If you think your property taxes look high this year, you are not alone. Residential property values dropped 6.5% in Minneapolis in 2008, according to Patrick Todd, City Assessor, but some homeowners feel their property tax valuations have not been adjusted to reflect the declining value of their homes. The city of Minneapolis held two open houses on April 9 and 10 to address questions from homeowners about their property taxes.
“I know we’ll be wrong some of the time,” said Patrick Todd, who gave an informational lecture and answered questions at Webber Park on April 7. But Todd said that he sleeps at night knowing that the city is doing its best to try to do the right thing.
Todd stressed the enormous task that assessors face in determining the market values of homes. He said that they reassess individual properties once every five years. In other words, they view 20% of the city’s properties each year. The assessors visit each house, which can be difficult if the owner or resident is not at home. Todd said he generally doesn’t have his assessors look around a property without the owner or resident present for fear of dogs and other dangers.
In the inspection, appraisers gather information about the condition of the house, based on its age and size, and the quality of construction. Property taxes also depend on whether the property has a porch, the number of baths, and the quality of the basement, kitchen, and garage. He said that while making improvements on a home will increase property taxes, homeowners should not be afraid to make those improvements, as they will pay off when they resell their home.
Property value is also based on the selling price of similar properties in the same area, although assessors do not take into account the sale of foreclosed homes, as they are sold at a much reduced value from what they are worth. However, Todd said a foreclosed house that is sold a second time months after it was foreclosed, will have a selling price closer to its original value before the foreclosure. When a foreclosed home is bought at a reduced rate, and then sold for a much higher rate, it is called “flipping.” Todd gave an example of a home that was originally $180,000, was foreclosed upon and sold for $27,000, and sold a few months later for $125,000. “The irony is that the original homeowner might have been able to afford a $125,000 house,” Todd said.
Though the sale of a foreclosed home itself won’t affect the market value of neighboring houses, its condition will, especially if it lies vacant. Other outside factors to market value include a nearby cemetery, a supermarket, or a contaminated site. Todd said that one of the reasons property taxes are so much higher in Minneapolis than in other suburban areas such as Plymouth or Minnetonka is that big cities use property taxes to pay for things like fire departments, convention centers, sidewalks, police, and a major library. “We have what it takes to be a robust city. We have a safe city,” Todd said.
One factor that may confuse property tax payers is that a program that was enacted by the legislature in 1992 called the Limited Market Value Program has been slowly phased out for the last decade. The legislation imposed a limit of 8% on how much the taxable value of a home could go up in a year. When property values were skyrocketing, this created a huge gap between the actual market value and the taxable market value, so legislators decided in 2002 to sunset the program.
Adding to the confusion this year was a conflict between the Minneapolis Assessor’s office and the Minnesota Department of Revenue. In the area surrounding Nokomis and the University of Minnesota area, the Department of Revenue decided that the assessor’s office had over-calculated the fall of property value. “They thought Nokomis and university community didn’t go down as much as we indicated, and they increased them,” Todd said.
Todd said that if homeowners disagree with the assessment of the home, they can call the assessor’s office (612-673-2382). He said his office is open to talking to homeowners about determining the correct value of their homes. If no agreement can be reached, however, homeowners can appeal to their local Board of Appeal and Equalization. An alternative to the Board of Appeal and Equalization is to take individual cases to the tax court.
The Minneapolis Assessor’s office website explains a number of resources for citizens seeking relief from taxes. The Income Adjusted Homestead Credit ensures that taxes do not become disproportionate with a person’s income. The maximum refund for the Homestead Credit is $1,700, and the total household income for 2006 must be less than $91,120. Another program is Targeting, which provides a refund if taxes increase above 12% and the increase is at least $100 from the prior year.
For residents above the age of 65 who make less than $60,000, the city has a Senior Citizen Tax Deferral Program, which is a deferral of tax, not a reduction. The taxes accumulate along with interest at a rate not to exceed 5% and a lien is attached to the property.
Finally, the amount of property tax is not based solely on the home’s value. The tax is set by the “mill rate” — the percentage that is multiplied by the home’s value in order to set the real estate tax bill. If the property value drops and the mill rate stays the same, then property taxes decrease. But if the property value drops and the mill rate increase, then the total tax could remain the same or go up.
Sheila Regan is a theater artist based in Minneapolis. When not performing or writing, she serves as educational coordinator for Teatro del Pueblo.