County to gain millions in taxable property
Hubbard County will recapture an astounding $93.5 million of taxable property next year under a state program being phased out that gave tax breaks to property owners during inflationary times.
Called Limited Market Value, the program, which courts have ruled unconstitutional, then constitutional, has been around three decades. At its peak, $32 billion was excluded from Minnesota property tax rolls in 2004.
As with most tax programs, the road to hell is paved with good intentions, and LMV sought to cap property tax increases when property values were rising exponentially through the 1970s and 80s. But as years went by, a great divide widened between a property's market value and its taxable value.
In Hubbard County, that tax break primarily applied to lakeshore homeowners, because prime lake property rose in value more than other real estate. But Hubbard County Assessor Bob Hansen said it also applied to "rural wooded acreages."
The 2000 Minnesota Legislature voted to phase the program out after 2009, and many local property owners suffered sticker shock when their tax estimations were mailed out in the spring.
The phase-in has been occurring since 2000. Nevertheless, its sunset year still took homeowners by surprise.
"It's significant," Hansen admitted. "For next year none of that will be excluded. It is a major tax hit to those properties, naturally. There are a number of properties where their estimated and taxable values have not been one and the same as this phase-in has taken part, some earlier, some later, but there are a number of people who have been paying full market value for some time."
Hansen likens the LMV program to someone skipping out on the dinner check.
"Let's say 10 of us went out for lunch and we were going to split the cost equally and we had ordered a meal and it came to a fixed price and we divided it equally 10 ways," he explained. "All of a sudden somebody decided not to show up but we had our fixed cost so we had to divide it nine ways instead of 10. So we all had to pay more. That's the same thing that happened with Limited Market Value so to speak."
He said he doesn't know how many Hubbard County taxpayers have been affected by the last year of LMV, but tax increases of 15 to 30 percent and up are not unheard of.
"Exactly how many since or how it shifts the tax burden, it varies depending on the school districts, the township you're in, how much difference in that shift," he said. "Some people's shift very, very little in that they only had a small amount of limited value that was left to come on.
"Some are much, much greater because they had a large amount of limited value that's coming on," Hansen said.
And his office is hearing from the latter group.
"I'm responding to one right now," he said. "Last year their estimated market value was $651,000 yet they were only taxed on $522,000. So there's a $129,000 difference. You know that's a significant difference between what their property was valued at and what they paid tax on last year."
"As it was initially implemented it was inflation going on not only in lakeshore properties but home values, you name it, and I think the Legislature felt they could limit the impact of highly escalating property values to some degree by limiting the amount that the value would go up for tax purposes," Hansen said.
"But once again, when it comes to tax, unless you control spending, taxes will have to come from whatever property tax base is out there and as they did that, properties whose values did not escalate as rapidly as others were slowly but surely picking up more of the tax burden."
The state policy of taxation has always based property taxes on an ad valorem system, according to the worth of a property.
Auditor Pam Heeren told the county board Dec. 2 some homeowners, who have been shouldering the burden, will not see increases next year. Others who have had the advantage of the LMV program will not be so fortunate.
"Generally all 2009 taxes will be based on full market value... with everybody's estimated market value and taxable values being one and the same for taxes payable 2010," Hansen said.
A few exceptions are an older program called "This Old House," in which renovated structures enjoyed a tax break. That program, too, is being phased out.
Newer breaks will include some exclusions for disabled veterans and "a new plat law where there's some excluded value," Hansen said.
One lakeshore property owner's valuation went up $75,000 on a prime lake. The woman, who did not want her name used, is a senior citizen living on a fixed income.
"How in the world am I going to pay this?" she asked.