03/30/1998 Council Minutes - Laserfiche WebLink

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MAR 20 '98 05:44PM LEAGUE OF MN CITIES O\LMC League of Minnesota ('`itNu Cities promoting exams. • • FR IDA YFAX A weekly legislative update from the League of Minnesota Cities Tax Bill: Governor Chimes In Late this afternoon, the governor sent a letter to the Tax Committee chairs in- dicating his demands for the final 1998 tax bill. Included in his demands are an immediate phase-in of reduced class rates for many properties, and extension of levy limits through taxes payable in 2000, a 1999 property tax rebate of $750 million and the creation of an income tax reduction account. The governor's letter indicated that he is disappointed in the property tax class rate compression included in both the House and Senate bills. He states, "Neither bill as passed con- tains the compression necessary for real reform, and this must be ad- dressed." He suggests that the con- ference committee adopt the Senate class rates, but phased -in the com- pression immediately for taxes pay- able in 1999. The only exceptions de- manded by the govemor are that home value greater than $75.000 not be reduced below 1.7 percent, that the first $75,000 of cabin value not ex- ceed 1.3 percent and that the balance of cabin property not exceed 2.3 per- cent. Under the Senate bill, home value in excess of $75.000 would be classi- fied at 1.6 percent, and cabins would be classified at 1.25 for the value un- der $75,000 and 2.2 percent for the value over $75,000. However, the Senate would not have implemented these lass rates until pay 2000. Relative to the Senate dass rates, the effect of the govemor's demands will be to provide less relief to high value homes, but to guarantee relief for cabin owners. Levy Limits The govemor also demands the exten- sion of levy limits. According to his letter, "Levy limits are necessary as we continue major structural changes to our state's property tax system. The Senate's position of repealing levy limits is not acceptable." The governor's position will certainly make the removal of levy limits more diffi- cult. Nothing in the governor's letter addresses the impacts of class rate compression on tax increment financ- ing inano-ing districts. This will likely be a last minute conference committee deci- sion. The letter to the tax chairs was not received until after the committee re- cessed for the weekend and there- fore, the committee did not have time to react to the govemor's demands. Obviously, the demand for a rebate will not be greeted warmly by the Sen- ate members who have no rebate in their tax bill. The reaction of the House members is more difficult to gauge. Other Conference Committee Developments Limited market value is also evolving into an important issue among confer- ees. Although the House bill included an aggressive limited market value provision, none of the House confer- ees voted for the amendment. Many of the conferees have expressed sig- nificant concerns about the precedent established by the limited market value P. 1 Vol. 3, No. 11 March 20, 1998 provision—some even equating it to the Califomia proposition 13 provision that has devastated that state. Senator Doug Johnson has emerged as the strongest supporter of the House lim- ited market value provision. The House limited market value is significantly more expansive than the current law provision: All property would be covered by valuation limits for a period of three years. For as- sessment year 1998, the increase in property market values would be lim- ited to the rate of growth in the con- sumer price index, which is currently less than 3 percent. For the following two years, property market value in- creases would be limited to the lesser of the consumer price index or 5 per- cent. In a memo to the conferees, a Senate staff member highlighted the problems that could occur under lim- ited market value and the difficulty of removing the provision in three years. The limit would shift taxes from high growth property to properties with low market value growth. The limit would be difficult to remove because the taxes on those properties that benefit from the limit could potentially in- crease dramatically. The governor did not express any particular position on the limited market value provision. However, the Department of Revenue has expressed concerns about moving away from a true market value basis for the property tax. For more information on city legislative issues, contaer any member of the League of Minnesota Cities Intergovernmental Relations team.