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Home My WebLink About03.09.09 Work Session Packet City of Farmington 430 Third Street Farmington, MN 55024 Mission Statement Through teamwork and cooperation, the City of Farmington provides quality services that preserve our proud past and foster a promisingfuture. AGENDA CITY COUNCIL WORKSHOP MARCH 9, 2009 6:30 P.M. CITY COUNCIL CONFERENCE ROOM 1. CALL TO ORDER 2. APPROVE AGENDA 3. DISCUSS 2009 BUDGET OPTIONS 6:30 p.m. 4. BONESTROO CONTRACT 7:00 p.m. 5. 2009 FEE SCHEDULE - DEVELOPMENTS/SUBDIVISIONS 7:30 p.m. 6. ADJOURN PUBLIC INFORMATION STATEMENT Council workshops are conducted as an informal work session, all discussions shall be consideredfactjinding, hypothetical and unofficial critical thinking exercises, which do not reflect an official public position. Council work session outcomes should not be construed by the attending public and/or reporting media as the articulation of aformal City policy position. Only official Council action normally taken at a regularly scheduled Council meeting should be considered as aformal expression of the City's position on any given matter. City of Farmington 430 Third Street Farmington, Minnesota 651.280.6800 . Fax 651.280.6899 www.ci.farmington.mn.us TO: Mayor and Councilmembers FROM: Peter J. Herlofsky, Jr. City Administrator SUBJECT: 2009 Budget DATE: March 9, 2009 Attached is a spreadsheet outlining three alternatives to the current budget problem. They are as follows: Option 1 (Preferred option) The reason this option is preferred is because it addresses the issue not only for 2009, but for 2010. We do recognize the additional revenues that we are requesting from the community are a tax and will cost individual taxpayers approximately $60/year. The results of Option 1 if approved by the Council, will help solve some of the issues that we will be dealing with in the 2010 budget and in the future. Option 2 (Plan B) This proposal still includes the street light utility fund as a suggested inclusion, but it also includes additional revenue from our MSA maintenance account. The reduction of police overtime and the charging of engineering staff to annual City projects are added to the expenditure reductions to the general fund. From a staff perspective, this at least addresses one half of the issues relating to the elimination of the market value homestead credit issue for the City Council in subsequent budget years. Option 3 (Least Preferred) Through the use of expenditure reductions, this option makes it possible to balance the revenue shortfall in 2009. However, most of the expenditure reductions are one time events and will not be able to be repeated in the future. The one item I will bring to Council's attention is it does include the closing of the swimming pool for 2009. I hope this offers sufficient information for discussion purposes. If any additional information is needed, please let me know. Respectfully submitted, i~ /f! ('~ ~7l5t"o) ~7~1. L) Peter J. Herl<%sky, Jr. C .i/ City Administrator t Cmuller/Herlofsky/Council memos/2009 Budget Options :r: fij <:: C- eo ~ o o ~ III <:: C- eo !!'. o -g, 0' ::> lJ1 '" o o CD '0 '3' z -I -I 0 "U m 0 " ;;0 )> G) 0 0 0 0' Q.. :;) ~ af (1) r (1) !if .... .... (fl i;j' (0 a. " :;) !!!. !!!. (1) 5' m ;;0 c: 0 (1) (1) n ~ G) m 0 0 ~ 3 ~ 0' 0 lD m ~ < -0 [ ~ :;) l: >< (1) 5' 0 ;:! " lD g. 't:I C/) ~ (0 '< )> C/) 6' c: ... CD :E 3' "U (1) (fl (1) So :;) !!!. (1) (fl a. CD ::J 3' (1) (1) " 0 III 0' ;;0 " .... c.. iil 0 (fl :;) c 0 ;:;: 3 5' 0 !:; ~ 0 lD ::l 5' :;) Z Co l: :;) 0 !!!. Co 0 (0 (1) :;) c: 0' S. c: ... ;;; x ~ :;) C'I ;0 ... "U 0 (0 C/) :;) r+ lD CD 0 (1) ::l" Iii o' :;u -=a (fl (1) Co n Q.. (fl =l: (1) ::l C .... CD (fl .2. a. III C'I o' c.. ~ 8- (1) r+ l: "" (1) ,e, o' ::J n 01 CD n ::l .... '0 3' e III o' 0 f .9 c:r ::J c: 1/1 iil ... 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N en en -" CD 0 en N N 0 "" w -" en N "" '"0 b N 0 0 0 0 N '"0 0 01 0 0 '".!>. '0 '0 N '0 '".!>. 0 '0 '0 YO 0 0 0 0 0 0 0 0 0 0 0 0 (:) (:) 0 0 0 0 0 0 (:) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 -EIt -EIt -EIt YO YO .... .... ~ ..... ..... -" 0 0 N 01 co '"0 '"0 0 0 0 '0 '0 '0 0 0 0 0 0 0 0 0 (:) (:) 0 0 0 0 0 0 0 0 0 0 0 ~ CD :;) ~ -EIt -EIt YO YO YO YO YO YO YO -EIt YO (,.) (,.) en (,.) -" N 0 0 "" N N 0 "" w -" 0 N '"0 '"0 01 N 0 0 0 0 N '"0 0 0 0 '0 "..,. '0 '0 N '0 '".!>. 0 '0 YO 0 0 0 0 0 0 0 0 0 0 0 0 (:) (:) 0 0 0 0 0 0 0 (:) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 -EIt -EIt -EIt YO YO N N w 0 0 N W '"0 '"0 0 0 '0 "0 0 0 0 0 0 0 0 (:) (:) 0 0 0 0 0 0 0 (,) ~ i\3 o o c.o u~ I~ . to! .. &~.. %~~ iH ~~t Ii U~ 4i~ ii~ ~~o ~!i ~ ;!! ~Ir t~ .. :i~ 'a ilc ~2 i~ ... = c..~ "i~ i IS3 .Bi Ii ~. Ii i. cc;!! Ih lL ~ :f~ ~~~ ,,! . i~;!! ~H cH !P ~:l! j2;!! :l!:l! ~a) t~i ili ~H Iii 16. ill rD.!!.fi ~! :pill In t. !Ill IlJ-: ,z.5'1 cE ~lll .u ~h ~05~ .li .!P z It I E .. U ~= <:: h Is U .s ~:5! 4i ~ CI <:: .~ U al. d if co = . !~ u.. ii.. U ~15 ~'8! ..... Ih ! ~~ 0 !ii E] c ~d'. ~ ~i ~fE () .E h .s ~l !f Ih 2ol! !j ~ oj ~t ~H n~ "'JI ~ ~t li ~= II II .t c'" I: = ~J ! ., lam Ii cc iJ~ &1' i~:i ~i iJi ~! ~il ~Jl olI ~ ~:i l! 1 ii ~ ~ c ... ~ ... ~~ "'if ;,5 "'Ii: h ~ ! ! ~r ~ :j s.. ~ ! ~ .t JiH J ~ aU ":5! :5! .. ~ TO: Mayor Larson, City Council Members FROM: City Employees SUBJECT: Ideas for Budget Reductipn DATE: March 9,2009 AFSCME Local 3815 and Farmington Supervisors met earlier today to discuss ideas for reducing the City's Budget. The following is the accumulation of proposals: . All staff reduces work hours by one hour per week without pay over the necessary number of weeks (e.g. 37 weeks left in 2009 produces a possible gross savings of :1::$121,470) instead of36 hours/week for summer hours. This will allow for a less evasive reduction in pay. . Propose to work 4 days for 36 hours and close City facilities on Fridays during the summer hours (reduces building energy). . Propose incentives for early retirement (possible gross savings of :1::$125,000) . Freeze on education reimbursement: College tuition, training, and seminars (Seminars are not eliminated for staff requiring certification) . Reduce facility cleaning costs per year (currently $100,000) e.g. reduce hours per week by cleaning staff, have existing staff clean own areas. . Re-evaluate all city contracts and require 10% cost reduction (Attorney, Bonestroo, etc.) . Freeze on unnecessary supplies, e.g. e-mail Council and Commission packets rather than printing packets . Freeze on printing and mailing costs for one year: The Bridge, Economic Update, etc., Offer as electronic mailing or on City website. . Reduction of energy costs in all city buildings (Xcel Program) . Eliminate reimbursement of membership dues and subscription (Dues are not eliminated for staff requiring certification) . Eliminate mileage reimbursement to staff having access to a City vehicle or allow all employees to use City vehicle . Eliminate Nextel phones for staff that are not in the field and eliminate reimbursement of personal cell phone use for work related issues . Reduction of postage costs in City Hall (currently x$18,OOO/year) - Use more e-mail . Reduce/eliminate certified mailings for weed notices, etc. . Reduce pay for all employees for summer hours to 36 hours (include Police, Liquor, Maintenance, City Hall staft) Respectfully Submitted, City Employees DAKOTA COUNTY COMPARISON OF 2008/2009 FINAL TAX RATES II SID W/S YEAR COUNTY CITY SCHOOL OTHER TOTAL ~ APPLE VALLEY 191 V 2008 0.25184 0.35537 0,19374 0,04996 0.85091 2009 0,25821 0.37086 0.19842 0.04916 0.87665 0,00637 0.01549 0.00468 -0.00080 0.02574 PERCENT CHANGE 2.5294% 4.3588% 2.4156% -1.6013% 3,0250% 196 V 2008 0,25184 0.35537 0,21136 0,04996 0.86853 2009 0,25821 0.37086 0.21109 0.04916 0.88932 0.00637 0.01549 -0,00027 -0.00080 0.02079 PERCENT CHANGE 2.5294% 4.3588% -0.1277% -1,6013% 2.3937% BURNSVILLE 191 M 2008 0.25184 0,35005 0.19374 0.05406 0,84969 2009 0.25821 0.36121 0.19842 0.05805 0.87589 0.00637 0,01116 0,00468 0,00399 0.02620 PERCENT CHANGE 2,5294% 3,1881 % 2.4156% 7,3807% 3.0835% 194 2008 0.25184 0,35005 0.26272 0.04958 0,91419 2009 0.25821 0.36121 0.27062 0.04894 0,93898 0.00637 0.01116 0,00790 -0,00064 0.02479 PERCENT CHANGE 2.5294% 3.1881% 3.0070% -1.2908% 2.7117% 196 V 2008 0.25184 0.35005 0,21136 0,05561 0.86886 2009 0,25821 0,36121 0,21109 0,05482 0,88533 0,00637 0,01116 -0.00027 -0.00079 0.01647 PERCENT CHANGE 2.5294% 3.1881% -0,1277% -1 .4206% 1,8956% CASTLE ROCK 192 V 2008 0.25184 0.11215 0,45831 0,03749 0.85979 2009 0,25821 0,11484 0.49238 0.03693 0.90236 0,00637 0,00269 0.03407 -0.00056 0,04257 PERCENT CHANGE 2.5294% 2.3986% 7.4338% -1.4937% 4,9512% 195 V 2008 0.25184 0.11215 0.19031 0.03749 0,59179 2009 0.25821 0.11484 0.20022 0.03693 0.61020 0.00637 0.00269 0,00991 -0.00056 0.01841 PERCENT CHANGE 2.5294% 2.3986% 5,2073% -1,4937% 3.1109% 659 2008 0,25184 0,11215 0,29579 0,03146 0,69124 2009 0,25821 0.11484 0.28549 0.03105 0,68959 0,00637 0.00269 -0.01030 -0.00041 -0,00165 PERCENT CHANGE 2.5294% 2.3986% -3.4822% -1.3032% -0.2387% DAKOTA COUNTY COMPARISON OF 2008/2009 FINAL TAX RATES SID W/S YEAR COUNTY CITY SCHOOL OTHER TOT COATES 196 V 2008 0,25184 0.15252 0,21136 0.03749 0.65321 2009 0,25821 0,13587 0.21109 0.03693 0,64210 0.00637 -0.01665 -0,00027 -0.00056 -0,01111 PERCENT CHANGE 2.5294% -10.9166% -0.1277% -1.4937% -1.7008% DOUGLAS 195 2008 0,25184 0.18389 0,19031 0.03146 0,65750 2009 0,25821 0,18500 0.20022 0.03105 0,67448 0,00637 0.00111 0.00991 -0.00041 0,01698 PERCENT CHANGE 2.5294% 0.6036% 5,2073% -1,3032% 2.5825% 200 V 2008 0.25184 0.18389 0.16676 0.03749 0.63998 2009 0.25821 0.18500 0,16735 0,03693 0.64749 0.00637 0.00111 0,00059 -0.00056 0.00751 PERCENT CHANGE 2.5294% 0.6036% 0.3538% -1.4937% 1,1735% 252 2008 0.25184 0.18389 0,20580 0,03146 0.67299 2009 0.25821 0,18500 0,17642 0.03105 0.65068 0,00637 0,00111 -0,02938 -0.00041 -0,02231 PERCENT CHANGE 2.5294% 0.6036% -14.2760% -1,3032% -3.3151% EAGAN 191 2008 0.25184 0.25892 0.19374 0.04393 0,74843 2009 0,25821 0,26886 0.19842 0.04328 0.76877 0.00637 0.00994 0.00468 -0.00065 0.02034 PERCENT CHANGE 2.5294% 3.8390% 2.4156% -1,4796% 2.7177% 196 2008 0.25184 0,25892 0.21136 0.04393 0,76605 2009 0,25821 0.26886 0.21109 0.04328 0,78144 0.00637 0.00994 -0.00027 -0.00065 0,01539 PERCENT CHANGE 2.5294% 3.8390% -0.1277% -1.4796% 2.0090% 197 2008 0.25184 0.25892 0.18914 0.04393 0,74383 2009 0,25821 0,26886 0.18051 0.04328 0,75086 0,00637 0.00994 -0,00863 -0.00065 0.00703 PERCENT CHANGE 2.5294% 3,8390% -4,5628% -1.4796% 0.9451% EMPIRE 192 V 2008 0.25184 0.25452 0.45831 0,03749 1.00216 2009 0.25821 0.26113 0.49238 0,03693 1.04865 0.00637 0.00661 0,03407 -0.00056 0.04649 PERCENT CHANGE 2.5294% 2.5970% 7,4338% -1.4937% 4,6390% DAKOTA COUNTY COMPARISON OF 2008/2009 FINAL TAX RATES II SID W/S YEAR COUNTY CITY SCHOOL OTHER TOTAL II EMPIRE 196 V 2008 0.25184 0.25452 0.21136 0.03749 0,75521 2009 0.25821 0.26113 0.21109 0,03693 0.76736 0,00637 0.00661 -0.00027 -0,00056 0.01215 PERCENT CHANGE 2.5294% 2,5970% -0,1277% -1.4937% 1 ,6088% EUREKA 192 V 2008 0.25184 0.17001 0.45831 0.03749 0.91765 2009 0,25821 0,16854 0.49238 0,03693 0.95606 0.00637 -0.00147 0.03407 -0.00056 0.03841 PERCENT CHANGE 2.5294% -0,8647% 7.4338% -1.4937% 4,1857% 194 V 2008 0.25184 0.17001 0.26272 0.03749 0,72206 2009 0.25821 0.16854 0,27062 0.03693 0.73430 0,00637 -0.00147 0.00790 -0.00056 0.01224 PERCENT CHANGE 2.5294% -0,8647% 3.0070% -1.4937% 1.6951 % 659 V 2008 0.25184 0,17001 0.29579 0.03749 0.75513 2009 0.25821 0.16854 0.28549 0.03693 0.74917 0,00637 -0.00147 -0.01030 -0.00056 -0.00596 PERCENT CHANGE 2.5294% -0.8647% -3.4822% -1.4937% -0.7893% FARMINGTON 192 V 2008 0.25177 0.43821 0.45819 0.03749 1 ,18566 2009 0.25814 0.44186 0.49226 0,03693 1.22919 0.00637 0.00365 0,03407 -0,00056 0.04353 PERCENT CHANGE 2,5301 % 0,8329% 7.4358% -1.4937% 3.6714% 196 V 2008 0.25184 0.43821 0.21136 0.03749 0.93890 2009 0.25821 0.44186 0,21109 0,03693 0.94809 0.00637 0.00365 -0.00027 -0.00056 0.00919 PERCENT CHANGE 2.5294% 0.8329% -0,1277% -1.4937% 0.9788% GREENVALE 659 2008 0,25184 0,13433 0,29579 0.03146 0,71342 2009 0,25821 0.14124 0.28549 0.03105 0,71599 0.00637 0.00691 -0,01030 -0.00041 0,00257 PERCENT CHANGE 2,5294% 5,1440% -3.4822% -1.3032% 0.3602% HAMPTON TWP 192 V 2008 0.25184 0.13156 0.45831 0,03749 0.87920 2009 0.25821 0.13187 0,49238 0,03693 0.91939 0,00637 0,00031 0,03407 -0.00056 0.04019 PERCENT CHANGE 