The sunset of limited market value


A commentary in the December 17 Star Tribune, which originally appeared in the Saint Cloud Times, describes and applauds the elimination of the “limited market value” (LMV) program. In a nutshell, the LMV capped the rate of growth in the taxable value of homestead, agricultural, and seasonal recreational (i.e., cabin) properties so that owners of these properties would be partially protected from escalating property taxes associated with rapidly rising values.

The elimination of the LMV program for taxes payable in 2010 is the culmination of a long phase-out of the program that began in 2003. Over this seven-year span, the taxable valuation reduction that qualifying properties receive through the LMV program was gradually reduced.

The article correctly notes that the LMV program did not reduce the overall level of property taxes, but merely shifted taxes from those who benefit from the program to those who do not. In addition, the LMV program can lead to situations in which owners of properties of similar values and uses located within the same taxing jurisdictions can pay significantly different property taxes; in a perfectly fair system, this would not occur.

I don’t have a problem with the phase-out and ultimate elimination of the LMV program, although I do have a problem with how some state policymakers have spun the impact of the LMV phase-out.

For example, from 2002 to 2003 homeowner property taxes shot up in most communities at a pace that surpassed the rate of inflation. Some state leaders were quick to blame the property tax increase on profligate local governments. However, from 2002 to 2003 the real per capita revenue of counties and cities and the real per pupil revenue of school districts declined. If real local government revenues are falling, local governments can’t be blamed for the real increase in property taxes.

The true cause of the homestead property tax increases in 2003 were the result of state policies enacted in 2001, specifically changes in property classification rates, the structure of the new homestead credit, and the phase-out of the LMV program.  (The impact of 2001 tax changes is more fully described in a 2009 Minnesota 2020 property tax report.)

Most homeowners will not be hurt by the elimination of LMV in 2010, having lost their valuation exclusion earlier in the LMV phase-out process. However, many owners of cabin and agricultural properties will see significant property tax increases in 2010 as a result of the LMV elimination. State policymakers should take responsibility for the property tax increases resulting from the LMV elimination rather than trying to pass the blame on to local governments.