More Adventures in Property Tax Misunderstanding and Misreporting

We don’t mean to pick on Cyndy Brucato, an excellent political reporter with a highly distinguished Minnesota career, but we can’t let a major misunderstanding of property taxation published in MinnPost go without criticism. And we also note it’s incredibly unfair to single out any individual reporter (or editor) as we have seen this misunderstanding appear in print media and editorials across the state over and over again through the years.

Be that as it may, here’s the problem:

"But the decade before Dayton took office, from 2000 through 2010, saw one of the biggest increases in real estate values in history. Property taxes followed suit. Then came the recession and property values tanked. Although state aid and credits have blunted some increases, it would be good to hear him more clearly explain why he isn't just taking credit for the lower taxes that resulted from declining values."

This statement conveys a huge misunderstanding about how property taxes actually work. The problem is that it gives the impression that property taxes act just like sales and income taxes. Employment rises and falls, more or less income tax is collected. People buy more or less things, more or less sales taxes are collected. So when property values go up or down, more or less property taxes are collected, right?

Wrong. Wrong. Wrong. Property taxes are a completely different animal. Minnesota’s local governments determine each year how much money they need to collect from property taxes (called the levy). Local governments spread this levy across all properties based on their value. Think of the role of property values as the spatula allocating pieces of the property tax pie. The bigger the share your property value is relative to the total value in your community, the more property taxes you will pay.

The phrase “relative to the total value” is key. Lower values don’t automatically create lower property taxes. If your property value declines, but most other taxpayers’ values in your community fall by even more, you now have a larger share of the pie than you did before and you can easily see a property tax increase.

Conversely, higher values don’t automatically create higher property taxes. If your property value goes up, but most other property values in your community go up by even more, your property taxes can decrease.

So here are three points about property taxes every Minnesotan should understand:

• Local governments create the burden with the levy they adopt and impose on their citizens.
• Changes in property value just shifts tax burden around; they don't create new burden.
• Changes in the taxes on your property are determined partly by the change in the levy and partly by how your property value changes relative to the community as a whole.

And remember this: rising market values can be great political cover for levy increases among the uninformed. If any elected official implies higher property taxes are a function of rebounding real estate markets, you may want to check another box on November 4th.