2,5294% 0.2356% 7.4338% -1.4937% 4,5712% DAKOTA COUNTY COMPARISON OF 2&0812009 FINAL TAXAA TES SID W/S YEAR COUNTY CITY SCHOOL OTHER TOTAL HAMPTON TWP 195 V 2008 0.25184 O. 131 56 0,19031 0,03749 0.61120 2009 0.25821 0.13187 0.20022 0.03693 0.62723 0.00637 0.00031 0,00991 -0,00056 0.01603 PERCENT CHANGE 2,5294% 0.2356% 5.2073% -1.4937% 2,6227% 200 V 2008 0.25184 0.13156 0.16676 0.03749 0.58765 2009 0.25821 0.13187 0.16735 0.03693 0.59436 0.00637 0,00031 0.00059 -0.00056 0,00671 PERCENT CHANGE 2.5294% 0.2356% 0.3538% -1.4937% 1,1418% HAMPTON CITY 195 V 2008 0.25184 0.22742 0,19031 0,03749 0.70706 2009 0.25821 0.24038 0,20022 0,03693 0.73574 0.00637 0,01296 0.00991 -0.00056 0.02868 PERCENT CHANGE 2,5294% 5.6987% 5.2073% -1.4937% 4.0562% 200 V 2008 0.25184 0.22742 0.16676 0,03749 0.68351 2009 0.25821 0.24038 0,16735 0.03693 0.70287 0.00637 0,01296 0.00059 -0.00056 0,01936 PERCENT CHANGE 2.5294% 5.6987% 0,3538% -1,4937% 2.8324% HASTINGS 200 V 2008 0,25184 0.49475 0.16676 0.04918 0,96253 2009 0.25821 0.49732 0.16735 0.04834 0.97122 0.00637 0.00257 0.00059 -0.00084 0.00869 PERCENT CHANGE 2.5294% 0.5195% 0.3538% -1,7080% 0.9028% INVER GROVE HTS 196 2008 0.25184 0.37403 0.21136 0.04393 0.88116 2009 0.25821 0,37878 0,21109 0.04328 0,89136 0.00637 0,00475 -0.00027 -0.00065 0.01020 PERCENT CHANGE 2,5294% 1.2700% -0.1277% -1.4796% 1,1576% 197 2008 0,25184 0,37403 0.18914 0.04393 0,85894 2009 0,25821 0,37878 0.18051 0.04328 0,86078 0.00637 0.00475 -0,00863 -0.00065 0.00184 PERCENT CHANGE 2.5294% 1.2700% -4.5628% -1.4796% 0.2142% 199 2008 0.25184 0.37403 0,19764 0.04393 0.86744 2009 0.25821 0.37878 0,19303 0.04328 0,87330 0.00637 0,00475 -0.00461 -0.00065 0,00586 PERCENT CHANGE 2,5294% 1,2700% -2,3325% -1.4796% 0.6756% DAKOTA COUNTY COMPARISON OF 2008/2009 FINAL TAX RATES II SID W/S YEAR COUNTY CITY SCHOOL OTHER TOTAL 11 LAKEVILLE 192 V 2008 0.25184 0,34195 0.45831 0.03749 1,08959 2009 0.25821 0.33973 0.49238 0.04301 1 .13333 0.00637 -0.00222 0,03407 0,00552 0.04374 PERCENT CHANGE 2.5294% -0.6492% 7.4338% 14.7239% 4.0144% 194 V 2008 0.25184 0.34195 0.26272 0.03749 0.89400 2009 0.25821 0.33973 0,27062 0,04301 0.91157 0,00637 -0.00222 0,00790 0,00552 0.01757 PERCENT CHANGE 2.5294% -0.6492% 3.0070% 14,7239% 1,9653% 196 V 2008 0,25184 0,34195 0.21136 0.03749 0.84264 2009 0.25821 0.33973 0.21109 0.04301 0.85204 0.00637 -0,00222 -0.00027 0,00552 0,00940 PERCENT CHANGE 2,5294% -0.6492% -0.1277% 14,7239% 1.1155% L1LYDALE 197 2008 0.25184 0.41239 0.18914 0.04393 0,89730 2009 0.25821 0.44291 0,18051 0,04328 0.92491 0,00637 0,03052 -0.00863 -0.00065 0.02761 PERCENT CHANGE 2.5294% 7.4008% -4.5628% -1.4796% 3.0770% MARSHAN 200 V 2008 0,25184 0,17902 0.16676 0.03749 0.63511 2009 0,25821 0.17435 0.16735 0.03693 0,63684 0.00637 -0.00467 0.00059 -0.00056 0.00173 PERCENT CHANGE 2.5294% -2.6086% 0,3538% -1.4937% 0.2724% MENDOTA CITY 197 M 2008 0.25127 0.37178 0.18836 0.04841 0,85982 2009 0.25772 0.35265 0.17984 0.05239 0.84260 0.00645 -0.01913 -0.00852 0,00398 -0.01722 PERCENT CHANGE 2,5670% -5.1455% -4.5233% 8.2214% -2.0027% MENDOTA HTS 197 2008 0.25184 0.24142 0.18914 0.04393 0.72633 2009 0.25821 0.26165 0,18051 0,04328 0.74365 0.00637 0.02023 -0.00863 -0,00065 0.01732 PERCENT CHANGE 2.5294% 8.3796% -4.5628% -1.4796% 2.3846% MIESVILLE 200 2008 0.25184 0,23654 0.16676 0.03146 0,68660 2009 0.25821 0.23116 0.16735 0.03105 0,68777 0.00637 -0,00538 0.00059 -0,00041 0.00117 PERCENT CHANGE 2.5294% -2.2745% 0,3538% -1.3032% 0.1704% DAKOTA COUNTY COMPARISON OF 2008/2009 FINAL TAX RATES II SID W/S YEAR COUNTY CITY SCHOOL OTHER TOTAL II NEW TRIER 200 2008 0.25184 0.32119 0.16676 0.03146 0.77125 2009 0.25821 0.36932 0.16735 0.03105 0.82593 0.00637 0.04813 0.00059 -0,00041 0.05468 PERCENT CHANGE 2.5294% 14.9849% 0.3538% -1,3032% 7.0898% NININGER 200 V 2008 0.25184 0.11577 0,16676 0.03749 0.57186 2009 0,25821 0.12550 0.16735 0,03693 0.58799 0.00637 0,00973 0.00059 -0.00056 0.01613 PERCENT CHANGE 2,5294% 8.4046% 0.3538% -1.4937% 2,8206% NORTH FIELD 659 2008 0.23035 0.36648 0.29496 0,04667 0.93846 2009 0.23381 0,38536 0.28464 0.04629 0.95010 0,00346 0,01888 -0,01032 -0.00038 0,01164 PERCENT CHANGE 1.5021 % 5.1517% -3.4988% -0,8142% 1.2403% RANDOLPH TWP 195 2008 0,25184 0,04988 0.19031 0.03146 0.52349 2009 0.25821 0.05437 0.20022 0.03105 0.54385 0.00637 0.00449 0.00991 -0.00041 0.02036 PERCENT CHANGE 2,5294% 9,0016% 5.2073% -1.3032% 3,8893% 252 2008 0,25184 0,04988 0.20580 0.03146 0,53898 2009 0,25821 0,05437 0.17642 0.03105 0.52005 0,00637 0,00449 -0,02938 -0.00041 -0.01893 PERCENT CHANGE 2,5294% 9,0016% -14,2760% -1.3032% -3.5122% RANDOLPH CITY 195 2008 0.25184 0.12512 0.19031 0.03146 0.59873 2009 0.25821 0.15832 0.20022 0.03105 0.64780 0.00637 0.03320 0,00991 -0,00041 0.04907 PERCENT CHANGE 2.5294% 26.5345% 5.2073% -1.3032% 8,1957% RAVENNA 200 V 2008 0,25184 0,10474 0.16676 0.03749 0,56083 2009 0,25821 0.13014 0.16735 0.03693 0.59263 0.00637 0.02540 0.00059 -0.00056 0.03180 PERCENT CHANGE 2.5294% 24.2505% 0,3538% -1 .4937% 5.6702% DAKOTA COUNTY COMPA.RISONOF200812009 FINAL TAX RATES ~ SID W/S YEAR COUNTY CITY SCHOOL OTHER TOTAL II ROSEMOUNT 196 V 2008 0.25184 0.42440 0.21136 0.04996 0,93756 2009 0.25821 0.42323 0.21109 0.04916 0.94169 0.00637 -0,00117 -0.00027 -0,00080 0.00413 PERCENT CHANGE 2.5294% -0.2757% -0,1277% -1.6013% 0.4405% 199 V 2008 0,25184 0.42440 0.19764 0.04996 0.92384 2009 0.25821 0.42323 0.19303 0.04916 0.92363 0.00637 -0,00117 -0,00461 -0.00080 -0,00021 PERCENT CHANGE 2.5294% -0.2757% -2.3325% -1,6013% -0.0227% 200 V 2008 0.25184 0.42440 0.16676 0.04996 0,89296 2009 0.25821 0.42323 0.16735 0.04916 0.89795 0.00637 -0,00117 0.00059 -0.00080 0.00499 PERCENT CHANGE 2.5294% -0.2757% 0.3538% -1.6013% 0.5588% selOT A 195 2008 0.25184 0.17116 0,19031 0,03146 0.64477 2009 0,25821 0,16661 0,20022 0.03105 0.65609 0.00637 -0.00455 0.00991 -0.00041 0,01132 PERCENT CHANGE 2,5294% -2.6583% 5.2073% -1 .3032% 1.7557% 659 2008 0.25184 0.17116 0.29579 0.03146 0.75025 2009 0.25821 0.16661 0,28549 0,03105 0.74136 0,00637 -0.00455 -0.01030 -0.00041 -0.00889 PERCENT CHANGE 2.5294% -2,6583% -3.4822% -1.3032% -1 ,1849% SOUTH ST. PAUL 006 2008 0.23072 0,36142 0,27640 0.05660 0.92514 2009 0,23419 0,38532 0.26907 0.06014 0,94872 0,00347 0.02390 -0,00733 0.00354 0,02358 PERCENT CHANGE 1.5040% 6.6128% -2.6520% 6.2544% 2.5488% 199 2008 0.23072 0.36142 0,19764 0,05660 0.84638 2009 0.23419 0.38532 0.19303 0,06014 0.87268 0,00347 0,02390 -0.00461 0.00354 0.02630 PERCENT CHANGE 1.5040% 6.6128% -2,3325% 6,2544% 3.1074% SUNFISH LAKE 197 2008 0,25184 0,17847 0,18914 0.04393 0,66338 2009 0,25821 0.18967 0,18051 0.04328 0,67167 0.00637 0.01120 -0,00863 -0.00065 0.00829 PERCENT CHANGE 2,5294% 6.2756% -4.5628% -1.4796% 1.2497% DAKOTA COUNTY COMPARISON OF 2()()8/2()()9 FINAL TAX RATES SID W/S YEAR COUNTY CITY SCHOOL OTHER TOTAL VERMILLION TWP 192 V 2008 0.25184 0.17820 0.45831 0.03749 0.92584 2009 0.25821 0,17147 0.49238 0.03693 0.95899 0.00637 -0.00673 0.03407 -0.00056 0.03315 PERCENT CHANGE 2.5294% -3.7767% 7.4338% -1.4937% 3,5805% 196 V 2008 0.25184 0.17820 0.21136 0.03749 0,67889 2009 0.25821 0.17147 0.21109 0.03693 0,67770 0.00637 -0,00673 -0.00027 -0,00056 -0.00119 PERCENT CHANGE 2.5294% -3,7767% -0.1277% -1,4937% -0.1753% 200 V 2008 0,25184 0,17820 0.16676 0.03749 0,63429 2009 0.25821 0.17147 0.16735 0.03693 0,63396 0.00637 -0.00673 0.00059 -0,00056 -0.00033 PERCENT CHANGE 2.5294% -3,7767% 0,3538% -1,4937% -0.0520% VERMILLION CITY 200 V 2008 0.25184 0,32429 0.16676 0.03749 0.78038 2009 0,25821 0,37706 0.16735 0.03693 0.83955 0,00637 0.05277 0.00059 -0.00056 0.05917 PERCENT CHANGE 2.5294% 16.2725% 0.3538% -1 .4937% 7.5822% WA TERFORD 195 2008 0.25184 0.07109 0,19031 0,03146 0.54470 2009 0.25821 0.09209 0,20022 0.03105 0.58157 0.00637 0,02100 0,00991 -0,00041 0.03687 PERCENT CHANGE 2.5294% 29,5400% 5.2073% -1.3032% 6.7689% 659 2008 0.25184 0,07109 0.29579 0.03146 0.65018 2009 0,25821 0,09209 0.28549 0.03105 0,66684 0,00637 0,02100 -0,01030 -0.00041 0.01666 PERCENT CHANGE 2,5294% 29.5400% -3,4822% -1.3032% 2.5624% WEST ST. PAUL 197 2008 0.25184 0.43706 0.18914 0,04393 0.92197 2009 0,25821 0.44608 0,18051 0,04328 0.92808 0.00637 0.00902 -0,00863 -0,00065 0.00611 PERCENT CHANGE 2.5294% 2.0638% -4,5628% -1.4796% 0.6627% DAKOTA COUNTY CO.MPARISON OF 2008/2009 FINAL TAX RATES SCHOOL DISTRICT MARKET VALUE REFERENDUM RATES SID YEAR RATE SID YEAR RATE 6 2008 0,0018110 197 2008 0,0009400 2009 0.0018357 2009 0,0009967 191 2008 0.0026397 199 2008 0.0013159 2009 0.0024464 2009 0.0013392 192 2008 0,0013781 200 2008 0.0022733 2009 0.0013660 2009 0,0022372 194 2008 0.0017167 252 2008 0.0012100 2009 0,0017413 2009 0,0011688 195 2008 0.0007817 659 2008 0.0025147 2009 0.0009664 2009 0,0027034 196 2008 0.0021274 2009 0.0021032 CITY MARKET VALUE REFERENDUM RATES CITY YEAR RATE CITY YEAR RATE APPLE VALLEY 2008 0.0001736 MENDOTA HTS 2008 0.0001302 2009 0,0003111 2009 0,0001323 EAGAN 2008 0,0001526 NORTHFIELD 2008 0.0001530 2009 0,0001517 2009 0,0001450 LAKEVILLE 2008 0.0000714 ROSEMOUNT 2008 0.0000623 2009 0.0000696 2009 0.0000631 COUNTY MARKET VALUE REFERENDUM RATE YEAR RATE COUNTY 2008 2009 0,0000471 0,0000471 OTHER RATES 2008 STATE GENERAL TAX RATE - Commercial/lndustrial 2009 STATE GENERAL TAX RATE - Commercial/lndustrial 0.45949 0.45535 2008 STATE GENERAL TAX RATE - Seasonal/Recreational 2009 STATE GENERAL TAX RATE - Seasonal/Recreational 0,20385 0.18214 2008 FISCAL DISPARITY AREA WIDE RATE 2009 FISCAL DISPARITY AREA WIDE RATE 1.15782 1 .15921 Overview of Property Taxes A Presentation to the House Committee on Taxes February 2009 by Karen Baker Steve Hinze Pat Dalton Research Department and Katherine Schill Fiscal Analysis Department Minnesota House of Representatives Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 3 Contents State and Local Taxes............................................................................................................................ .............4 Income, Sales, and Property Taxes..................................................................................................................... 5 Property Tax Administration.. .......... ...... .... ........ ..... ........ ..... ..... ..... ........ ..... ..... ..... ..... ........ ...... ....... ........ ..... ... ...6 Truth in Taxation ........ ...... ...... ......... ..... ..... ... ..... ..... ..... ........ ..... ..... ........ ..... ..... ..... ........ ......... .... .... .... ........ .........8 Basic Terms and Concepts. .......... ........... .................. ........ ..... ..... ........ ..... ........................ ........ ....... ........ ......... 10 Computation of Property Tax for a Hypothetical Property ..............................................................................11 Limited Market Value....... ............................ ...... ............ ..... ..... ........ ..... ..... ..... ........ ..... ..... ..... ........ ................. 12 Property Tax Variation by Property Type... ................ ........................ ....... ...... ....... ........... ..... ............. ..... ....... 14 Who Pays Property Taxes and Who Receives Them ....................................................................................... 16 School District Levies ............. ....................................... ....... ..... ...... .................... ............ ..................... ........... 18 State General Tax............................................................................................................................................. 19 Property Tax Relief Programs.......................................................................................................................... 21 Local Government Aids ............................................................................................................................... 22 County Program Aids ..... ......... .... ...... .................. ..... ............. .... ........... .......... ........ ..... ..... .... ..... ... ...... .... ......25 Homestead Market Value Credit.................................................................................................................. 28 Agricultural Market Value Credit. ................ ..... ....... ..... ....................... ............................. ......... ....... .......... 29 Homeowner's Property Tax Refund Program........ ............ ............. ..... ..... ...... ....... ..... ..... ........ ....... .............30 Renter's Property Tax Refund Program ............ ..... ........ ..... ............. ..... .............. .......... ..... ........ ........ .......... 32 Targeting Property Tax Refund................................ .................. ....... ..... ............... .............. ......... ........ ........34 Senior Citizens Property Tax Deferral Program ................. ..... ........ .................... ..... ............................. ...... 36 Distribution of the Property Tax Burden.......................................................................................................... 38 Mining Taxes................................................................................................................................... .................40 Levy Limits ...................................................................................................................................................... 41 The Fiscal Disparities Program........................................................................................................................ 43 Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 4 State and Local Taxes Minnesota State and Local Tax Collections ($23,720 million in FY 2009) OOOs Individual Income $7,376 Property $7,528 Local Property Tax $6,785 State Property Tax $743 Sales (state only) $4,889 Other State Taxes $3,668 Other Local Taxes $259 Total $23,720 Of the $23.7 billion in state and local tax collections for FY 2009, $16.68 billion are state tax revenues and $7.04 billion are local tax revenues. Other wcal Taxes 1% Other State Taxes 15% * Includes statewide property tax House Research Graphics Presentation to the House Committee on Taxes House Research Department and House fiscal Analysis Department February 2009 Page 5 Income, Sales, and Property Taxes FY 2000 dollars (Millioos) $8,000 $2,000 $6,000 $4,000 $0 FY 1 ffi9 D Sales FY 2004 FY 2009 Individual Income P roperty* .1 nclud es staE wide pro party tax House Research Graphics urrent year , s FY 1999 FY 2004 FY 2009 Sales $3,347 $5,306 $4,889 Individual Income $6,828 $6,481 $7,376 Property* $5,878 $5,830 $7,528 Ten Years of the Big Three c $ 000 * Includes statewide property tax, which began in CY 2001. Of the $23.7 billion in state and local tax collections for FY 2009, the big three taxes-sales, individual income, and property-accounted for 83.5% of the total. Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 6 Who does what Property tax timeline Appeal process Property Tax Administration Counties are responsible for property tax administration; the Department of Revenue provides assistance and oversight. The list below shows each county office's responsibilities for property tax administration. In some counties these offices are merged and one or two offices may perform the functions. Assessor . Values property . Determines proper classification . Sends valuation notices to taxpayers Auditor . Determines each taxing jurisdiction's total tax capacity (Le., its tax base) . Calculates proposed and final tax rates . Prepares truth-in-taxation notices (based on proposed levies) Treasurer . Prepares and mails out property tax statements . Collects property tax payments . Distributes property tax receipts to each taxing jurisdiction The process of calculating, imposing, and collecting Minnesota property taxes for a year actually spans two full calendar years. As shown on the reverse side, the two- year cycle begins with the January 2 statutory assessment date and extends all the way through the next calendar year until the property taxes have been paid. For example, for taxes payable in 2009, the cycle begins on January 2, 2008, and doesn't end until the final payments are made in OctoberlNovember 2009. Ifa property owner disagrees with the assessor's valuation (shown on the valuation notice), the taxpayer can seek relief directly from the assessor. This may resolve the matter, so that no further action is necessary. Ifit does not, there are two separate avenues of appeal: 1. A three-step appeal process, consisting of an appeal to: . the local board of review; if not satisfied, appeal to, . the county board of equalization; if not satisfied, appeal to, . the Minnesota tax court. 2. A single-step appeal to the Minnesota tax court. There are two divisions: . The regular division, which can be used for any property. Proceedings are formal (an attorney is recommended), and the decision may be appealed to the Minnesota Supreme Court; or . The small claims division, which can be used only for homesteads (regardless of value) and other property where the market value is under $300,000. Proceedings are less formal, and decisions are final. Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department January March April June r-- = July = M September November December January March April May June QC) July = = M September October November December January March May <:'I July = = M October November December Property Tax System Timeline Assessment Year 2007 Taxes Payable 2008 Assessment date (2nd) Valuation notices mailed Local boards of appeal and equalization County board of appeal and equalization; state board of equalization Certification of state aid amounts Truth-in-taxation levy certifications (15th, 30th) Truth-in-taxation notices mailed Truth-in-taxation hearings; final levy certifications (27th) County auditors compute tax rates Property tax statements mailed 1st half tax payments due (15th) 1 st half state aid payments made (20th) 2nd half tax payments due - except on agricultural property (15th) 2nd half tax payments due - on agricultural property (15th) 2nd half state aid payments made (26th) February 2009 Page 7 Assessment Year 2008 Taxes Payable 2009 Assessment date (2nd) Valuation notices mailed Local boards of appeal and equalization County board of appeal and equalization; state board of equalization Certification of state aid amounts Truth-in-taxation levy certifications (15th, 30th) Truth-in-taxation notices mailed Truth-in-taxation hearings; final levy certifications (27th) County auditors compute tax rates Property tax statements mailed 1st half tax payments due (15th) 1 st half state aid payments made (20th) 2nd half tax payments due - except on agricultural property (15th) 2nd half tax payments due - on agricultural property (15th) 2nd half state aid payments made (26th) Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 8 Truth in Taxation "Truth in taxation" (TnT) is a process which the legislature enacted in 1988 to enhance public participation in Minnesota's property tax system. The components of TnT are: . public advertisements on budget/levy of certain taxing jurisdictions, . parcel-specific notices sent to the owner of the property, . public hearings, and . changes in the property tax statement. The process was enacted by the 1988 Legislature and was phased in from 1989 to 1993. Full implementation of the process began with taxes payable in 1993, the same year as the repeal of the general property tax levy limitations for counties and cities. Under the law prior to TnT, the main avenue for taxpayer involvement was on the valuation side of the system. Taxpayers received their market value notice early in the year, and then no further information was sent to the taxpayer until the property tax statement was received the following February or March-almost a whole year later. The legislature felt that TnT would improve local accountability by focusing taxpayers on the relationship between the budget process and property taxes. The main purposes of TnT were: . to enhance public participation in Minnesota's property tax system, . to educate the public on how property taxes are determined, . to encourage the public to understand the local government's budget process, . to encourage the public to become involved in helping local officials set spending priorities. Although there are some exceptions (Le., referendums, court costs, etc.) the local government's final levy cannot be increased above the proposed levy amounts reflected on the TnT notices. The basic components of the process are: A newspaper advertisement is required for counties, cities over 2,500 population, school districts, and certain special taxing districts. A local government must include changes in its total spending, property tax levy, and what the proposed local tax rates would be ifthere was no levy increase. The TnT notice shows the taxpayer how the current property taxes on their parcel compare to the proposed taxes for taxes payable in the following year, ifthe local governments adopt their proposed budgets (excluding any tax due to a referendum election held after proposed levies were certified). A public hearing is required for all counties, cities over 500 population, school districts, and certain special taxing districts, if the jurisdiction's proposed levy is greater than its current year's levy, and that percentage increase is greater than the percentage increase in the implicit price deflator (IPD). Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 9 The property tax statement contains a comparison of the property's current year's valuation, state aids/credits and property taxes to the property's previous year's valuation, state aid/credits and property taxes. The taxpayer can analyze, at a glance, what changes have occurred on the parcel of property. Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 10 Estimated market value Taxable and limited market value Net tax capacity, class rate Levy Levy limit Local tax rate Total local tax rate A!arketvalue-based levy and tax rate Gross tax, property tax credits, net tax Basic Terms and Concepts The assessor determines each property's estimated market value based on sales of comparable properties, cost of construction minus depreciation, income generated by the property (if applicable), and other relevant available information. Estimated market value and taxable market value are the same for most types of property. However, for residential homestead and nonhomestead property, agricultural property, and seasonal recreational property, the property's taxable market value may be restricted to its limited market value, which is a statutory limitation on the amount that the property's value can increase over the previous year's value. A property's net tax capacity is determined by multiplying the property's taxable market value by the relevant class rate or rates. Class rates are set by statute, vary by property type, and are uniform statewide. Each local taxing jurisdiction certifies a levy equal to the amount of revenue it desires to raise through the property tax in the upcoming year. F or some types of local taxing jurisdictions, the levy may be constrained by state- imposed levy limits. Levies for school districts and special taxing districts are limited. In some years, levies for counties and large cities (over 2,500 population) have been limited, although no limits are currently in effect for those types of jurisdictions. Generally, state imposed levy limits can be overridden by referendum. The local tax rate of a taxing jurisdiction is determined by dividing the jurisdiction's levy by the total net tax capacity of all properties within the jurisdiction. The total local tax rate for an individual property is the sum of the local tax rates of all taxing jurisdictions allowed to levy taxes upon the property. Certain voter-approved levies must be levied against market value rather than net tax capacity. The market value-based tax rate is determined by dividing the jurisdiction's market value-based levy by the total taxable market value of all properties within the jurisdiction (excluding the value of property classified as agricultural or seasonal-recreational, since those property types are exempt from market value-based taxes). Property tax credits reduce the gross tax that would otherwise be due upon a property. The remaining amount after subtraction of property tax credits is the net tax. The homestead market value credit and the agricultural market value credit are the two most common property tax credits and are based on formulas related to the market value of the property. Other property tax credits include the taconite homestead credit, the disparity reduction credit, and the power line credit. Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 11 Computation of Property Tax for a Hypothetical Property 1. Determine the property's taxable market value $120,000 2. Determine the class rate based on property type Residential homestead: 1.0% 3. Multiply taxable market value by class rate to obtain the net tax $120,000 X 1.0% = $1,200 capacity 4. Determine the total local tax rate by summing the tax rates of all County 50% jurisdictions authorized to levy property taxes upon the property City/town 35 (Le., jurisdictions whose boundaries include the property) School district 25 Special districts --2 Total 115% 5. Multiply net tax capacity by total tax rate to determine the net tax $1,200 X 115% = $1,380 capacity-based portion of the gross tax 6. Determine the total market value tax rate by summing the market County 0.0% value tax rate for all taxing jurisdictions authorized to levy City/town 0.0 property taxes upon the property School district 0.1 Special districts 0.0 Total 0.1% 7. Multiply taxable market value by total market value tax rate to $120,000 X 0.1% = $120 determine the market value-based portion of the gross tax 8. Add the net tax capacity-based gross tax to market value-based $1,380 + $120 = $1,500 gross tax to obtain the total gross tax 9. Determine the homestead market value credit amount for home $264 of this value 10. Subtract the homestead market value credit from the gross tax to $1,500 - $264 = $1,236 obtain the net tax Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 12 What is limited market value? What property does LMVapply to? Is it permanent? Does the assessor continue valuing the property? How does it work? How does the phaseout work? Limited Market Value Limited market value (LMV) is a limitation on the amount that a property's market value may grow from one year to the next for purposes of property taxation. It was enacted to help mitigate rising property taxes resulting from rapidly inflating property values. The following classes of property qualify for LMV: . agricultural homestead and nonhomestead . residential homestead and nonhomestead . seasonal recreational residential property (Le., cabins) . timberland (beginning with the 2001 assessment) LMV provisions were in effect from 1973 to 1979, and again from 1993 to the present. The 2001 Legislature phased out LMV over a six-year period-from assessment years 2002-2007. The 2005 Legislature extended the phaseout an additional two years. Beginning in assessment year 2009 (for taxes payable in 2010), all property will be valued at its estimated full market value for property tax purposes. The table at the bottom ofthe page shows the phase-out schedule. The assessor continues to determine the property's fair market value. This value is called the "estimated market value" (EMV). However, property that qualifies for treatment under LMV may not be taxed at the full value of the property if its growth exceeds the limits. For qualifying property in assessment year 2008 (taxes payable in 2009), the increase in market value cannot exceed the greater of: . 15 percent of the LMV in the preceding assessment year, or . 50 percent of the difference between the current year's EMV and the previous year's LMV. For each year, the maximum valuation increase is determined by calculating the increase allowed under columns (1) and (2), and choosing whichever is higher. (1) (2) Assessment Yearl Percentage of previous Percentage of difference between previous Payable Year vear's LMV vear's LMV and current vear's EMV 2002/2003 10% 15% 2003/2004 12 20 2004/2005 15 25 2005/2006 15 25 2006/2007 15 25 2007/2008 15 33 2008/2009 15 50 Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 13 Example calculations How much has LMV grown? How much are the classes of property affected by LMV? Assessment year 2008/payable year 2009 The LMV ofa home is $100,000 for assessment year 2007. For assessment year 2008, the assessor determines that the EMV of the home is $120,000. The maximum market value increase for tax purposes is the greater of: . 15 percent increase over the previous year, which is $15,000, or . 50 percent of the $20,000 difference in value, which is $10,000. Therefore, the home's LMV is $100,000 plus $15,000, or $115,000 for assessment year 2008 (for taxes payable in 2009). The table below shows the amount of market value that LMV excluded from the tax rolls for tax years 1994-2008. Taxes Excluded Value* Payable Year EMV* LMV* Amount Percenta2e 1994 $124.1 $123.5 $0.7 0.5% 1995 132.0 131.0 1.0 0.8 1996 142.1 140.4 1.6 1.1 1997 152.1 150.0 2.0 1.3 1998 163.6 161.1 2.5 1.5 1999 176.6 173.3 3.4 1.9 2000 202.6 197.0 5.6 2.8 2001 226.4 215.8 10.6 4.7 2002 260.4 239.4 21.0 8.1 2003 284.8 253.9 30.9 10.8 2004 319.8 288.0 31.8 9.9 2005 360.4 331.5 28.9 8.0 2006 404.8 377.7 27.1 6.7 2007 450.4 424.2 26.2 5.8 2008 476.4 458.5 17.9 3.8 * Affected property classes only, All amounts in billions. Excluded Value by Property Class for Taxes Payable in 2008 Excluded Percentage of Percentage Value under Total LMV Reduction Relative LMV (Billions) Exclusion to Property Class Residential Homestead $5.07 28.3% 1.5% Residential Nonhomestead 2.14 12.0 5.1 Agricultural 5.87 32.8 7.7 Seasonal Rec. Residential 4.81 26.9 17.1 Total $17.89 100.0% 3.8% Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 14 Property Tax Variation by Property Type What causes property taxes to vary by type of property ? The primary cause of variation in property tax burdens is Minnesota's classified property tax system. In a classified system, each class of property is assigned one or more class rates. The property's taxable market value is multiplied by the class rate(s) to determine the property's tax base, technically called its net tax capacity. Besides the class rates, variations in tax by type of property also occur because the state general tax and school district operating referendum levies apply to some types of property but not to others. (All voter-approved levies, except school district levies for bonded debt, are levied on referendum market value. School district levies for bonded debt are levied on the net tax capacity of all types of property.) The table below shows class rates and the applicability of taxes by type of property. Class Rate Schedule for Taxes Payable in 2009 2a Agricultural homestead: House, garage & I acre - same as residential homestead Agricultural land & buildings: Up to $890,000 Over $890,000 A ricultural nonhomestead 4a Market-rate apartments (4 or more units) 1.25 No Yes 4bb Residential nonhomestead single unit: Up to $500,000 1.00 No Yes Over $500,000 1.25 No Yes 4b Residential nonhomestead 2-3 unit and undeveloped land 1.25 No Yes 4c Seasonal recreational residential (noncommercial): Up to $500,000 1.00 Yes** No Over $500,000 1.25 Yes** No 4d Low-income a artments 0.75 No Yes * Subject to state general tax at commercial-industrial rate, ** Sub' ect to state eneral tax at seasonal recreational rate. Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 15 What other factors cause property taxes to vary by type of property? Variations also occur because certain types of property qualify for property tax credits that reduce the amount of tax that would otherwise be due. The two largest credit programs are the homestead market value credit and the agricultural market value credit, which apply to all residential homesteads and all agricultural homesteads. Other credits apply to property in some areas of the state but not to others. What is effective tax rate? Local variation also occurs because tax rates are determined separately for each taxing jurisdiction in the state, based on each jurisdiction's levy and tax base. Effective tax rate is a measure of tax burden useful in making property tax comparisons. It is defined as net tax divided by market value (i.e., tax as a percent of market value). It allows comparison of tax burdens between properties of different values, different types, and different locations. Comparison of Property Taxes on Various Types of Property, Within the Same Taxing Jurisdiction, Each with a Market Value of $200,000 (property taxes payable in 2009) Class Net Tax Property Tax* Effective Property Type Rate(s) Capacity Gross Net Tax Rate Agricultural homestead** 0.5/1.0% $1,250 $1,325 $798 0.40% Agricultural nonhomestead 1.0 2,000 2,000 2,000 1.00 Residential homestead 1.0 2,000 2,300 2,108 1.05 Seasonal recreational residential (Le., cabin) 1.0 2,000 2,293 2,293 1.15 Residential nonhomestead (1 unit) 1.0 2,000 2,300 2,300 1.15 Residential nonhomestead (2-3 units) 1.25 2,500 2,800 2,800 1.40 Apartment 1.25 2,500 2,800 2,800 1.40 Low-income apartment 0.75 1,500 1,725 1,725 0.86 Commercial/Industrial 1.5/2.0 3,250 5,045 5,045 2.52 Commercial/Industrial @ $2,000,000*** 1.5/2.0 39,250 60,305 60,305 3.02 * These examples assume a total local net tax capacity tax rate of 100 percent, a state commercial-industrial tax rate of 46 percent, a state seasonal recreational tax rate of 19 percent, and a total market value tax rate of 0.15 percent. ** The agricultural homestead is assumed to consist of a house valued at $50,000 and agricultural land and buildings valued at $150,000, *** This property has a market value of $2,000,000 to show a typical effective tax rate on a larger commerciaVindustrial property , Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 16 Who Pays Property Taxes and Who Receives Them Where property taxes come from Total property taxes statewide were $7,287 million for calendar year 2008. The total amount of property value (excluding the value of exempt property) was $586,794 million. The graphs below show the breakdown of the state's total property tax base by market value and by taxes paid in 2008. Statewide Shares of Market Value and Property Tax by Property Type (Taxes Payable 2008) Estimate d Market Val ue Property Tax Resk:Jential Homestead 56,2% 46.7% Resk:Jential Nonhomestead Apartment Comm erciaVlndustrial Pubic Utility Agrcultural Seasonal Recreational Total: $586,794 million Total: $7,287 million Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 17 Where property taxes go The total property tax burden in Minnesota was $7,287 million for calendar year 2008. The pie chart below shows the distribution of the tax among the various types of taxing jurisdictions. Property Tax by Type of Government, * Taxes Payable 2008 (Total: $7,287 million) C(lJ nty 31,1 % aty 26.4% (includes tax incrementfinarx:ing [TIF]) Town 2,5% Special Taxing District 3,8% *Arrounts shown ere after aDocation of property tax credfts, Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 18 School District Levies $2.14 Bi lIion for Pay 2009 Operating Referendum 33,3% II D Boad-approved levies Voter-approved levies Other Operati ng 12,0% ReferenciJm market value-based levies Board-Appro\ed Debt Ser\ire 8,3% School District Levies Preliminary Pay 2009 Amount No. Districts ($ millions) Tax Base* Equalized? Affected Voter-Approved Net Debt Service Levv 585 NTC Yes, 2- Tier 272 Operating Referendum 715 RMV Yes, 2- Tier 307 Not Voter-Approved Debt Service (w/o voter aooroval) 178 NTC Yes, 2- Tier 112 Operating Capital 123 NTC Yes 337 Equitv 74 RMV Yes 338 Transition 25 RMV Yes 200 Health & Safety 67 NTC Yes 318 OPEB Bonds 27 NTC No 32 Alternative Facilities 55 NTC Yes 24 Building Lease / Lease Purchase 48 NTC No 211 Deferred Maintenance 23 NTC Yes 310 Basic Community Education 38 NTC Yes 337 Integration 27 NTC No, some aid 110 Safe Schools 27 NTC No 317 Early Childhood Family Education 22 NTC Yes 337 Alternative Comoensation (Qcomp) 18 NTC Yes 36 All other levies 98 NTC Yes/No 1 - 337 Total 2,140 * RMV = Referendum Market Value NTC = Net Tax Capacity Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 19 State General Tax . The state general tax was instituted in 2001 as part of a major overhaul of the property tax system . The state levy was initially set at $592 million for taxes payable in 2002. The law provides for the levy to increase each year by the percentage increase in the implicit price deflator for government consumption expenditures and gross investment for state and local governments, as prepared by the U.S. Dept. of Commerce. For taxes payable in 2008, the state levy is $734.5 million. . Beginning with taxes payable in 2006, the state levy is apportioned into separate pools so that 95% is borne by commercial-industrial