The New Homestead Property Tax Burden Report: "Do You Deserve a Break Today?"

When the daily property tax price for all local services -- city, county, school, and anything else --  is equal to a McDonald's Happy Meal, is more tax relief really a priority?

The Minnesota Department of Revenue publishes three major research reports on a regular basis that are generally regarded as the finest studies of their kind in the nation.  The first is the Tax Incidence Study, which serves as the body of evidence for “fair taxation” debates and therefore always receives splashy social media and editorial page attention.  The second is the Tax Expenditure Budget Report – a lower profile study identifying all the preferential treatments and potential amounts of “leakage” in Minnesota’s tax system.  It doesn’t have public profile of the incidence study, but its findings are routinely cited by media and public policy organizations in reporting on tax policy debates.

Then there is the “Residential Homestead Property Tax Burden Report” (a.k.a “Voss Report”), the truly one of a kind look at how residential property taxes relate to homeowners’ income.  Despite its important and informative content, it completely flies under the public and media’s radar.

In debates over what are acceptable levels of property taxation, the power of anecdote reigns supreme.  It’s easy to make trends in aggregate levies and one person’s testimony about a disturbing ability to pay problem into a sweeping indictment about Minnesota’s property tax burdens.  What makes the Voss Report so important and valuable is that it helps us evaluate how unaffordable and intolerable homeowner burdens really are, and identify where an ability to pay problem is most likely to exist in the state.

The Department recently released the 2013 Voss Report findings, which we summarize in the table below.  The 2013 findings by themselves may turn a lot of conventional wisdom on its head, but the comparison to the earlier findings from 2011 (2012 data is not available) brings the cognitive dissonance between property tax reality and public perception to a completely new level.

When contemplating the table and bullets below, it’s crucial to keep in mind the 2013 numbers represent homestead property tax burdens before lawmakers appropriated approximately $435 million in the form of enhanced refunds, local aid increases, and education levy modifications to provide more relief in 2014.

  •  The property taxes paid as a percent of homeowners’ income for the median homeowner stayed the same in 6 regions of greater Minnesota and declined in the 14 other regions of the state between 2011 and 2013.
  •   Between 2011 and 2013 the tax on the median valued home went up $19 (or 1.5%) in greater Minnesota and declined by $52 (2.2%) in the seven-county metro.  In 11 of the 20 regions (including 4 in greater Minnesota) the median net homestead tax declined.
  •   The median net homestead property tax in Greater Minnesota in 2013 – for all local services: school, city/town, county and anything else -- was $111/month or $3.64 a day, or the price of a McDonald’s Happy Meal.

One of the primary reasons this study gets comparatively little attention is likely because it collides head on with the politics of property taxation.  Nobody ever lost an election calling for homeowner property tax relief.  For that matter, it’s awfully hard to win an election calling for greater reliance on property taxation.  The political implications of property taxation are no less real than the burdens themselves.

But there comes a point in time when the question simply has to be asked if yet more property tax relief really represents the highest and best use of state taxpayer dollars.  With so many competing demands on the general fund for no less important state needs and services, it’s a question that deserves a robust discussion in 2016.  And as these findings indicate, it’s a discussion we should already be deep into by now.