Davids: DFL property tax math doesn’t add up

Property taxes increase four times more than lost Market Value Credit funding

ST. PAUL, January 12, 2012 – Minnesota House Tax Committee Chair Greg Davids, R-Preston, issued the following response today to the House DFL’s false property tax claims:

Only Democrats would see the loss of $90 million as the cause for a $400 million tax increase. Their math doesn’t add up and neither does their argument. It looks more to me like they’re exploiting it for politics than they are actually trying to find a solution.  Our solution, as it was during the 2011 legislative session, is to reduce and phaseout the statewide property tax on Commercial/Industrial properties.  Although they opposed it last year, I hope the DFL will now support such a measure if their words are born out of true concern and not just political rhetoric.

Representative Linda Runbeck, R-Circle Pines, Chair of the Property Tax Division, had this to say:

Local governments must be held accountable for their spending.  We eliminated a highly flawed program, an action supported by the League of Minnesota Cities and the Association of Minnesota Counties.  This was an act to allow for more transparency, and starts to shift the paradigm from property tax relief filtered through government to relief provided directly to the tax payer.  I am encouraged by the actions some local governments have taken to increase their efficiencies, whereas the DFL would prefer sending out blank checks.

Simple facts the DFL would like you to ignore:

• The proposed $413 million tax increase is more than four times the amount that cities and counties lost when the MVHC program was replaced. The final MVHC funding was $89 million, it seems highly suspect that losing it would result in a $413 million tax increase.
• In 2010, Representative Ann Lenczewski zeroed out the MVHC reimbursement for many suburbs, including just naming a few: Burnsville, Apple Valley, Inver Grove Heights, Bloomington, Edina, Coon Rapids, Blaine, and Woodbury. Again, this was done in 2010 - when Democrats ran the Legislature.
•  For as much as they claim to care about LGA and the former Market Value Credit, the DFL voted against, and Governor Dayton vetoed, a bill to keep LGA and MVHC reimbursements at the previous year’s levels.  This would have been the same aid amounts Democrats voted and approved when they were chairs.
• The DFL voted against, and Governor Dayton vetoed, a bill reducing and phasing out the Statewide Property Tax on Commercial/Industrial properties.  These properties are taxed once at the local level, and should not be punished twice on the same property by the state.

Their math doesn't add up, they voted against everything and they're attacking Republicans for continuing funding levels Democrats themselves set in place. It begs the question: Do Democrats truly care about property tax relief, or are they simply playing politics?

House Republicans last November released a new property tax relief package aimed at ending the statewide business property tax and providing tax relief directly to homeowners.

House Tax Chairman introduces property tax relief agenda for 2012 session

St. Paul -- Minnesota House Tax Committee chairman Greg David's, R-Preston, today introduced a package of property tax relief initiatives for homeowners and businesses across Minnesota.

"Our property tax relief package is built on the belief that the best property tax relief is given directly to people who pay property taxes: home and business owners," Davids said Monday during a State Capitol press conference. The Davids plan provides an approximately 18 percent cut in the statewide property tax burden for Greater Minnesota commercial/industrial properties, and a 4 percent reduction for metro area commercial/industrial properties.

The 2012 Property Tax Relief Package has two parts, each focusing separately on homeowners and businesses.

The homeowners' portion prioritized homeowners who saw their local property taxes rise by 12 percent or more in Tax Year 2012. For those homeowners, the plan increases the percentage of property taxes the state refunds from the current 60 percent to 90 percent. It also increases the maximum refund available to already eligible homeowners by 20 percent.

"This will provide direct relief to homeowners who were hit especially hard by local property tax increases," Davids said.

The business property tax package is directed toward small businesses to exclude the first $100,000 in the value of commercial/industrial property from the statewide property tax. This would reduce the tax liability of all C/I property, but is structured in a way that benefits small businesses the most.

"This plan would benefit small businesses more than a straight reduction in the statewide rate," Davids said. "The governor vetoed our straight reduction in the 2011 session, so I'm hoping he will consider is this new approach to be more to his liking." The second part of the business property tax relief plan freezes the statewide property tax levy. The plan does not affect local government funding or property tax calculations.

Additional documents:

Highlights

Bringing reality to the DFL spin

Property tax relief under the Davids plan

Local government organizations support the Market Value Exclusion

Gary Carlson from the League of Minnesota Cities, speaking to the Taxes Conference Committee on May 9, 2011:

We do support, in both bills, the elimination of the MVHC as a credit reimbursement and the conversion to an adjustment to the homestead tax capacities.  We’ve been working with many of you to try to find a solution to that problem.  I think you all know that the MVHC for many cities has only been paid in full one year since it was created and for many cities the MVHC has in fact been unpaid now for the last couple of years.  So we think that the most truthful way to address the tax system is to basically eliminate the MVHC given that it has not been fully funded and that would allow cities to collect all of the property tax levy that they do certify each year. So we do support that aspect of the bills.

