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Home My WebLink About1997 12-08 CCP Truth in Taxation BUDGET HEARING FREQUENTLY ASKED QUESTIONS 1. How much of my total property tax bill pays for the City Services? Depending upon the value of your home and the school district you live in, approximately 28 to 31 cents out of each dollar of property tax goes to the City. - 2. What is the General Fund? The General Fund is the entity which provides the services such as police, fire, streets, parks, recreation, inspections, and administration which citizens most often think of as the City. 3. What is debt service? This is payment of principal and interest on past borrowing for capital outlays of the City which are repaid using the property tax. The tax levy for debt service was $251,315 in 1997, but an estimated $1,059,084 is needed in 1998. The large increase is due to the voter approved bond issue for the police and fire buildings. 4. What are the Economic Development Authority and the Housing and Redevelopment Authority? These funds conduct housing and redevelopment projects funded by a combination of state and federal grants and property taxes. 5. What is the purpose of tonight's meeting? Tonight's meeting is to give the public an opportunity to give input to the City Council on the budget. By state law, the City Council may not take action to adopt the budget at a meeting at which it takes public input. 6. When will the budget be adopted? By state law, the City Council must adopt the budget no later than December 20, 1997. The City Council has set a subsequent hearing and meeting to adopt the 1998 budget for December 15, 1997. 7. I disagree with the final 1997 market value for 1998 taxes shown on my Proposed Property Tax Notice. How can I get that changed? The market values have been finalized at this point and cannot be changed by the City of Brooklyn Center. Your avenues of appeal will be listed on the back of your 1998 Tax Statement. In order to effect a change in the market value a Tax Court Petition will need to be filed prior to April 1, 1998. The Tax Statement will provide a telephone number for assistance and forms needed to file that tax appeal. 8. I am on a fixed income and cannot afford the increase. What can I do? The State of Minnesota- provides a property tax refund program that has several components. One component is targeted towards individuals on fixed or low income and is tested and based on the relationship between the amount of your property taxes and your income. The second component is targeted towards property owners whose taxes have increased faster than an established rate. There is no income test for this tax increase refund. The qualifying levels and the amount of refunds change each year so it is impossible today to predict whether or not an individual would qualify for a refund. If you would like to order forms for next year, you may contact the Department of Revenue after January 15, 1998, at 296 -4444 in order to request form M1PR. Questions on the refund program should be directed to the Minnesota Department of Revenue at 296 -3781. Comparison of Operating Budgets Rev _ - - - ,1997 • •; Change _ ° _ /o Taxes $6 $6 $148 2.31 % Est. Uncollectable ($202 ($210,678) ($8,120) 4.01% Miscellaneous Taxes $437,000 $461 $24,000 5.49% Licenses & Permits $300 $364 $64 21.46% Intergovernmental $3 $3 $177,409 4.83% Charge for Service $21,020 $21 $880 4.19% Public Safety Charges $19 $23,700 $3,800 19.10% Recreation $450,824 $425,794 ($25,030) - 5.55% Community Center Fees $41100 $411 ($600) -0.15% Court Fines $192,000 $192 $0 0.00 % Misc. Revenue $12 $12,000 $0 0.00% Interest $270,000 $30000 $30,000 11.11% Transfer Liquor Earnings $100,000 $0 ($100,000 - 1 00. 00 % TOTAL $12 $12 $315 2.60% Wih Police & Fire Bonds Revenues _ — - -- - -- -- 1 997 _ • : Change , Taxes $6,442,436 $6 $148 2.31% Taxes for Police & Fire $783 $783,146 0.00% Est. Uncollectable ($202,558) ($247,971) ($45,413) 22.42% Miscellaneous Taxes $437,000 $461 $24 5.49% Licenses & Permits $300,160 $364,585 $64,425 21.46% Intergovernmental $3,671,405 $3,848,814 $177,409 4.83% Charge for Service $21,020 $21 $880 4.19% Public Safety Charges $19,900 $23,700 $3,800 19.10% Recreation $450,824 $425 ($25,030) -5.55% Community Center Fees $411 $411 ($600) -0.15% Court Fines $19200 $19200 $0 0.00% Misc. Revenue $1200 $12 $0 0.00% Interest $270 $300 $30 11.11% Transfer Liquor Earnings $100 $0 $100 - 100 TOTAL $12 9 125 9 987 $13 $1 8.75% General Fund Expenditures 1997 1998 General Government $1 $1,460 Public Safety $4 5 878 9 356 $4,918 Police & Fire Bonds $745 Community Development $593,171 $634 Public Works $2 $2 9 508,073 Social Services $80 $80,000 Parks & Recreation $2 $2 Convention & Tourism $206 $218 Risk Management $167,000 $157,000 Unallocated Dept. $202 $381,798 Reimbursement from Other Funds ($699 ($715 Transfers to Capital Projects Funds $394 $394 Transfers to Debt Service $230 $238 $12 $1391879566 General Fund 1997 1998 Types of Expenditures Salaries $6,299,553 $6,514,342 Fringe Benefits $1 $1 Supplies $552,024 $530,818 Consulting $474,403 $450 Communications $199 $225,055 Repair, rental $481 $391,134 Other Contractual $746,015 $753 Central Garage $1,005,454 $940 Insurance $138 $127,000 Utilities $472 $479,450 Capital Outlay $245 $310 Police & Fire Bonds $0 $745 Debt Service $230 $238 Street Construction $394,197 $394,197 Contingency $50 $215,973 Cost of Sales $55,880 $37,000 Administrative Service Reimburs ($699,141) ($715,538) TOTAL $12,125,987 $13,1879566 General Fund Levies 1995 - 1998 Y -Axis Millions 0 2 4 6 $ i 95 Tax Lev I 96 Tai Levy M Operations ® PolicrJFire Bond 97 I :xt Levy i 9` Tax Levv j i General Fund Revenues: Incl. Police/Fire Bonds Y -Axis Millions 0 2 4 6 8 Real Estate Taxes Misc. Taxes Misc. Revenue Licenses & Permits State Aids �C Charge for Service — Rec. & Comm. Center Fees Court Fines Interest I 1997 & 1998 General Fund Adjusted to 1998 Categories -2 0 2 4 6 General Government - -- Public Safety Police & Fire Bonds — Community Development Public Works — 1 i Social Services Parks & Recreation 1997 Convention & Tourism — ® 1998 I Risk Management -- Unallocated Dept. -- Reimbursement from Other Funds - - -- I Transfers to Capital Projects Funds — Transfers to Debt Service — -2 0 2 4 6 Millions r m l TAXATION 101 PROPERTY This guide is intended to describe the basics of Minnesota's property tax system. This system will collect almost $4.5 billion in 1997 to help fund the services of the state's schools, counties, cities, townships, and special districts. One of the challenges of trying to understand this system is the complex array of terms involved. As new terms are introduced in this guide, they are shown in italics. A glossary at the end of the guide has short definitions of these terms. ASSESSMENT AND CLASSIFICATION of $75,000 x .01 or $750. (A sample of the class rates The property tax system is a continuous cycle, but it are included in table A.) effectively begins with the estimation of property parcel market value x market values by local assessors. Assessors attempt to class rate parcel tax capacity determine the approximate selling price of each parcel The next step in calculating the tax burden for a of property based on the current market conditions. parcel involves the determination of each local unit of Along with the market value determination, a g p roperty roperty tax levy. The city, county, property class is ascribed to each parcel of property school distract and any special property taxing authon- based on the use of the property. For example, property ties must establish their levy by December 28 of the that is owner- occupied as a personal residence is year preceding the year in which the levy will be paid classified as a residential homestead. The "use class" is by payers. The property tax levy is set after the important because the Minnesota system, in effect, consideration of all other revenues including state aids a weight to each class of property. Generally, assigns g such as LGA, HACA, and LPA. properties that are associated with income production (e.g. commercial and industrial properties) have a city b udget - all non - property tax revenues =city levy higher classification weight than other properties. The property classification system defines the For cities within the seven -county Twin Cities tax capacity of each parcel as a percentage of each metropolitan area and on the Iron Range, the levies are parcel's market value. For example, a $75,000 home, reduced by an amount of property tax revenue derived which is classified as a residential homestead, has a from the metropolitan and range area fiscal disparities class rate of 1.0 percent and therefore has a tax capacity programs. LOCAL TAX RATES Table A: Sample property class rates Local governments do not directly set a tax rate. Property Class Taxes Taxes Instead, the tax rate is a function of the levy and the Payable 1997 Payable 1998 total tax base. To compute the local tax rate, a county Residential Homestead: <S72,000 1.0 Rio 1.0 ��, must determine the total tax capacity to be used far $72,000 - $25,000 2.0 1.0 spreading the levies. The total tax capacity is com- >S75,000 2.0 1.85 1 puted by first aggregating the