property (including public utility), and 5% is borne by seasonal recreational property (both commercial and non-commercial). Separate tax rates are determined for each pool. Before 2006, the same tax rate was applied to all properties subject to the state levy. Each property's tax is determined by multiplying its net tax capacity by the applicable state tax rate, except that for noncommercial seasonal-recreational property up to $76,000 in value, the state tax is levied at only forty percent of the full rate. The portion of public utility property consisting of attached machinery used in the generation of electricity is not subject to the state general tax. . Revenues from the state general tax are deposited in the state general fund. The initial 2001 legislation provided that the amount levied each year over and above the FY 2003 amount would be dedicated to education funding, but that dedication was eliminated in 2003. . The table below lists the state levy and the state tax rate(s) for each year since the state levy was initiated: Payable Year 2002 2003 2004 2005 State Levy (millions) $592.0 594.9 624.5 629.3 2006 2007 2008 2009 658.7 696.3 734.5 776.6 Tax Rates Commercial- Seasonal- industrial rate recreational rate 57.933% 57.933% 54.447 54.447 54.109 54.1 09 51.121 51.121 50.827 48.032 45.949 45.535 28.385 24.225 20.385 18.214 Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 21 Property Tax Relief Programs CY 'OSIFY '09 (millions) Program Recipients $484 206 90 9 20 268 25 256 173 7 Aids Local government aid County program aid Referendum equalization aid Debt service equalization aid Disparity reduction aid Cities Counties School districts School districts Counties, towns, and school districts Credits Homestead market value credit Agricultural market value credit All taxing jurisdictions All taxing jurisdictions Refunds Property tax refund-homeowners Property tax refund-renters Special property tax refund-targeting Individuals Individuals Individuals Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 22 City LGA underwent major changes in 2003 Changes were made in 2008 in response to criticisms of the new program Volatility was reduced by using earlier data and averaging it across years Maximum annual reductions to individual cities were also lowered to limit volatility New special aids and other changes were made to the formula to change the distribution The appropriation was increased for the next three years Local Government Aids The city local government aid (LGA) program underwent major changes in 2003, including the elimination of most of the old city aid base (grandfathered aid) and an increase in the amount distributed via a formula based on "need" and "ability to raise local revenues." New need measures were developed and taconite aid was added to the measure of ability to raise local revenues. The 2003 program was criticized for being too volatile and not recognizing need of certain cities such as established suburbs. The appropriation was also lower than in previous levels. The LGA program was modified in 2008 to address all three criticisms-volatility, distribution, and the appropriation level. Small changes in certain factors used to determine "need" often caused large fluctuations in a city's aid. In addition, the actual certified aid amounts were different than the end of session estimates because some of the data used to calculate aid wasn't available until July. Beginning with 2010, data used to calculate need is the data available as of January 1 ofthe year in which the aid is certified. Also the average of two years of "un met need" (need minus ability to raise revenue) is used in calculating aid each year. Decreases had been limited to 10 percent ofthe city's levy in the previous year for large cities and to 5 percent of the city's certified 2003 LGA amount (before 2003 aid reductions) for small cities. Beginning with 2009, the limit on decreases for each type of city is the lesser of (1) $10 per capita or (2) its old limit for decreases. For 2009 only, no small city's aid could be less than its aid in 2008, unless its only 2008 aid was due to previously grand fathered small city aid, in which case its aid could decrease to zero. Previously, cities under 5,000 population received a small city aid amount of$6 per capita as part oftheir city aid base. Beginning in 2009, this amount was increased to $8.50 per capita but moved from the city aid base and included in the LGA formula. A new aid for cities with 5,000 or more population was added to the formula, based on a city's jobs per capita. The city jobs aid is reduced by 36% of "regional center aid" which is grandfathered aid paid to large Greater Minnesota cities. Both the small city aid and city jobs aid increase proportionately to increases in the LGA appropriation. A city's small city aid or city jobs aid is reduced if their "need" exceeds their "ability to pay" measure. Taconite aid was removed from the "ability to pay" measure. These changes increased aid to established inner ring suburbs and mid-size cities in Greater Minnesota. Prior to the 2008 change, the LGA appropriation was frozen at $484 million annually. It was increased to $526 million for 2009, and will increase by an additional 2 percent in 2010, and another 4 percent in 2011. Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 23 City LGA Formula - Old Law vs. Changes Enacted in 2008 Characteristic Old Law (in effect in CY 2002) Changes made effective CY 2009 Funding $484.5 million per year with no $526.1 million in CY 2009 inflation adjustment* Additional 2 % increase in CY 2011 Additional 4 % increase in CY 2012 City aid base $30.4 million to certain cities based on $26.1 million because small city aid is (grandfathered aid) specific criteria moved to the formula City formula aid $454.1 million distributed based on a A city's distribution is now equal to small percentage of 'unmet need" which is city aid, plus city job aid (new), plus a equal to "need" minus "ability to raise percentage of its average "unmet need" for revenue" last two years Large city need per Based on (1) pre-1940 housing %, (2) Data used is most recent data available as of capita measure pop. decline %, (3) road accident January 1 of the year in which the aid is factor, (4) household size, and (5) if it certified. May not be less than $285 per is in the metro area capita Small city need per Based on (1) pre-1940 housing %, (2) Data used is most recent data available as of capita measure comm'l/industrial, (3) pop. decline %, January 1 of the year in which the aid is and (4) transformed pop certified. Ability to raise = Average city tax rate x adjusted city Taconite aid offset eliminated revenue measure tax capacity (tax base) - 100% of taconite for most taconite cities** Small city aid $6 per capita as part of grandfathered $8.50 per capita, increasing at same rate as aid the appropriation, now part of formula aid City jobs aid (New) ----- For city over 5,000 population - equal to $25.20 x number of jobs per capita in the city up to $4.725 million, adjusted for regional center aid and increases in the LOA appropriation Limits on increases No city's aid can increase by more than Beginning with CY 2009 aids, the and decreases 10% of its levy from the previous year maximum aid loss for large cities is the lesser of 10% of previous year levy or $10 per capita No large city's aid loss can exceed For CY 2009 small cities' aid cannot 10% of its levy in the previous year and decrease unless due to the small city base no small city's loss in any year can change. For CY 2010 and later, the exceed 5% of its certified 2003 LOA decrease is limited to the lesser of $1 0 per capita or 5% of certified 2003 LOA * In CY 2008 only, $430.1 million ofthe $484.5 million aid was paid, $53.5 million of the December payment was unalloted by the governor, ** The taconite aid paid to the cities of Babbitt, Eveleth, Hibbing, Keewatin, Mountain Iron, Silver Bay, and Virginia are not included in calculating their ability to raise revenue measure. Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department (millions) City LGA Over Time $600 $500 212 $400 D Formula Aid $300 Grandfathered 454 Aid 410 $200 $100 $0 1998 200J 2002 2004 2000 Composition of Levy Plus LGA CY 2007 (FY 2008) 100% 75% 50% TnT Levies 25% 0% All Cities Center SubLlbs Regional Other Rl.I'8I Cities Centers February 2009 Page 24 Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 25 County program aid replaced several county aid programs County program aid consists of Uneed aid" and "tax-base equalization aid" The appropriation is increased in 2009 Counties receiving less aid under the post-2004 formula receive transition aid Additional aid granted to counties with special circumstances County Program Aids Prior to calendar year 2004, counties received property tax aid under a number of different programs. Beginning in 2004, the aid programs were consolidated into one general aid program, called county program aid (CPA). The county aid programs that were consolidated include the following: . attached machinery aid (Minn. Stat. S 273.138) . homestead and agricultural credit aid (HACA) (Minn. Stat. S 273.1398, subd. 2) . manufactured home homestead and agricultural credit aid (Minn. Stat. S 273.166) . county criminal justice aid (CCJA) (Minn. Stat. S 477A.0121) . family preservation aid (FPA) (Minn. Stat. S 477A.0122) From calendar year 2005 to calendar year 2008, CPA has been allocated by two formulas, need aid and tax-base equalization aid, with approximately $100 million being distributed through the need aid formula and $105 million being distributed through the tax base equalization aid formula. The table on the next page shows the calculation ofa county's aid under each formula. The appropriation for CPA increases beginning in calendar year 2009 by $22 million, with $11 million going to each of the two parts. For aids payable in 2010 and 2011 the appropriation is scheduled to further increase by 2 percent per year. For aid paid in calendar year 2011 and thereafter, about $116 million will be distributed under the need aid portion and about $121 million under the tax base equalization aid portion of CPA. Seven counties whose relative share of the total CPA formula allocation in calendar year 2005 was significantly less than their share of 2004 program aid qualify for "transition aid." Each county's transition aid amount is permanently fixed at one-third of the amount it received in 2005. The total amount of transition aid for calendar year 2009 is $464,000. The 2008 tax bill granted supplemental payments of$500,000 to Beltrami County and $100,000 to Pine County for special circumstances in 2009 only. Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 26 Calculation of County Program Aid Need Aid Tax-base Equalization Aid Share of Appropriation: $100,5 million (CY 2005-2008) $111.5 million (CY 2009) $113.7 million (CY 2010) $116 million (CY 2011 and thereafter) Reductions from the appropriation: $500,000 annually for court-ordered counsel and public defense costs Factors used in the formula: . age-adjusted population, which ranges from 80% to 180% of the county's actual population based on the percentage of the county's population over 65 years, compared to the statewide average . average monthly number of households receiving food stamps in the county over the last three years . average num ber of Part I crimes reported in the county over the last three years. These are the most serious crimes The formula: . 40% of the appropriation is distributed to each county based on its relative share of the total age adjusted population in the state . 40% of the appropriation is distributed to each county based on its relative share of the total average monthly number of households receiving food stamps in the state . 20% of the appropriation is distributed to each county based on its relative share of the average number of Part I crimes reported in the state Share of Appropriation: $105 million (CY 2005-2008) $116.1 million (CY 2009) $118.5 million (CY 2010) $120.8 million (CY 2011 and thereafter) Reduction from the appropriation: up to $312,000 annually to pay for the preparation of local impact notes Tax-base equalization factor used in the formula: Factor = N times ($185 x population - 9.45% of the county adjusted net tax capacity) where N equals: . 