BEMIDJI - DFL legislators are saying they weren't surprised when property taxes rose in response to a Republican-supported effort last year.
As the Market Value Homestead Credit was replaced with the Market Value Homestead Exclusion, the change resulted in higher-than-usual property taxes for many homeowners.
"There was a forewarning given to Republicans that this wasn't going to be good," Rep. John Persell, DFL-Bemidji, said in a meeting last week.
The credit was a reduction in the amount of taxes due; the exclusion is a reduction in the property value subject to taxation.
Under the credit, the state reduced the taxes paid by homesteaded property and the state was supposed to pay that portion of the tax to local jurisdictions, such as cities, counties and school districts. The state, though, was never able to fully fund the credit program, and each year local governments were left with a deficit due to the state's inability to pay.
By cutting the credit and replacing it with the exclusion, the state was able to save about $260 million a year.
But DFLers say the savings at the state level were simply passed onto residents who then paid higher property taxes.
Rep. Paul Marquart, DFL-Dilworth, is the DFL lead on the Property and Local Tax Division committee.
During a recent stop in Bemidji, Marquart said 60 percent of the $260 million saved by the state used to go to rural Minnesota.
Property taxes statewide, he said, were up $370 million in 2011, $260 million of which were directly related to the change to an exclusion.
Of that $370 million, 64 percent was paid by rural Minnesota, he said.
"I think the biggest issue in rural Minnesota is the unnecessary and unfair property tax hikes," he said
The increases in property taxes for residents in rural Minnesota were eight times higher than those in the metro area, he said, and three times higher for business owners.
"Elimination of the homestead credit really hit rural Minnesota hard," Marquart said.
Persell said the change from a credit to an exclusion resulted in nearly a 6 percent property tax increase for Bemidjians.
Marquart and Persell co-authored a bill this past session that would have repealed the exclusion, but it was defeated in the Legislature.
"We need to reinstate the homestead credit," Marquart said.
Both legislators agreed that the issue will become a focal point of the upcoming election season.
Marquart said he was disappointed in the tax-relief bill that froze statewide business property tax for a year but offered very little relief for homeowners and nothing for farmers.
"It was a big blow to rural Minnesota," he said.
Sen. John Carlson, R-Bemidji, when reached by telephone Friday, said there were some unintentional consequences of the change from a credit to an exclusion.
The GOP, he said, attempted to include some relief for homeowners in one version of a tax-relief bill, but it was vetoed by Democratic Gov. Mark Dayton.
"We had a fix for it," he said.
Carlson said the entire tax code needs to be revisited, focusing also on how the state funds schools.
"There is bipartisan support for doing those kinds of things," he said, noting that there will be different priorities between Democrats and Republicans, and rural legislators versus metropolitan legislators, as they look at what should actually be changed.
"It will be, how do we find the middle ground," he said.
Specially, Carlson wants to focus on funding for the schools, saying that school districts never should have to rely on referendums to fund their operations.
Returning to the DFL assertions that Republicans worsened property taxes for rural Minnesota, Carlson said the GOP worked to ensure the budget was balanced.
"They left us in a big hole and we fixed it," he said.