tax capacities of all Residential Nonhomestead: I parcels within the city. Several adjustments to this total Single unit: must be made because not all tax capacity is available <S75,000 2.3 1.9 I for general tax purposes. The result of this calculation >S75,000 2.3 2.1 produces taxable tax capacity. Taxable tart capacity is 2 3 unit buildings 2.3 2.1 used to determine the local tax rates. Market-rate Apartments: I ty vy a ble ax ----� Regular 3.4 2.9 ci le _ Ft t capa = ci ttax rate Small Cities 2.3 2.3 f The city tax rate is computed by dividing the city Commercial/Industrial: <S100,000 3.0 2.7 levy (minus the fiscal disparities distribution levy, if $1 00,000 - $150,000 4.6 2.7 applicable) by the taxable tax capacity. Under the j >$150,000 4•6 4.0 current property tax system, the tax rate is expressed as a percentage. For example, the average 1997 city tax Property Taxation 101 Page 1 capacity rate is approximately 26 percent. This same The most common factor that results in an increase calculation is completed for the county based on the in an individual parcel's tax is the change in the parcel's county's levy and tax base, the school district and all estimated market value. Without any change in local special taxing authorities. The sum of the tax rates for levies, a property owner can experience a tax increase all taxing authorities that levy against a single property due almost exclusively to any valuation increase. _ produces the total local tax rate. This total local tax The Legislature frequently changes the classifica- rate is then used to determine the overall tax burden for tion system. Changes to the classification system can each parcel of property, shift property tax burdens from one type of property to another. Table A demonstrates some of the changes the € PARCEL TAX CALCULATIONS Legislature made to class rates from 1997 to 1998. The property tax bill for each parcel of property is Commercial, industrial, and apartment properties determined by multiplying the parcel's tax capacity by received significant reductions in their class rates. This the total local tax rate. The tax statement for each shifts tax burden to other classes of property which did individual parcel itemizes the taxes for the county, not receive class rate reductions. in an effort to mini - municipality, school district, and any special taxing mize the effect of these shifts, the Legislature reduced authorities. school levies across the state and created the Education Homestead Credit. This credit will reduce the school parcel tax capacity x I total local tax rate = tax capacity tax bill general tax levy by 32 percent for all homesteads, up to a maximum of $225. To complicate the tax calculations, voter - approved Economic factors that may affect broad classes of referenda levies are applied to the market value of each property can also influence the overall tax changes for parcel, not tax capacity. As a result, each identically- individual parcels of property. For example, in the valued parcel, regardless of the property's use, pays the early 1990s the metropolitan area experienced major same amount of referenda taxes (with the exception of declines in the valuation for commercial and industrial certain agricultural property, which is taxed at a lower properties. These valuation declines shifted taxes from rate). In 1997, two counties, 18 cities, and 162 school property classified as commercial and industrial to all districts levied market value -based levies. These other types of property. Valuation declines also may communities must have a separate calculation for a have accentuated the levy changes by local units of market value referenda levy by the total taxable market government. value of each community. The 1993 requirement of applying new voter - approved referenda levies to market value rather than to ;par mark value x Lmark value tax rate = market value tax Wi l l tax capacity accentuates the tax increases for certain Itaxcapacitytax: bill + L marke t valuetaxbill total tax bill classes of property like homestead/residential and agricultural properties, which have low class rates. Legislative changes in state aid formulas can also PROPERTY TAX CREDITS affect the revenue needed to be raised from the property Several tax credits for various types of properties are tax. The amount of money that is currently shared with available in certain instances. These amounts are cities through the LGA and HACA programs has subtracted from the overall taxes for each parcel to increased more slowly than inflation since 1989. When determine the net tax bill for the individual