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A technical bill that would attempt to address several unintended consequences of the 2012 conversion from the new homestead market value exclusion was introduced.
(Published Feb 6, 2013)
In the veto of the 2012 omnibus tax bill, the provisions of a technical tax clean-up bill related to the new homestead market value exclusion and supported by the League failed to become law. On Wednesday, Sen. Ann Rest (DFL-New Hope) and Sen. Julianne Ortman (R-Chanhassen) introduced a bill, SF 312, that will again attempt to address several unintended consequences of the conversion from the former market value homestead credit to the new homestead market value exclusion. The League has worked with Senators Rest and Ortman on the updated bill draft.
By way of background, the 2011 first special session tax bill contained significant changes to the state’s property tax system, including the elimination of the existing market value homestead credit and the transition to the new homestead market value exclusion. After that special session bill was signed by the governor, the League and other local government organizations identified numerous unforeseen consequences related to the new homestead market value exclusion.
Specifically, state statutes include numerous references to a city’s market value that are used to calculate levy limits, debt limits and even state aids. For example, economic development authority (EDA), housing and redevelopment authority (HRA) and port authority (PA) levies are limited in state statute to a specified percentage of the city’s market value. Under the new homestead market value exclusion, the Minnesota Department of Revenue concluded that the market value used in many of these statutes is the market value of the city after the homestead market value exclusion and other property tax base exclusions.
In addition, there are similar issues related to debt limits. The general net debt limit for cities as well as equipment certificate limits and debt and bonding limits for HRAs are computed as a fixed percentage of the city’s market value and therefore, under the Department of Revenue’s interpretation, these debt limits are effectively reduced by the new homestead market value exclusion.
For many cities, the homestead market value exclusion will result in a tax base reduction of less than 10 percent but in some cities, the new homestead exclusion can reduce the city’s tax base by 30 percent to nearly 40 percent. Based on the Department’s interpretation, these cities could experience a significant reduction in their levy or debt authority.
During last year’s debate on the same legislation, there was no opposition to the bill. The House companion bill should also be introduced this week.
Questions? Contact Gary Carlson at (651) 281-1255 or firstname.lastname@example.org.
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