Listen:

Bill Schreiber, speaking on behalf of the Municipal Legislative Commission, about the problems in the failed Credit program and why the Exclusion is better:

The complaint of our communities has been the instability of the Market Value Homestead reimbursement. The Market Value Homestead Credit has been in place for 11 years, MLC communities supported it as a very appropriate method of providing homestead property tax benefits in a very uniform way around the state of Minnesota. The problem has been that the reimbursement to cities has ended up like a ready reserve for the Legislature and so we’ve only received that full reimbursement two out of the past 11 years. Very, very difficult for anyone to budget with an unstable stream of revenue. So what both the House and Senate have come up with in the replacement of the Market Value Homestead Credit seems to be an appropriate measure. It will add stability to the budgeting process, it continues to give a benefit to the individual homeowners based upon the value of their home and we think that’s a reasonable way of doing this. 

Listen:

One of the most misleading assertions Democrats use to sabotage the new Exclusion program is to say that cities were planning to receive reimbursement for the credit program and will now have to cut their budget to make up for that loss. This is demonstrably false, as Schreiber goes on to say:

Madam Chair and Representative Runbeck, I think the majority of our communities have no longer planned on the Market Value Homestead Credit reimbursement as being part of their general operating budget. So if it comes, it’s going into a capital account that they would use for replacing fire engines and police cars and those kinds of activities, and if it doesn’t come it doesn’t directly impact them in terms of their general fund budget.

Listen:

Which begs the question: How can "cutting" money cities never planned to receive force them into raising property taxes?  

Here's what the MLC had to say about the failed Credit program in its 2011 Legislative Program:

Administration of the current Market Value Homestead Credit (MVHC) program is a primary example of how fiscal transparency between state and local  governments is broken.  

Continued:

Currently, the State spends almost $300 million reimbursing counties, cities and school districts for MVHC.  Based on the  significant deficit being projected for FY 2010-11, the MLC believes it would be prudent to take  a serious look at whether the State can afford the MVHC program. 

Savings generated from eliminating this program could be used to help offset the State budget deficit, as well as to aid homeowners directly on providing property tax relief.  The property tax refund program (“circuit breaker”) could be enhanced by the savings generated from the MVHC program to provide relief to individuals who need it most (income tested) regardless of where they live

That is exactly what the Legislature and Governor Dayton did, getting rid of the failed Market Value Credit, replacing it with the more transparent Market Value Exclusion and boosting the direct-to-taxpayer Property Tax Refund Program.

Finally, Keith Carlson of the Minnesota Inter-County Association:

I do particularly want to reiterate the comments that some of the city testifiers have already made that we’re very pleased with the changes that are being made with the Market Value Credit changing that to an exclusion.  The frustration that all local governments have suffered with the difference as to what appears on the statement versus what we are actually reimbursed is clearly addressed by this proposal and is a good outcome from our perspective.

 Listen:

County lobbyist changes tune on Market Value Exclusion

It makes for convenient political cover to tell the Legislature one thing in May and, when the taxpayers’ attention turns to you, to tell the public something different.

During the May 9, 2011, conference committee on HF 42, the tax bill, Executive Director of the Minnesota Inter-county Association, Keith Carlson, was complimentary of the Legislature’s implementation of the Market Value Exclusion program. Carlson told the committee:

“I do particularly want to reiterate the comments that some of the city testifiers have already made that we’re very pleased with the changes that are being made with the Market Value Credit changing that to an exclusion.  The frustration that all local governments have suffered with the difference as to what appears on the statement versus what we are actually reimbursed is clearly addressed by this proposal and is a good outcome from our perspective.”

You can listen to his comments here:

The Legislature and Governor Dayton agreed to the Market Value Exclusion as a replacement for the Market Value Credit program in 2011. If the Market Value Credit had to be summed up in one word it would be this: Failure. It was too expensive for the state to fully fund (in fact, it only happened once during its entire existence) and it reduced accountability. Instead of delivering property tax relief directly to homeowners, the Market Value Credit inserted the state as a middle man to funnel relief to local governments in the hope it would then pass to homeowners.

Too expensive, low accountability, questionable results. No program that bad should be allowed to continue. The Legislature and the governor agreed, replacing it with the Exclusion program that delivers property tax relief directly to homeowners at no cost to the state and with a level of certainty for cities and counties. Counties, with Carlson as their spokesman, supported the change as indicated above.

But now that counties are setting their tax and spending levels and face public scrutiny, they’ve done an about face. Unable or unwilling to trim spending, counties need a scapegoat and Carlson is happy to oblige, blaming the very Exclusion program he and his organization were “very pleased with” only a few months prior.

From Saturday’s Star Tribune:

"Taxpayers are almost certainly going to be confused about who is responsible for this ... and where to focus their ire," said Keith Carlson, executive director of the Minnesota Inter-County Association, who helped draft a sample message.

That message, the story explains, is this:

“It’s not our fault.”

They say responsibility lies with legislators and the governor, who made a key change in the property tax system as part of a July deal to close the state’s $5 billion budget deficit.

The article continues:

And when taxpayers open [their statements], counties hope the fliers they have stuffed inside will make it clear that a state policy change – not the county, not the city and not the school district --  is responsible for higher taxes, Carlson said.

So there you have it. The Market Value Exclusion was a good idea in May, but when (most) counties proved unable to control their budgets, it’s a scapegoat to keep taxpayers from blaming local governments.