owner. these revenue sharing programs decline, cities must Minnesota also provides additional property tax relief either cut services or raise their only source of local tax directly to individual homeowners, cabin owners, and revenue, the property tax. renters through the circuit breaker and the targeting This discussion is only a general overview of the refund programs. current Minnesota property tax system. Over time, the system has become more complex and difficult for PROPERTY TAX INTRICACIES taxpayers to understand. Unfortunately, local officials The technical details of computing property taxes mask must frequently explain how the system works and take many other intricacies of the property tax system. the blame for the complicated features of the system. Many communities over the past several years have Local officials, however, can only control local levy experienced situations where individual property taxes decisions. They have no direct ability to modify the rise much faster than the increase in the levies that are overall structure of the tax system and are at the mercy certified by local units of government. of the Minnesota Legislature. Page 2 Property Taxation 101 GLOSSARY OF TERMS CIRCUIT BREAKER - A state -paid property tax refund MARKET VALUE An assessor's estimate of what prop- -. program for homeowners who have property taxes erty would be worth if sold on the open market. out of proportion with their income. A similar The market value is set on January 2 of the year program is also available to renters. before taxes are payable. CLASS RATES - The percent of market value set by state MARKET VALUE LEVIES - Voter approved levies applied law that establishes the property's tax capacity to a parcel's market value rather than tax capacity. subject to the property tax. (See Table A for a sample list of class rates) PROPERTY CLASS - The classification assigned to each parcel of property based on the use of the property. FISCAL DISPARITIES PROGRAMS - Local units of govern- For example, owner - occupied residential property ment in the Twin Cities metropolitan area and on is classified as homestead. the Iron Range participate in property tax base sharing programs.. Under these two programs, a PROPERTY TAX LEVY - The tax imposed by a local unit of portion of the growth in commercial and industrial government. The tax is established on or around property value of each city and township is contrib- December 28 of the year preceding the year that the uted to a tax base sharing pool. Each city and levy will be paid by taxpayers. township then receives a distribution of property value from the pool based on market value and TARGETING REFUND - A state paid property tax refund population in each city. for homeowners whose property taxes have in- creased by more than 12 percent. A similar pro - HOMESTEAD AND AGRICULTURAL CREDIT AID (HACA) - A gram is available to cabin owners. property tax relief program that replaced the former homestead credit program and the agricultural TAX CAPACITY - The valuation of property based on credit program. HACA is tied to class rate reduc- market value and statutory class rates. The prop - tions for certain classes of property. erty tax for each parcel is based on its tax capacity. LOCAL GOVERNMENT AID (LGA) - A state government TAXABLE TAX CAPACITY - The sum of the tax capacities revenue sharing program for cities and townships of all parcels in the taxing jurisdiction after adjust - that is intended to provide an alternative to the ments for fiscal disparities, tax increment and other property tax. LGA is distributed through a formula property not available for general tax purposes. based on tax base, population, population decline, age of housing, and the percent of market value TOTAL TAX CAPACITY - The amount computed by first classified as commercial or industrial. No city can totaling the tax capacities of all parcels of property receive less LGA than it did in 1993. within a city. LOCAL PERFO%mANCE AID (LPA) - A state program for TOTAL TAX RATE - the sum of the local tax rates for all cities and counties that is intended to provide an taxing authorities that levy against a parcel of incentive for local governments to develop perfor- property (county, school, city or town, and special mance measurement systems. taxing districts). The total tax rate times the parcel's tax capacity equals the amount of taxes the LOCAL Taxx RATE The rate used to compute most taxes property pays (not counting any voter - approved for each parcel of property. Local tax rate is market value levies). computed by dividing the certified levy (after reduction for fiscal disparities distribution levy, if TRUTH IN TAXATION - The taxation and notification law, applicable, and county disparity reduction aid) by which requires local governments to set estimated the taxable tax capacity. levies, inform taxpayers about the impacts, and hold a separate hearing to take taxpayer input. Property Taxation 101 Page 3 FisCAL DISPARITIES 101 Local government units within the Twin Cities met- HOW ARE PROPERTY TAXES GENERATED? ropolitan area that includes the counties of Anoka, The tax capacity contributed to the pool ultimately Carver, Dakota, Hennepin, Ramsey, Scott, and Wash- translates into property tax dollars for each local gov- ington participate in a property tax base sharing pro- ernment. These property taxes, also known as the dis- gram known as Metropolitan Fiscal Disparities. A tribution levy, computed for each local v P p y, p government similar program will begin with taxes payable in 1998 by multiplying its distribution value by its prior year for local government units in the Taconite Area that in- tax capacity rate. The distribution levy represents the eludes portions of the counties of St. Louis, Itasca, amount of each local government's certified levy raised Crow Wing, Aitkin, and Koochiching, and all of Lake through the fiscal disparities program. The balance of and Cook counties. Under these programs, a portion of the certified levy is used to compute the local tax rate. the growth in commercial, industrial, and public utility property value of each community is contributed to a HOW ARE COMNIERCIATANDUSTRIAL AND tax base sharing pool. Each community receives g P y ei es a des- UTILITY PARCELS TAPED? tribution of property value from the pool based on the Commercial and industrial properties are not taxed market value and population of each city. twice. Instead, a portion of each commercial or Indus- trial property's tax capacity is taxed at the area -wide tax CONTRIBUTION capacity rate and the balance is taxed at the total local The contribution to the pool is equal to 40 percent of tax rate. As a simple example, in a community where the growth in commercial, industrial, and public utility exactly 40 percent of all commercial, industrial, and value since the base year (1971 for the Twin Cities, utility property is contributed to the fiscal disparities 1995 for the Taconite Area). This measure of growth pool, 40 percent of each parcel's value is taxed at the includes both new construction and inflationary in- area -wide tax rate and 60 percent is taxed at the total creases in existing property values. In 1997, for ex- local tax rat For 7 4 e o 199. ,for exam le, the Twin Cities P ample, the total amount of tax capacity contributed to area -wide tax rate was 139.376 percent. the Metropolitan fiscal disparities pool was $275.1 mil- lion, which represents approximately 12 percent of the PP y P POLICY ISSUES total tax capacity within the seven -county area. The contribution value is not available for local tax purposes Declines in the market values for Twin Cities area com- and therefore, the contribution value must be subtracted merciallindustrial properties in the early 1990's not from the total tax capacity of each community before only directly shifted property tax burdens to other types of property, they also reduced the amount of commer- the local tax rate is computed. cial and industrial valuation contributed to the fiscal disparities pool. As a result, the total distribution levy DISTRIBUTION generated through the fiscal disparities program for all The tax capacity contributed to the pool is based on a local governments was also reduced. In recent years, distribution index. This index compares each city's to- commercial/industrial market value rebounds have re- tal market value per capita to the average market value versed this trend. But reductions in the commercial/in- per capita for all cities and towns in the seven counties. dustrial and public utility property tax class rates by the Cities that have relatively less market value per capita 1997 legislature will likely result in significant declines receive r Q e e a relatively larger y a distribution from the pool in the tax capacity of both the Metropolitan and Taco - than cities with greater market value wealth per capita. nite Area fiscal disparities pools in future years. As the amount of this distribution levy declines, a greater share of the local tax bill is paid by other types of properties, including the portion of each commercial, industrial, and utility property value taxed at the local tax rate. Page 4 Property Taxation 101