3 if the county population is less than 10,000; . 2 if the county's population is at least 10,000 but less than 12,500; . 1 if the county's population is at least 12,500 but less than 500,000; and . 0.25 if the county's population is 500,000 or more The formula: . 100% of the appropriation is distributed based on each county's relative share of the sum of the tax- base equalization factors for all the counties in the state Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 27 (Millions) $250 $200 $150 $100 County Aid Funding 227.3 $50 $0 CY 2003 CY 2004 CY 2005 CY 2006 CY 2007 CY 2008 CY 2009 House Research Graphics Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 28 Homestead Market Value Credit . The credit amount is based only on the taxable market value of the property, not on the tax itself . The maximum credit is $304; homes valued over $414,000 receive no credit . The credit amount is shown on the tax statement as a subtraction after the gross tax has been computed . The credit is deducted from each local government's tax on the homestead in proportion to its share of the gross tax (excluding school referendums) . For agricultural homesteads, the credit is computed on the value of the house, garage and one acre of land only . For homes valued at $76,000 or less, the credit is 0.4% times the taxable market value; for homes valued over $76,000, the credit is $304 minus 0.0009 times the taxable value of the home in excess of $76,000, as shown in the chart below . The cost of the credit for taxes payable in 2008 (FY 2009) is $265.8 million (before unallotment) Homestead Market Value Credit $400 - ~ $300 Q a < $200 - ~ ~ $100 U $0 $25 $75 $125 $175 $225 $275 $325 $375 $425 Taxable Market Value of Homestead (Ooos) Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 29 Agricultural Market Value Credit . The credit applies to agricultural homesteads only . The credit amount is based on the taxable value of the agricultural portion ofthe property, excluding the value of the house, garage and surrounding one acre of land . The credit amount is shown on the tax statement as a subtraction after the gross tax has been computed . The credit is deducted from each local government's tax on the homestead in proportion to its share of the gross tax (excluding school referendums) . The maximum credit amount is $345; all farms valued over $345,000 receive a credit of$230 . For farms with a market value less than $115,000, the credit is 0.3% of the market value; for farms valued between $115,000 and $345,000, the credit is $345 minus 0.0005 times the value in excess of $115,000; for farms valued over $345,000, the credit is $230; as shown in the chart below . The state cost of the credit for taxes payable in 2008 (FY 2009) is $25.1 million Agricultural Market Value Credit $400 - I-- - - - - ~ - - I-- - - ~ , , , , ..... S $300 o e < $200 ..... :a ~ .. $100 U $0 $25 $75 $125 $175 $225 $275 $325 $375 Taxable Market Value of Farm land & bldgs (()()()s) Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 30 Homeowner's Property Tax Refund Program What is the property tax refund program? What are recent changes to the program? What are the maximums? How are claims filed? What is the average refund and total amount paid? The homeowner's property tax refund program (sometimes called the "circuit breaker" or the PTR) is a state-paid refund that provides tax relief to homeowners whose property taxes are high relative to their incomes. If property tax exceeds a threshold percentage of income, the refund equals a percentage of the tax over the threshold, up to a maximum amount. As income increases: . the threshold percentage increases, . the share of tax over the threshold that the taxpayer must pay increases, and . the maximum refund decreases. The program uses household income, a broad measure that includes most types of income. Deductions are allowed for dependents and for claimants who are over age 65 or disabled. The 2008 tax law expanded the homeowner's property tax refund program, effective for refunds based on property taxes payable in 2009. The changes lowered the maximum threshold percentage for determining eligibility from 4.0 percent of income to 3.5 percent of income, and increased the maximum refund allowed from $1,800 to $2,310. For refund claims filed in 2009, based on property taxes payable in 2009 and 2008 household income, the maximum refund is $2,310. Homeowners whose income exceeds $96,939 are not eligible for a refund. Refund claims are filed using the Minnesota Department of Revenue (DOR) Schedule MIPR. Claims filed before August 15,2009, will be paid beginning in late September 2009. The deadline for filing claims based on taxes payable in 2009 is August 15, 20 I 0; taxpayers filing claims after that date will not receive a refund. Forms are available online at DOR's web site, under "Forms and Instructions" (www.taxes.state.mn.us)... Statewide Homeowner Property Tax Refunds Filed in 2007 (based on 2006 incomes and payable 2007 taxes, most recent data available) Average per Number of returns Total refund amount return Under 65 years old 198,206 $132.0 million $667 Senior/disabled 120,691 $80,9 million $670 Total: all homeowners 318,897 $212.9 million $668 Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 31 How do refunds vary depending upon the filer's income and property tax? The following table shows the refund amount for two example families with different incomes-one family in the metro area and one in greater Minnesota. Although the property tax refund threshold, copayment rates, and maximum refund amounts are the same statewide, the average residential homestead property tax in the metro area is higher than in greater Minnesota. The metro area family has payable 2009 property taxes of $3, 125, a typical amount for the metro. The family in greater Minnesota has payable 2009 property taxes of $1 ,580, a typical amount for greater Minnesota. Taxpayers who are over age 65, disabled, or have dependents are allowed a subtraction from income in determining the refund. Married couple, both under age 65, two dependents Example refunds for claims to be filed in 2009, based on taxes payable in 2009 and 2008 income Metro area Greater Minnesota Taxpayer #1 Taxpayer #2 Taxpayer #3 Taxpayer #4 1 Estimated average market value of home $280,000 $280,000 $165,000 $165,000 2 Gross income $25,000 $50,000 $25,000 $50,000 3 Deduction for dependents $9,450 $9,450 $9,450 $9,450 4 Household income (2 - 3 = 4) $15,550 $40,550 $15,550 $40,550 5 Property tax $3,125 $3,125 $1,580 $1,580 6 Statutory threshold percentage 1.9% 2,7% 1.9% 2,7% 7 Threshold % x income (4 x 6 = 7) $295 $1,095 $295 $1,095 8 Property tax over threshold (5 - 7 = 8) $2,830 $2,030 $1,285 $485 9 Statutory copay percentage 30% 40% 30% 40% 10 Taxpayer copay amount (8 x 9 = 10) $849 $812 $385 $194 11 Remaining tax over threshold (8 -10 = 11) $1,981 $1,218 $899 $291 12 Maximum refund allowed $2,010 $1,700 $2,010 $1,700 13 Net property tax refund $1,981 $1,218 $899 $291 Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 32 What is the renter's property tax refund program? What are the maximums? How are claims filed? What is the average refund and total amount paid? How do refunds vary depending on income and property taxes? Renter's Property Tax Refund Program The renter's property tax refund program (sometimes called the "renters' credit") is a state-paid refund that provides tax relief to renters whose rent and "implicit property taxes" are high relative to their incomes. "Rent constituting property taxes" is assumed to equal 19 percent of rent paid. If that rent constituting property tax exceeds a threshold percentage of income, the refund equals a percentage of the tax over the threshold, up to a maximum amount. As income increases: . the threshold percentage increases, . the share of tax over the threshold that the taxpayer must pay increases, and . the maximum refund decreases. The program uses household income, a broad measure that includes most types of income. Deductions are allowed for dependents and for claimants who are over age 65 or disabled. For refund claims filed in 2009, based on rent paid in 2008 and 2008 household income, the maximum refund is $1,490. Renters whose income exceeds $52,299 are not eligible for refunds. Refund claims are filed using Minnesota Department of Revenue (DOR) Schedule MIPR. Claims filed before August 15,2009, will be paid beginning in August 2009. The deadline for filing claims based on rent paid in 2008 is August 15, 2010; taxpayers filing claims after that date will not receive a refund. Forms are available online at DOR's web site, under "Forms and Instructions" ( www.taxes.state.mn.us ). Statewide Renter Property Tax Refunds Filed in 2007 (based on 2006 incomes and rent paid in 2006, most recent data available) Number ofretums Total amount Average per retum Under 65 years old 196,738 $104.3 million $530 Senior/disabled 77 ,051 $46.3 million $601 Total: all renters 273,789 $150.6 million $550 The following table shows the refund amount for two example families with different incomes-a married couple without dependents in the metro area, and a married couple without dependents in greater Minnesota (a single person living alone would qualify for the same refund amounts). Although the property tax refund threshold, co payment rates, and maximum refund amounts are the same statewide, the average rent is higher in the metro area than in greater Minnesota. The metro area family paid monthly rent in 2008 of $699, the fair market rent for a one-bedroom apartment in the metro area. (19% of$707 x 12 = $1,594, which Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 33 is their rent constituting property tax.) The family in greater Minnesota paid monthly rent in 2008 of $444, the fair market rent for a one-bedroom apartment in many greater Minnesota counties. (19% of$433 x 12 = $1,012, which is their rent constituting property tax.) Taxpayers who are over age 65, disabled, or have dependents are allowed a subtraction from income in determining the refund. Married couple, both under age 65, no dependents Example refunds for claims to be filed in 2009, based on rent paid in 2008 and 2008 income Metro area Greater Minnesota Taxpayer #1 Taxpayer #2 Taxpayer #3 Taxpayer #4 ] Gross income $]5,000 $30,000 $]5,000 $30,000 2 Deduction for dependents 0 0 0 0 3 Household income (I - 2 = 3) $]5,000 $30,000 $]5,000 $30,000 4 Rent constituting property tax $],594 $],594 $],0] 2 $],012 5 Statutory threshold percentage ].4% 2.4% ].4% 2,4% 6 Thresho]d % x income (3 x 5 = 6) $210 $720 $210 $720 7 Property tax over threshold (4 - 6 = 7) $],384 $874 $802 $292 8 Copay percentage 20% 30% 20% 30% 9 Taxpayer copay amount (7 x 8 = 9) $277 $262 $]60 $88 10 Remaining tax over threshold (7 - 9 = 10) $1,107 $6]2 $642 $205 11 Maximum refund allowed $],490 $] ,490 $],490 $ ] ,490 ]2 Net property tax refund $],107 $6]2 $642 $205 Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 34 What is targeting? Who qualifies? How does targeting work? Does targeting have any other restrictions? Is targeting a new program? Targeting Property Tax Refund The "additional" or "special" property tax refund, generally referred to as "targeting," directs property tax relief to homeowners who have large property tax increases from one year to the next. A homeowner qualifies ifthe property tax on the home has increased by more than 12 percent over the previous year's tax and if the increase is over $100. The homeowner must have owned and lived in the same home for both years. If any improvements were made to the home, that portion of the tax increase resulting from the improvements must be subtracted when determining the refund. The refund equals 60 percent ofthe increase over the greater of (1) 12 percent of the previous year's tax or (2) $100. The maximum refund is $1,000. The following example shows how the refund is calculated. Payable 2008 Property Tax $1,400 Payable 2009 Property Tax 2,000 2009 tax increase (over 2008) $600 Taxpayer pays first 12% of increase compared to previous year's tax, which must be at least $100 (12% x 1,400) 168 Remaining increase eligible for relief ($600 - $168 = $432) $432 State pays 60% of excess over 12% increase up to a $1,000 maximum $259 (60% x $432 = $259) Amount