Governor Pawlenty announced yesterday the State’s latest financial condition forecast. In short: It looks pretty good. The State is projecting that it has a taken in $2.17 billion dollars in tax revenues than it was expecting to receive. In the government business, we call that a “budget surplus”. There’s a front page article in today’s Star Tribune entitled “A Surplus of Ideas” that suggests the many ideas there will be to spend the extra money. That’s not unexpected. If government gets more money, government spends more money, right?
It appears that the leading idea for spending down the surplus is to use it for some sort of property tax relief. The Governor suggested that yesterday. DFL House and Senate leaders have also mentioned that property tax relief would be one of their top priorities.
Who could be against property tax relief? Nobody, but pay attention to the details. The State might decide to channel its property tax relief through the Local Government Aid (LGA) program in which the State gives money to local governments under the theory that the local governments will use the State money to help pay their local expenses so that they can keep their local property taxes lower than they would need to be to support the necessary level of local government spending. Get it? If the State decides to channel its property tax relief through the LGA program, property taxpayers in cities like Eden Prairie, Minnetonka, Edina and Bloomington won’t see a dollar of that relief because - under the current rules of the State’s LGA program - these cities get zero dollars of LGA. The LGA program rules preclude cities like Eden Prairie from receiving LGA financial support. So keep your ears open for that idea.
Another idea to route property tax relief from the State to property taxpayers is through the State Market Value Homestead Credit (MVHC) program. This too is an existing State property tax relief program through which they might channel their property tax relief to taxpayers. In this program, cities grant property tax relief to property taxpayers and then the State reimburses the cities for the amount of the property tax relief they granted. But hold on just another minute, in the 2003 Tax Bill, the State Legislature suspended the rules of the MVHC so that cities like Eden Prairie, Minnetonka, Edina and Bloomington no longer qualified to have their property tax relief reimbursed. The State still required us to grant the property tax relief. They just decided that they would not reimburse us for it anymore. This caused an immediate hit of around $800,000 to our local City budget. So, again, unless the rules of the MVHC are changed, Eden Prairie property taxpayers will get shorted again if the State’s property tax relief is routed to them through the MVHC program.
The State does not directly tax the property value of residential homes in Minnesota. Any property tax relief that comes out of this current budget surplus will either need to be routed through local governments that do tax the value of residential homes; be routed through a new State government program; or be sent back to residents through something like the “Jesse Checks” of a few years ago. Remember those?
I won’t comment on the advisability of property tax relief vs. spending the money in some other constructive manner. There are good points on both sides of that argument and reasonable people will disagree with either side. However, I will say this. If the State decides to route its property tax relief through either of its two existing primary property tax relief routes - the LGA program or the MVHC program - and, they choose not to change the rules of those two programs, Eden Prairie property taxpayers won’t see its fair share of the property tax relief from this current State budget surplus.
Property tax relief is a noble idea, but we must keep our eyes on the details of how it is to be accomplished.



















