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The Governor's budget includes a variety property tax initiatives that could impact cities.
(Published Jan 23, 2013)
Property Tax Rebate
Gov. Dayton recommends creating a new property tax rebate for all Minnesota homesteads. The rebate equals the lesser of $500 or 100 percent of the homestead's previous-year property tax bill. According to the budget document, there are approximately 1.5 million homesteads in Minnesota and an estimated 95 percent of those homesteads would receive the maximum $500 rebate. Homeowners would be required to apply for the property tax rebate when filing their Minnesota personal income tax return, and homeowners who do not otherwise file an income tax return would need to file to receive the rebate.
The rebate will first be available with the income tax returns for the 2013 tax year, which are filed in calendar year 2014, and the first year rebate will be based on 2013 property taxes paid. The rebate would become a permanent feature of the Minnesota tax system and would result in an estimated $718.4 million rebate in the first year.
City Local Government Aid Formula Reform and Appropriation Increase
(Note: The new formula will be fully described in a separate article.)
The governor recommends a significant reform to the city local government aid (LGA) formula and an $80 million increase in the annual appropriation beginning with the 2014 distribution. The existing formula would be repealed, including all of the special LGA appropriations that have been granted and it would be replaced by a new three-factor formula that defines each city's formula need based on the city's population, a measure of tax exempt property and age of housing stock as measured by the percent of housing built before 1970.
In the first year of this new system (2014), the $80 million would be used to provide cities receiving LGA a $30 per capita increase. Beginning in 2015, the additional $80 million will be distributed through the new formula. However, starting in 2015, there will be a provision to limit year-to-year changes in LGA payments to no more than $10 per capita and annual decreases in a city’s LGA are also limited to no more than $300,000.
The $80 million increase would bring the total appropriation to $506.4 million which is a 19 percent increase in the overall appropriation. The Department of Revenue (DOR) has created a spreadsheet showing estimates of the impact of the new city LGA formula, including a comparison to current law and estimates of the distribution after the four-year transition mechanism is phased-out can be found at:
Access the DOR spreadsheet with estimated impacts of the new LGA formula
County Program Aid Increase
The governor recommends increasing the annual appropriation for county program aid (CPA) by $40 million per year to a total of $205.6 million beginning with aids payable in calendar year 2014. According to county representatives, the proposal nearly returns CPA to its 2005 level of $206 million. Unlike the LGA changes, the governor's recommendations do to significantly alter the underlying CPA formula.
State Business Levy Reduction
The governor's budget recommends a suspension in the automatic annual inflation adjustment for the commercial/industrial portion of the state property tax levy for taxes payable in 2014 and 2015. Beginning with taxes payable in 2016, the inflation adjustment for the state levy against commercial/industrial property will resume but at one-half the rate allowed under current law. According to the budget documents, for the FY 2014-2015 biennium, state revenues would be reduced by an estimated $25.1 million and by 2017, the state property tax levy will be 5 percent lower than it would be under the current law annual inflation adjustment.
Questions? Contact Gary N. Carlson at (651) 281-1255 or firstname.lastname@example.org.
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