003 legislation that made these local government finance changes included the full restoration of the MVC in 2005. In Governor Pawlenty’s 2006-2007 budget, which he released just yesterday, there it was on page of the Revenue Department’s budget:
“The Governor recommends extending temporary reductions in market value credit reimbursements to selected cities for two additional years. Reduction amounts would parallel FY 2004 and FY 2005 reductions for those cities that had their MVC reimbursements reduced as part of the local government aid reforms.”
The scam of the Market Value Credit is that the State continues to bask in the warm feeling of being able to reduce local government property taxes, but they also enjoy the benefit of not having to reimburse the local governments for the taxes they are losing. Local governments bear the financial brunt of the tax relief program and then get stiffed by the State when it comes time to pay the bill.
That, my friends, is scam – intergovernmental style.
