New: The Homestead Market Value Exclusion

Taxpayers recently received property tax statements and many were surprised to see increases across the board. How could this happen? Minnesota property owners have become the largest "beneficiary" of the latest Minnesota tax shift.

The shift, in one form or another, is the state's most used means to finding revenue to close budget gaps. Schools have been long-time targets of the shifts in Minnesota.

So what happened? The simplest answer comes courtesy of the Association of Metropolitan School Districts (AMSD) and Minnesota Public Radio.

Expiring Law
Previously, homestead owners received a credit on their tax statements reducing their gross tax. The credit equaled 0.4% of the first $76,000 in market value. It was reduced by 0.09% of the market value over $76,000 until the credit hit $0 at $413,800 of market value.

The state reimbursed local governments for the sum of the market value credits granted to individual taxpayers on tax statements. As a result, some of the local governments' levy came from the state as credit reimbursement payments, and some from property tax payments.

Previously when the state cut its reimbursement payments, local governments had to budget for a gap between their levy and what they received. Local governments may have levied more, cut some spending or both.

New Law
The change requires that a portion of homestead market value be excluded from taxation. The exclusion equals 40% of the first $76,000 in market value. It is reduced by 9% of the market value over $76,000 until it hits $0 at $413,800 of market value.

The state will no longer pay a share of the tax on homesteads, but homesteads have less value subject to taxation. The removal of the state spending on credits means property taxpayers, as a whole, will pay more if levies remain the same. The reduction in the tax base for homesteads means non-homesteads will pay a higher share of the levy, and a large share of homesteads could pay more given that exclusion amounts and other factors vary. Local governments will receive the full amount that they levy from their taxpayers. So even though levies have remained stagnant, property taxes rise.

The video below provides a brief description on how the homestead market value exclusion impacts various properties.

Referendum Outcomes

On Tuesday, November 8, 2011 voters across the nation visited the polls to exercise their democratic right to vote. In Inver Grove Heights, 3,682 residents visited the polls to cast votes on three school funding questions.

I would like to take this opportunity to thank all residents who submitted a ballot on November 8. With your help, one of the district's 10-year operating levies (for $480.19 per pupil) was renewed. As stated in the publications sent out to the community, this is a straight renewal.

District residents will pay the lowest school property taxes when compared to other districts in the area in 2013. The district's total referendum allowance has remained at $844.08 per pupil since 1989. It will be challenging for the district to continue to find creative ways to provide the variety of electives that high school students have become accustomed to having as available course options, but working to prepare students to graduate and achieve success in college and the workforce remains the district's top priority.

The Capital Projects Levy question (#2 on the ballot) was defeated by a narrow margin of 45-percent Yes to 55-percent No. Funding for technology can be used to maintain and upgrade systems students are expected to be familiar with when they enter college. The district works diligently to provide opportunities for students to develop necessary 21st Century skills, so that they may be as marketable as other students when applying to college. Area districts with technology levies currently in place include South St. Paul, West St. Paul, South Washington County and Rosemount-Apple Valley-Eagan. ISD 199 staff members continue to write grants and work with the limited financial resources available in an effort to integrate technology into classroom lessons so that students are prepared for real-life challenges they will encounter after high school. A $50 per pupil capital allocation was eliminated from the funding formula three years ago. The district will continue to work hard to maintain buildings, provide the resources necessary to implement the curriculum and make in-roads into the digital age with the capital dollars we allocate from the general fund.

For the past two years, the Minnesota Legislature has delayed payments to school districts, causing some districts to borrow money to cover operating costs. Interest is charged on borrowed money, and that interest must be paid by school districts. Districts across the state will face greater resource demands next year as a result of the Legislature deciding to alter the state payment schedule to school districts from a 70/30 shift to a 60/40 shift. This means that the state will pay districts 60-percent of the school aid during the 2012 school year (the year districts must book it as 100-percent received) and the remaining 40-percent the following school year, forcing more districts to borrow money than in the past. Inver Grove Heights has dodged the borrowing bullet by maintaining sufficient cash flow to cover the delay in aid payments; however, the 2011 year found the district dipping to its lowest June cash flow in recent memory. Programs will be reevaluated and options will be limited. There is no doubt that the public education landscape is changing and the challenges that lie ahead will necessitate finding creative, new methods of teaching and learning.

Thank you for your support and understanding as we move forward and continue to provide the best, nationally recognized program options for our students and our future workforce.