Agenda Packets - 1987/09/14 - Laserfiche WebLink

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RS-1. Property Tax Reform (A) (cont'd) the 1987 Legislature. Further charges may be considered during the 1988 sessi�,i. For simplification, the 1987 Legislature condensed current property tax classes into five main classes, effective for payable 1989. The League believes it is important to minimize the abr'ipt changes that may occur in some local jurisdictions' tax bases as a result the reduction in classifications. The 1987 Legislature also made fundamental changes in the homestead credit program, converting the program from a homeowners' property tax credit to a grant program for local governments. The League is concerned that the new "homestead credit replacement aid" program will sever the link between the. amount of homestead credit received by homeowners and the reimbursements provided to local. governrents for revenues lost through the homestead exemption program. Under the new program, the total homestead credit shown on homeowners' tax bills will not equal the amount of homestead replacement aid going to local government units. In fact, if replacement aid to cities is cut, local levies will likely have to rise to make up for the lost aid. But this levy increase would cause homestead credit amounts shown on tax statements to actually increase since the homestead credit will equal the homestead exemption times the local mill rate. The League is concerned that cuts in the homestead credit replacement aid could be easily made under this new homestead credit design since the state will no longer be held politically accountable to the 'taxpayer for cuts in the homestead credit replacement aid program. In the future, growth in a city's homestead credit replacement aid will generally be limited to rises in inflation. The League is concerned that cities with growing needs, rising levies or with rising mill rates will not necessarily receive additional assistance from the new homestead credit design as they did under the old design. It is also intended by the new law that increases in the number of homesteads result in higher homestead replacement aid. However, as presently drafted, the new law is not likely to uniformly achieve that objective because it uses changes in the ratio of exempted homestead value to all property value as the eticalator factor. The current property tax systLA of aids and crealts has been criticized as over stimulating local government spending. A paper prepared by Bell and Bowman for the Minnesota Tax Study Commission argued that state financial assistance to local governments, particularly through the homestead credit program, causes local spending and taxes to be higher since local taxpayers are insulated from the full cost of local spending increases. This paper, however, does not provide firm evidence of such a causal relationship. Nevertheless, this paper is used by some to argue that all local governments --schools, counties and cities --are not accountable for their spending decisions. For cities, the accountability argument is clearly illogical in the face of recent trends. City property tax levels have been forced up, largely due to declining federal and state Lam, - 52-