MLR Property Tax Update on Shoreline

On November 3rd, 2015 there were a number of municipal elections in Minnesota as well as two special elections held to fill open State House seats. More than 50 school districts across the state filled open seats on their school boards. Duluth elected their first female Mayor, Emily Larson. St. Paul also had a chance to test out their new Ranked Choice Voting system.

Mostly, however, this election was about school referendums, both for capital improvements and for operating costs. Turnout was very, very low. St. Paul had about a 13% voter turnout for example.

Fifty three school boards across the state asked voters to approve new school operating levies, renew old ones to pay for operating costs like teacher salaries, utility bills and other costs, or both. The twenty levy renewal requests across the state all passed but none of them will increase property taxes since they are a renewal of current levies, not an additional funding request.

Forty school districts, however, sought $1.8 billion with fifty separate requests to finance construction projects like building new or renovating old school buildings, or to purchase technology for the classrooms. According to the MN School Board Association, forty seven of these projects received approval on at least one of their funding increase requests. School levy requests typically do best in years when voter turnout is low and fare more poorly during presidential election years when turnout is higher.

Minnesota School Board Association Executive Director Kirk Schneidawind said on MPR, "It was a very good night for our School Districts.... We saw the highest passage rate in history, since we've been collecting data on this."

These results, combined with market driven property tax assessment increases in some areas mean that many will see property tax bills increase.

Minnesota Lakes and Rivers Advocates sees a significant fairness issue with regard to property taxes, particularly on lakeshore property:

  • In many districts in the state, seasonal recreational property makes up the majority of the tax base, and will pay the majority of the taxes even though they cannot vote in local elections and use a minority of the services that taxes provide.
  • There is no relationship between property taxes and ability to pay them, unlike income or sales taxes.
  • In many other districts, the majority of the tax base is located on lakes, and so lake home owners bear the burden of tax increases.
  • School districts without a strong tax base struggle to educate children while districts with larger tax bases can spend far more per pupil, creating disparity among districts that is not entirely leveled by State equalization formulas.

MLR also sees a significant environmental consequence as shoreline property owners who are contending with onerous property tax increases sell or subdivide sensitive riparian property.


THE SOLUTION -

During the 2015 Legislative Session MLR worked to advance a number of bills in the House and Senate Taxes Committee that would have reduced property tax pressure on many shoreline properties while still funding schools. Unfortunately the Legislature adjourned without passing a Tax Bill. Our hope is that the House and Senate will convene early in the 2016 session, set to begin March 8th, and advance the bills from last session. Without a tax bill this year many government services will shut down, a political land mine in an election year.

State General Tax - Some history - In the Fall of 1998 Minnesota voters stunned the nation by electing former professional wrestling star Jesse "The Body" Ventura as our 38th Governor. Ventura, an Independent, had run on a platform of property tax reform. Near the end of the 2001 Legislative Session, with most of the large reforms put into place, policy makers realized that they had a more than $500 million budget hole. They created a new tax to backfill this hole, the Statewide General Tax, a property tax on Commercial/Industrial property and Seasonal Recreational Property, even though cabins raise no revenue with which to pay this new property tax. Originally a portion of the tax was to be dedicated to a school fund, but the first year after passage, all of the revenue was redirected to the General Fund.

Since 2001 the tax has grown to nearly a Billion dollars annually, with about $43 million burden on cabin properties.

There are a number of good reasons to abandon this tax:

  • It contributes no money to local communities.

  • The tax is on a specific group but not tied to a specific fund as with a cigarette tax that supports anti-smoking campaigns or gas taxes that support transportation.

  • The State should not be in the business of property tax.

  • The burden falls heavily on rural Minnesota, were a great proportion of Commercial/Industrial value is in the first tier of taxation.

  • The tax on cabins is significant. A property assessed at $150K pays nearly $250 a year in State Business Property tax.

  • There is no connection between the tax and ability to pay the tax.

Last year bills emerged in the House and the Senate from both Democrats and Republicans that sought significant change, or even repeal of the Statewide Business Property Tax. In the House Omnibus Tax bill there was language that raised the first tier exclusion from $78 thousand to $250 thousand and then phased the tax out over a period of eight years.

While the tax phases out, a promise was to be kept and a portion of the revenue from this tax was to be returned to local communities. MLR will support the efforts to get these measures passed into law in 2016.

Sustainable Shoreline Incentive Act - Minnesota's property tax code values lakeshore property at its "highest and best use," economically. Land that might "best" be held for runoff control, habitat, aesthetic value or biodiversity is valued and assessed only for its potential development use. Simply said, when the state only values land as a commodity, owners are forced to consume it.

Assume two neighbors have 600 feet of undeveloped shoreline each. One is forced to sell out due to increased property tax pressure. Typically their parcel is bought by a developer who puts 4 lake homes and lots where there was once only one old time cabin. The other neighbor keeps their land undeveloped, providing tangible ecosystem services to the community. The end result is that the land owner who is protecting or enhancing the public resource sees their property tax bill rise significantly. This is a destructive disincentive.

The Sustainable Shoreline Incentive Act will change this dynamic, and shift tax burden from shoreline conservators onto shoreline consumers. MLR has been working in off-session to draft a bill and get feedback from other organizations to build support for the idea. The Sustainable Shoreline Incentive Act will be introduced during the 2016 Legislative Session.

MLR will continue to work for equitable equalization formulas for school funding across the state. School districts with less tax base currently have only two options - accept substandard schools or levy at an unfair and unsustainable level. MLR supports a deeper and systemic State and local fiscal system overhaul that creates a fair, equitable and reliable revenue stream for public education. Our current system not only contains many disincentives toward actions that benefit the public good, like shore land protection, but is unstable, with large surpluses some years and then years of red ink. We will continue to work with legislators to reform an out of date tax code.

Hunting and Fishing Licenses - Non-Resident cabin owners pay significant amounts of property taxes in Minnesota, including the State Business Tax which goes into the state general fund. Then they are asked to pay out of state hunting license fees - often to hunt on their own land. Many belong to their local lake associations and work to protect the public lake resource with volunteerism or even contributions to fund aquatic invasive species control, fish stocking and overall lake management. Then, in addition to the taxes and the commitment they make to Minnesota's lakes, they must pay out of state fishing license fees. MLR will work to grant Minnesota's tens of thousands of non-resident Minnesota cabin owners the same hunting and fishing license fees as residents.

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