HomeMy WebLinkAboutMarket Value Homestead Credit InfoSAUK RAPIDS CITY COUNCIL REQUEST FOR ACTION (changed to St. Joseph data)
Originating Department: Approved for Date: Agenda
Agenda by: Item #
Finance August 8, 2011
Agenda Section: Item:
Regular 2012 Budget
The biggest concern I have is the impact & communication to residents, of the elimination of the
Market Value Homestead Credit (MVHC).
The impact is very difficult to explain & even more difficult to know exactly how it will impact
everyone. The one obvious result of the MVHC elimination, is that it will shift property taxes from
residential to non-residential (commercial, industrial, & multifamily). Even if the city levy's the
same amount as last year, most taxpayers are likely to see an increase in their property taxes with the
larger increases being pushed to the commercial/industrial/multi-family.
This is very complicated but I will try to do a general explanation of what the legislature did.
Currently a $76,000 home would generally have it's property taxes reduced by the MVHC of $304.
With this credit now eliminated, the legislature must have thought that it would be difficult for this
property owner to see an increase of $304 on their property taxes. So with the elimination of the
MVHC, the legislature has now apparently required homes with a taxable value of $76,000 to be
valued (for tax purposes only) at $45,000 in the hopes of reducing their property taxes.
What happens now is that the city's total tax capacity go's down increasing the city's tax rate.
Because commercial, industrial, & mult-family do not receive any MVHC, or were not legislated to
have their property values artificially reduced, they are now paying the higher tax rate with the same
taxable valuation while the $76,000 home is now paying a higher tax rate but at a much lower taxable
valuation. It is unclear how much each residential or non-residential property owner will be
impacted. I am not yet able to determine if someone could actually end up paying less property taxes
than the prior year if the levy remains the same & assuming there was no "actual" change in property
value from 2011 to 2012. I'm assuming that if the levy remains the same, that ever oY ne's property
taxes would increase. The amount is unknown, but I believe that because of the artificial devaluation
of the residential homes, that a substantial portion of the increase would be pushed to the non-
residential property owners. This will be the case in all cities. Every city and county will be
somewhat different. How much of a shift to non-residential depends on the percentage of residential
tax capacity compared to the non-residential tax capacity -in other words, how much artificial
devaluation each city has. Cities with a large percentage of residential will see bigger shifts to the
non-residential. I believe that St. Joseph's residential tax capacity in 2011 was approximately 53%
of the total city tax capacity which is a high percentage. The only way to reduce the increase would
be to reduce the city's levy, and even that would likely still push some taxes to the non-residential
while reducing the residential taxes.
The amount of MVHC a homeowner receives is reduced by a certain percentage for each $1,000 of
home value over $76,000, so the higher value a home, the less impact that the MVHC had on your
property taxes but could mean that more taxes could be shifted to the higher value homes also.
I don't have all the details yet of this MVHC elimination, but I want all council members and
property tax payers to know that there will be some property tax shifting. I don't think anyone will
really know until the software is developed and each city's data is computed.
The City of St. Joseph's estimated total MVHC was to have been $129,421 in 2011, but the state has
cut this reimbursement to $43,141. Residential property tax payers will not see any differences in
2011. This is part of the State Aid reduction in the budget.
The total combined reduction of LGA & MVHC is approximately $248,601 for 2011 with the total
combined reductions in 2010 of $295,679.
COUNCIL ACTION
Motion by Seconded by to