of 2009 increase paid by taxpayer ($600 - $259) $341 The taxpayer's $600-increase (Le., 42.9 percent) is reduced to an out-of-pocket property tax increase of$341 (i.e., 24.4 percent) as a result of the $259 refund. The taxpayer pays the full $2,000 amount of the 2009 property tax to the county, the first half in May and the second half in October. The taxpayer applies to the state for a targeting refund, which is paid at the same time the regular homeowner property tax refund ("circuit breaker") is paid. No, unlike the regular property tax refund, the targeting refund is not tied to the taxpayer's household income. Under the regular homeowner property tax refund, the taxpayer's household income may not exceed a specified maximum and the amount of household income affects the amount of the refund. However, the targeting refund does not use income as a factor, nor is there any limitation on the taxpayer's household income. Therefore, many higher income taxpayers who do not qualify for the regular property tax refund due to income restrictions are eligible for the targeting refund. No, the first targeting program was enacted in 1980. With the exception of a few years in the 1980s, the program has been in effect for about 25 years, although Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department What are statewide amounts? How are claims filed? February 2009 Page 35 miscellaneous changes have been made to the program during that time. The amounts paid out for the targeting program decreased substantially from $13.6 million in 2006 to $7.6 million in 2007, with much ofthe decrease occurring in the metro area. The table below shows the statewide amount, with a breakdown for the metro and the 80 nonmetro counties, for the past four years. Tare:etine: Refunds, Filed 2004 - 2007 (dollars in thousands) Filed 2004 Filed 2005 Filed 2006 Filed 2007 Total Metro $2,463 $2,636 $10,224 $4,940 Total Nonmetro $1,241 $1,663 $3,390 $2,655 State $3,704 $4,300 $13,614 $7,595 Some taxpayers (e.g., those who typically don't qualify for the regular property tax refund) may not be aware of the targeting program, resulting in lower total refunds statewide than would be the case if the program were more widely known. Refund claims are filed using the Minnesota Department of Revenue (DOR) Schedule MIPR, the property tax refund form. There is a separate schedule on the back of the MIPR ("Schedule 1 - Special Refund") for the targeting program. The taxpayer files for this refund after receiving his or her property tax statement in February or March. Claims filed before August 15, 2009, will be paid beginning in late September 2009. The deadline for filing claims based on taxes payable in 2009 is August 15, 2010; taxpayers filing claims after that date will not receive a refund. Forms are available online at DOR's web site, under "Forms and Instructions" (www.taxes.state.mn.us)... Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 36 Senior Citizens Property Tax Deferral Program What is the Senior Citizens Property Tax Deferral Program? How does it work? Who qualifies? The Senior Citizens Property Tax Deferral Program allows property taxpayers who are 65 years or older, and whose total household income is $60,000 or less, to defer a portion of their homestead property taxes until some later time. It allows senior citizens whose property taxes are high relative to their incomes, but who wish to stay in their homes, an option for paying their property taxes. Regardless of how high the tax is on the homestead, the taxpayer initially pays an amount equal to only 3 percent of the total preceding year's household income. The state pays any amount over 3 percent, called the "deferred tax," to the county in which the home is located. A lien attaches to the property. The deferred tax is a loan. Interest on the loan is calculated at the same rate as unpaid state taxes (a floating rate), but cannot exceed 5 percent. Before the owner can transfer the title of the property, the deferred tax plus interest must be repaid. For example, John and Mary Jones own a home; its total property tax is $1,400. They have a total household income of $30,000. Under this program, they must pay $900 in tax (3 percent of$30,000); the remaining $500 ($1,400 minus $900) is deferred. In order to qualify for the program, all of the following criteria must be met: . The property must be owned and occupied as a homestead by a person 65 years of age or older (If married, both must be 65 years old) . Total household income must be $60,000 or less for the calendar year preceding the year of the initial application . The home must have been owned and occupied as the homestead of at least one of the homeowners for at least 15 years before the initial application . There must be no state or federal tax liens or judgment liens on the property . The total unpaid balances of debts secured by mortgages and other liens on the property, including deferred tax and interest amounts under the program, unpaid and delinquent special assessments and property taxes, penalties and interest (but excluding the current year's property taxes), do not exceed 75 percent of the assessor's estimated market value for the current year Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 37 Does the taxpayer need to annually reapply? Can the taxpayer still file for refunds? When does it terminate? How does this program differ from a reverse mortgage? How many taxpayers are participating in the program? Where does a taxpayer apply for the program? No, once a taxpayer is enrolled in the program, annual applications are not required. However, if household income exceeds $60,000 in any calendar year, the owner must notify the Department of Revenue. Nofurther property taxes may be deferred until income falls below the $60,000 threshold. However, the owners will remain enrolled in the program until their income falls below the $60,000 threshold, at which point they must notify the state and request that the deferral be resumed. Yes, a taxpayer is still allowed to file for the property tax refund and any other property rebates that the state may offer. However, no direct cash payments will be made to the taxpayer. Rather, the amount of the refund will be applied to the total amount of the deferred property tax on the taxpayer's home. The property tax refund is calculated on the full tax amount. The deferral terminates when anyone of the following events occurs: . the property is sold or transferred . all qualifying homeowners die . the homeowner notifies the Commissioner of Revenue, in writing, of intent to withdraw from the program . the property no longer qualifies as a homestead A reverse mortgage loan is a loan arrangement with a lender, secured by a mortgage (lien), where the homeowner receives a monthly payment from the lender. The total dollar amount is established at the beginning of the arrangement. The full amount, plus interest, is due when the home is sold. The lender charges closing costs, which can be substantial. The senior citizen deferral program also constitutes a lien on the property, but the homeowner does not need to guess "up-front" how many dollars are needed. Rather any tax amount over 3 percent of income is automatically deferred. Interest, not to exceed 5 percent, is charged on the deferred tax as it is accumulated. For property taxes payable in 2005, qualifying taxpayers are using the program to defer taxes on about 100 homes. The Department of Revenue reimbursed the counties about $182,000 for the deferred tax in 2004. Applications are available in the county auditor's office or may be obtained from the Department of Revenue's web site at www.taxes.state.mn.us/taxes/property /forms/ crscd. pdf. Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 38 Distribution of the Property Tax Burden The Minnesota Tax Incidence Study estimates how the property tax burden is distributed across Minnesota households. (See http://www.taxes.state.mn.us/taxes/legatpolicy/other _ supporting_ content/07 jncidence_report_links.pdf.) It shows both the direct incidence of the gross tax on homestead and cabins, and the indirect incidence of business and residential rental property taxes. It also shows the effect of the property tax refund program on the incidence of the tax. Net property tax as a percent of income declines from 3.9% oftotal income for the poorest fifth of Minnesota households to 2.3% of income for the richest fifth of Minnesota households, making the overall effect moderately regressive. The richest fifth of Minnesota households (with 55.4% of total income) are estimated to pay 45.9% of the total property tax. Distribution of Property Tax Burden by Population Quintiles (2004) Property Percent of Percent of Gross Tax Total Net Total Property Tax Refunds Property Effective Quintile Income Range Income (OOOs) (OOOs) Tax (OOOs) Tax Rate First $16,816 or less 3.3% $299,532 $121,014 4.7% 3.9% Second $16,817 - 29,766 7.9% 465,597 101,216 9.6% 3.3% Third $27,767 - 47,192 12.9% 665,041 65,950 15.8% 3.3% Fourth $47,193 -76,437 20.6% 940,807 28,118 24.0% 3.2% Fifth Over $76,437 55.4% 1,744,392 2,762 45.9% 2.3% Total All incomes 100% $4,115,369 $319,060 100% 2.7% Top 5% Over $146,809 29.8% 725,858 251 19.1% 1.8% Top 1 % Over $3547580 15.6% 238,955 46 6.3% 1.1% Source: MN Dept. of Revenue, 2007 Tax Incidence Study Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department Property Tax Burden Effective Tax Rates by Population Quintiles (2004) First quintile Second quintile Third quintile Fourth quinlile Fifth quintile Top 5% o 2.5% 5.0% Source: Departmenlof Revenue, 2007 Tax Incidence Study 3.9% (6.5%) Nel (After PTR) D Gross (Before PTR) 7,5% 10,0% Net Property Tax Burden* Distribution by Population Quintiles (2004) Firsl quintile Second quinlile Third quinlile Fourth quinlile Fifth quinlile Top 5% Top 1% o 25% 'After property tax refund, Source: Department of Revenue, 2007 Tax Incidence Study 45,9% 50% 75% February 2009 Page 39 Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 40 Mining Taxes Mines and facilities used in the production of taconite are exempt from the property tax. In lieu of the property tax, the iron mining industry pays a production tax based on the tons of taconite produced. The industry is also exempt from the corporate income tax, and pays an occupation tax in lieu of it. The structure of the occupation tax is quite similar to that of the corporate income tax. The mining industry paid about $112.6 million in taxes in 2007. The taconite production tax constitutes about 83.7 percent ($94.2 million) of the total taxes. The remaining 16.3 percent ($18.4 million) includes the occupation tax, the sales tax, and some miscellaneous taxes. This overview focuses on the production tax, since it is so large relative to the other mining taxes. Because it is in lieu of the property tax, the taconite production tax is paid to local governments and is a major revenue source for qualifying taxing jurisdictions-counties, cities, towns, and school districts, located in the taconite assistance area. The "taconite assistance area" includes all or a portion of Cook, Lake, St. Louis, Itasca, Koochiching, Aitkin and Crow Wing Counties. The production tax collected and distributed in 2008: . was based on the production of the mining companies in ,calendar year 2007; . was based on a tax rate of$2.258 per taxable ton (the tax rate is established by the legislature); . was based on the three-year average tonnage produced in 2005, 2006, and 2007, which was 38.8 million taxable tons. (A three-year average is used to keep the tax base more stable.); . was required to be paid in two equal installments on or before February 24th, and on or before August 24th; and . was paid to the respective counties in the taconite assistance area and to the Iron Range Resources and Rehabilitation Agency (often referred to simply as Iron Range Resources, or IRR). The counties then make payments to the cities, towns, and school districts. The formula for distributing production tax revenues is a complex one that has evolved over many years. It is specified in statute and is generally defined on a cents per taxable ton (CPT) distribution. The 2008 tax was distributed as follows: Distribution Amount Cents per taxable ton (CPT)* Cities and townships $11,059,423 28.5 School districts 