State Shift of $261 Million Causes Confusion on School Portion of Property Tax Statements
The release of property tax statements (Truth in Taxation Statement) and the approval of the Buffalo-Hanover-Montrose School District (BHM) levy renewal on Election Day November 8, 2011, are causing some confusion among school district residents. And for good reason, it's confusing! School finances and taxes are never an easy topic to explain.
There are four main factors that affect your property taxes: the school district levy total, Market Value Credit, the tax base total of the school district and the value of your property.
The first factor, the school district's levy total, is going down $216,507. This represents a levy decrease of 1.62 percent for taxes payable in 2012. There has been some discussion about how the recent levy vote is affecting the tax bill on the statement you just received. The current levy authority expires after taxes payable in 2012 so your proposed tax bill for 2012 is still based on the current levy authority. The effects of the levy renewal voted on Election Day, November 8, 2011 will not go into effect until taxes payable in 2013. Further, based on current projections for the tax impact of the recent levy renewal vote, the tax bill from the operating referendum portion of the levy is projected to reduce the tax bill for taxes payable in 2013. Please keep in mind that seasonal recreational and agricultural property above the house, garage, and one acre, do not pay taxes on the operating referendum.
The second factor is the Market Value Credit. This credit was applied to your final tax statement and reduced your tax bill up to $304 in total depending on the value of your property. You likely have never seen the amount of the credit as it is simply embedded in the tax statement through the county calculations. The credit has been eliminated and replaced by the Market Value Exclusion. This state law change was enacted as a budget containment measure for the State of Minnesota saving the state budget approximately $261 million. The new exclusion artificially reduces the tax base of the district. The intent of the change was to be a wash for property owners, however that has not happened in all cases. In many instances, tax savings from having a lower property value from the Market Value Exclusion does not equate to the amount lost through the elimination of the Market Value Credit.
The third factor that affects your tax bill is the total value of all property in the school district boundaries. In a normal year, the only factor that affects the total of the tax base is any changes in assessed values of property. On average, the values of properties within the boundaries of the district have decreased for the last several years. This year, values have dropped three to four percent on average in the school district. In addition, the state legislature made the change in the district's tax base by eliminating of the Market Value Credit and replacing it with the new Market Value Exclusion. You can see the effects on your own property by comparing the estimated market value on your statement to the taxable market value listed on your statement. The difference between the two is amount of the Market Value Exclusion. When all of the properties in the district are added up, the arbitrary reduction in taxable market value serves to reduce the tax base of the district.
The fourth, and primary factor that affects your tax bill is the value of your property. In a normal year, your tax bill goes up or down based on what happened to the value of your property if the tax rate of the district stays the same. How does the county determine the tax rate for the district? It is a simple math exercise. The county takes the total tax levy of the district, divides it by the total tax base of the district, and comes up with a tax rate to apply to the value of your property. This year, even though the school's levy has gone down by 1.62 percent, the tax base has shrunk by a greater percentage due to the assessed valuation changes and the reduction of the tax base from the Market Value Exclusion change. This has the effect of creating a higher tax rate for the school district in spite of the reduction in the school's levy total. This arbitrarily higher tax rate this year then gets applied to the value listed on your tax statement. Your change in market value then determines whether your tax bill goes up or down.
As you can see, the tax system in Minnesota is fairly complex and there are a number of moving parts. However, the school district only has control of one component of the system and that is the amount of the school district levy, which is decreasing for this year. Again, the effects of the recent levy renewal vote are not seen in the 2012 tax statements and will not show up until the 2013 statement. The effects should serve to lessen the amount of the levy if all of the other moving parts of the system stay the same for 2013.
If you should have any questions about the school levy and how it's affecting your property taxes, you have a couple resources. First, attend the Truth in Taxation meeting on December 12, 2011 in the Discovery Center Board Room in Buffalo at 7 p.m. BHM Director of Finance and Operations Gary Kawlewski will give a presentation and answer questions from local residents and the school board regarding the district's levy and the tax impact to the public. You may also contact Kawlewski directly for any questions or concerns by calling 763-682-8708 or by emailing him.