House Property Tax Division Finalizes Recommendations for Omnibus Tax Bill

March 29, 2021

The division report — which contains provisions related to the property tax process, local sales taxes, tax increment financing, and more — was sent to the House Taxes Committee.

The House Property Tax Division on March 24 approved the amended division report and forwarded the recommendations to the full Taxes Committee for inclusion in the 2021 House omnibus tax bill.

The vehicle bill, HF 1735, contains provisions related to property taxes and the property tax process, state aid, local sales taxes, and tax increment financing.

Property tax process

Within the property tax article, the bill would notably make changes to the annual tax hearing and notification process, also referred to as “truth-in-taxation.” The League submitted a letter and testified at a hearing on March 22 with concerns about the new requirements. MetroCities and the Minnesota School Boards Association also testified with concerns; however, those sections of the bill were not amended in the final division action.

Read the League’s letter (pdf)

Under the bill, cities over 500 in population would be required to hold a separate meeting at least seven days prior to certifying the preliminary property tax levy on or before Sept. 30. The city would have to notify the public about the revenues, expenditures, fund balances, and other relevant budget information used to establish the current proposed property tax levy.

The amendment would also make substantial changes to the annual notification process to residents. For cities over 500 in population, counties, and schools, it would require a supplemental statement to the notice of proposed property taxes that is mailed to taxpayers each November. This supplemental statement must contain three areas of information:

  • The percent change in the proposed levy for each jurisdiction for the following year.
  • Summary budget information, similar to the information submitted to the state auditor in January, for each jurisdiction over 500 in population, based on the proposed levy and budget, including:
    • Property tax revenues.
    • Special assessment revenues.
    • State general purpose aid (i.e., local government aid).
    • State categorical aid.
    • General government expenditures.
    • Public safety expenditures.
    • Streets and highways.
    • Human services.
    • Culture and recreation.
    • Conservation of natural resources.
    • Economic development and housing.
    • All other current expenditures.
  • Instructions on how to access each jurisdiction’s website where taxpayers can find the proposed budget and information on how to participate in the new Minnesota Property Taxpayer’s Day meetings.

The language further modifies the truth-in-taxation process by establishing the first Wednesday following the first Monday in December as Minnesota Property Taxpayer’s Day. This annual meeting date would allow the public to provide input on proposed property tax levies for counties, cities with a population of at least 500, and school districts.

The jurisdiction would be required to allow the public to participate in person or remotely. Counties must begin their meetings at 6 p.m., cities at 7 p.m., and school districts at 8 p.m. Each jurisdiction would be required to broadcast the meeting virtually and provide a method for public input both in person and remotely.

Homestead credit refund/renters’ refund

Consistent with League policies, the bill would increase the homestead credit and renters’ refund property tax relief programs by increasing the maximum credit by $250 throughout most income levels. It would increase the renters’ refund by reducing the individual’s co-pay percentage.

These changes are expected to increase the fiscal year (FY) 2023 amount of tax relief under the homestead credit refund by an estimated $13.9 million and the renters’ refund by approximately $15.7 million.

Fire protection districts

The bill language includes a League-supported process that would allow two or more local jurisdictions to jointly establish special taxing districts that provide fire protection and emergency medical services.

Districts would be governed by a board comprised of representatives of each participating jurisdiction and would be elected officials. The district would have the authority to levy property taxes and issue debt.

The bill also requires fire protection special taxing districts established under this new authority to hold annual tax hearings, in conjunction with the truth-in-taxation process, on their proposed property tax levies.

Other property tax provisions

Other property tax measures in the bill include the following:

  • The property tax classification rate for certain unclassified manufactured home property would be reduced to a class rate of 0.75%, although class rate reductions for several other related classes of manufactured home property were deleted from the bill.
  • The first-tier market value limit for 4d low-income rental property would be frozen at $174,000 for assessment years 2022 and 2023. The bill includes a League-supported study of the 4d low-income rental classification that would analyze the impact of expanding the program by reducing the first-tier classification rate of 4d property to 0.25%, including the tax shifts to other types of property. The report must be completed by the Department of Revenue and Minnesota Housing Finance Agency by Jan. 15, 2022.
  • Cities would be allowed, at the request of a property owner, to impose a special assessment for an energy improvement project to the owner’s property. An amendment added to the report limited this provision to commercial buildings and residential buildings with five units or more. The city must administer the process, fund the improvements, and provide notice to the property owner of low- or no-cost alternatives.

Local sales taxes

The bill includes general local sales taxes for capital projects in the cities of Cloquet, Edina, Fergus Falls, Grand Rapids, Hermantown, Litchfield, Little Falls, Maple Grove, Moorhead, Oakdale, St. Cloud, St. Peter, Wadena, and Waite Park, as well as the counties of Carlton, Itasca, and Mille Lacs. The authorizations included in the bill do not include any city requests to fund road or sewer projects.

Three cities that initially requested local sales tax authority were also excluded from the bill. However, these three cities will receive additional local government aid (LGA) over the upcoming five years to assist with the costs of the projects for which they were seeking sales tax authority:

  • $250,000 per year for five years to the City of Floodwood.
  • $320,000 per year for five years to the City of Staples.
  • $320,000 per year for five years to the City of Warren.

To prevent shifts in the existing LGA distribution due to these dedications, the language also increases the city LGA appropriation by $890,000 per year for five years to cover the aid adjustments.

The bill would also extend the current Plymouth special local lodging tax and remove the expiration date for the Sartell food and beverage tax.

Tax increment financing

The language of the bill included a number of League-supported temporary and permanent changes to the TIF statutes, including:

  • Temporary flexibility related to the use of unencumbered TIF increment by allowing TIF authorities to transfer unobligated increment to the municipality’s general fund or directly to a business that was impacted by COVID-19.
  • Expansion of the pooling rules to allow for expenditure of increment on certain housing projects located outside the district, including qualifying owner-occupied housing.
  • The ability for cities to transfer increments to an affordable housing trust fund.
  • An increase in the percentage a district may elect to use for housing outside the district from 10 to 25 percentage points.
  • An extension of the five-year rule to 10 years for redevelopment districts certified after Dec. 31, 2017.
  • A corresponding extension of the six-year rule.

The bill also provides special TIF variances to the cities of:

  • Bloomington
  • Burnsville
  • Fridley
  • Minnetonka
  • Mountain Lake
  • Richfield
  • Louis Park
  • Wayzata
  • Windom

Tourism Improvement Districts

The bill includes a new authority, modeled after the existing special service district authority, that would allow cities, counties, and towns, upon petition of property owners, to establish by ordinance a tourism improvement district.

The district would be established for the promotion of tourism, promotion of business activity, marketing, sales, and economic development, and other services provided for the purpose of conferring benefits upon businesses in the district. Businesses in the district would be assessed a charge to fund these additional activities.

Next steps

The full Taxes Committee is expected to unveil the initial draft of the full omnibus tax bill, which will include the language of the Property Tax Division report, shortly after this week’s spring recess.

Read more news articles