16,495,306 42.5 Counties 13,342,766 34.4 Property tax relief and misc. 14,959,194 38.5 Iron Range Resource (IRR) 25,730,951 66.3 includes distribution to the Taconite Environmental. Protection Fund and the Douglas Johnson Economic Protection Trust Fund Other 12,598,034 32.4 Total $94,185,674 $2.426 * This is "net" cents per taxable ton distributed (i.e., after deducting the tax credits, but including the state general fund appropriation), Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 41 General levy limits are imposed for taxes payable in 2009-2011 Levy limits are intended to ensure that state aid reduces property taxes and limits the growth rate of property taxes Levy limits have expired several times and been reenacted State aids are used to calculate limits Levy Limits The general levy limits under Minnesota Statutes, sections 275.70 to 275.74, restrict the amount of property taxes cities with a population of 2,500 or more and all counties may impose for general fund expenditures. Levy limits were reenacted during the 2008 legislative session and are in effect for taxes payable in 2009 through 2011. Levy limits are adopted to keep the growth in property taxes low and to help ensure that cities and counties use increased state aid payments to reduce property taxes and not for higher local spending. Because of this, general purpose state aids are included in calculating the limit. When a local government's state aid increases, its maximum allowed levy decreases. Conversely, if a local government's aid decreases, its allowed levy increases. If a local government receives no state aid, the limit applies only to its property tax levy. Although the purpose of levy limits is to limit growth in property taxes, some opponents argue that they may actually increase taxes by encouraging cities and counties to levy up to the maximum allowed. In recent years, the legislature has generally imposed levy limits as part of property tax reforms, or when state aid reductions may have led to higher property taxes. They were re- imposed for Pay 2009- 2011 to limit rising property taxes and ensure that aid increases are passed on as property tax reductions. The table shows the years in which levy limits were imposed. As noted above, state general-purpose aids are used to calculate levy limits. The aids included in the levy limit base are (1) taconite aid; (2) county program aid, for counties only; and (3) local government aid (LGA), for cities only. The combination of levy plus aid is known as the levy limit base. Chronolo~y of Levv Limits Taxes Limits Instigating Event payable Apply? years 1972-1992 Yes Enactment of 1971 property tax reform 1993-1997 No Enactment of Truth- in-Taxation notices as a replacement 1998-2000 Yes "Compression" of class rates 2001 No Allowed to exoire 2002-2003 Yes 200 I prooertv tax reform 2004 Yes 2003 and 2004 aid reductions 2005-2008 No Allowed to expire 2009-2011 Yes Previous county and city levy increases Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 42 The allowed growth in the levy limit base for Pay 2009- 2011 is less than usual Local governments may levy "outside of limits" for certain purposes Local governments may go to voters for authority to exceed limits In recent history, the levy limit base has usually been adjusted for inflation, new households, and new commercial and industrial property. For Pay 2009-2011, stricter limits were imposed. A local government's levy limit base (levy plus aids) is increased for growth for the three factors but limited as follows: . The rate of inflation, as measured by the implicit price deflator (IPD) for state and local government purchases, but only to a maximum of 3,9 percent . Only one-haljofthe percent growth number of households in the local jurisdiction, as estimated by the state demographer or the Metropolitan Council, rather than the usual 100 percent of the growth rate . One-half of the increase in the total market value in the jurisdiction due to new commercial/industrial development The levy limits do not apply to "special levies." Special levies can be imposed for whatever amount the city or county needs outside of levy limits for specified purposes. For taxes payable in 2009 these purposes include: . debt for capital purchases and projects; . state and federal required matching grants; . preparation for and recovery from natural disasters; . certain abatements; . increases in public employee retirement association (PERA) rates after June 30,2001 ; . required jail operation costs; . operation of lake improvement districts; . repayment of a state or federal loan related to highway or capital projects; and . for an animal humane society. For Pay 2009-2011 the special levy for pension plan rates was expanded to all local government pension plans and five new special levies were added, which include: . to cover increased costs related to reductions in federal health and human service program grants; . to cover city costs in cities with high foreclosure rates; . for Minneapolis to cover unreimbursed costs related to the I-35W bridge collapse; . for salaries and benefits for police, fire, and sheriff personnel; and . to recoup any LGA or county program aid losses if the governor unallots moneys from these programs due to a future budget crisis. When levy limits are in effect, a local government may certify a levy higher than its levy limit if approved by the voters at a referendum. A vote to exceed the limit may be for any amount, and the tax is spread on tax capacity. Unless approved by a referendum, the final levy may not exceed the limited amount plus the amounts levied for authorized special levies. Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department What is the fiscal disparities program? Why share commerciall industrial tax base? How does the fiscal disparities program work? February 2009 Page 43 The Fiscal Disparities Program The fiscal disparities program is a system for the partial sharing of commercial- industrial (CII) property tax base among all jurisdictions within a geographic area. In Minnesota, two programs are used: the primary one was created in 1971 and operates in the seven counties of the Twin Cities metropolitan area; a smaller scaled version was created in 1995 for the Iron Range in northern Minnesota. The main purposes and goals ofthe program are to: . Support a regional approach to development. Tax-base sharing spreads the fiscal benefit of business development spawned by regional facilities, such as shopping centers, airports, freeway interchanges, and sports stadiums. It also may make communities more willing to accept low-tax-yield regional facilities, such as parks. · Equalize the distribution offiscal resources. Communities with low tax bases must impose higher tax rates to deliver the same services as communities with higher tax bases. These high tax rates make poor communities less attractive places for businesses to locate or expand in, exacerbating the problem. Sharing CII tax base can reduce this effect. . Reduce competitionfor commercial-industrial development. Communities generally believe that some kinds of CII properties pay more in taxes than it costs to provide services to them. This encourages communities to compete for these properties by providing tax concessions or extra services, which can weaken their fiscal condition. Tax-base sharing reduces the incentive for this competition, thereby discouraging urban sprawl and reducing the cost of providing regional services such as sewage and transportation. Contributions to the areawide tax base. Each taxing jurisdiction annually contributes 40 percent of the growth in its CII tax base since the year of enactment to an abstract entity called the "areawide tax base." This contribution value is not available for taxation by the jurisdictions where the property is located. Distributions from the areawide tax base. Each municipality receives a share of the areawide tax base through a formula based on its share of the area's population and its relative property tax wealth (tax base per capita). The municipality is allowed to tax this distribution value at the same rate as the tax rate paid by its residents. All taxing jurisdictions whose boundaries encompass the municipality are also allowed to tax the municipality's distribution value (i.e., counties, school districts, and special taxing districts). Calculating the property tax for each commercial-industrial property. The property tax statement for each C/I property has a local portion and an areawide portion, based on the relative amount of the tax base that is contributed (areawide Presentation to the House Committee on Taxes House Research Department and House Fiscal Analysis Department February 2009 Page 44 How has the metropolitan area program grown? How much do fiscal disparities affect tax burdens? How did the 2001 property tax reform affect fiscal disparities? What about the Iron Range program? portion) versus the relative amount that is retained (local portion) for the municipality where the property is located. In the first year of implementation (1975), the areawide tax base included 6.7 percent of the total metro ell tax base and 2.1 percent of the total metro tax base. For 2004, the areawide tax base was 32.3 percent ofthe total metro CII base and 9.8 percent of the total metro tax base. A House Research study based on taxes payable in 2004 found that the average homestead tax in St. Paul, which is one of the largest net beneficiaries of the program, was 8.8 percent lower because of fiscal disparities. The study also found that the average homestead tax in Bloomington, which is one of the largest net contributors, was 5.5 percent higher. Homestead effects throughout the area generally varied between these extremes. For commercial-industrial properties, average taxes were 2.7 percent lower in St. Paul due to fiscal disparities and 9.7 percent higher in Plymouth, another suburban city that is a large net contributor. Commercial-industrial properties elsewhere in the metro area fall in line between these extremes. The study looked only at the direct effect of fiscal disparities, i.e., the redistribution of tax base, and made no attempt to factor in alternative development patterns that might have occurred without fiscal disparities. The elimination of the general education levy, imposition ofa state property tax levy, and reduction in commercial-industrial class rates caused the nominal amount of money redistributed by the fiscal disparities program to decrease. However, based on the aforementioned House Research study, the net effect of fiscal disparities on tax burdens is similar to what it was before the reform. Tax effects of the Iron Range fiscal disparities program are much smaller in magnitude since the percentage of tax base being contributed is so low due to the relative infancy of the program. ~ c.o N ~ <F- a> :C:' ~ <F- III -" m ~ 01 ;::;: -" <F- ro' -" ;::;: (fl <F- ro' (fl G> N N 0 G> 0 (,) (1) 0 (1) 0 0 :;) "" ~ 01 <F- (1) <F- :;) (1) < ~ ~ CD "" .., (,) 01 Q) <F- c.o - <F- - 0 0 ~ ..... ~. C" c tt 0 ~ en ..... 0 -I 0 ..... 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" iii S' !'J Development Cost Comparisons: 1. 10 acre single family residential development with 30 lots/homes, no wetlands or floodplains. Farmington Rosemount Apple Valley Lakeville Total Storm Water Fees $ 105,780 $ 119,000 $ 44,010 $ 69,920 Total Sanitary Sewer Fees $ 35,800 $ 46,750 $ 14,310 $ 30,990 Total Water Fees $ 104,700 $ 97,500 $ 40,370 $ 107,100 Total Fees $ 246,280 $ 263,250 $ 98,690 $208,010 Total Fees w/o Ponding and Conveyance $ 233,250 Difference in Develooment Fees $ 13,030 $ 147,590 $ 38,270 Difference in Quarterly Utility Bill (30 homes) 424,8 559.2 N/A Number of years to make up Difference in Dev, Fees 7,7 66.0 N/A 2. 20 acre commercial development with 50 SAC units, no wetlands or floodplains. Farmington Rosemount Apple Valley Lakeville Total Storm Water Fees $ 451,460 $ 237,300 $ 132,080 $ 196,249 Total Sanitary Sewer Fees $ 66,900 $ 81,500 $ 23,850 $ 51,650 Total Water Fees $ 187,750 $ 130,375 $ 73,830 $ 89,250 Total Fees $ 706,110 $ 449,175 $ 229,760 $ 337,149 Difference in Development Fees $ 256,935 $ 476,350 $ 368,961 Difference in Quarterly Utility Bill $ 679.76 $ 3,094,20 N/A Number of years to make up Difference in Dev. Fees 94.5 38,5 N/A