New tax law changes things for council

Talk about it

It’s hard enough planning a city budget, but when the rules change on you a month before a preliminary budget is due, things just get that much harder. That’s what the city of Rosemount and others around the state are facing as they put together their 2012 budgets.

During the special legislative session, the Minnesota Legislature repealed the Market Value Homestead Credit program and replaced it with a new market value exclusion program.

While in the end it could be a good thing, city administrator Dwight Johnson said right now the change is making things a little more difficult.

“It’s a major change in the rules,” said Johnson.

Under the former rules, most homeowners received a credit on their property tax bills, reducing the actual tax receipts of the cities. To offset the loss cities would receive reimbursements. Cities would not actually receive the amount levied through property tax collections but would receive the reimbursements.

Over time the program was seen as another state aid to cities and was cut. Johnson said Rosemount has not received funds since 2008 and has not budgeted to receive them. Instead the city has been levying extra money to cover the cost.

To replace the credit, a new program has been put into place. According to the Minnesota League of Cities, homeowners will receive an exclusion of a portion of the market value of their house from property taxes. The exclusion is computed in a manner similar to the current market value homestead credit. However, the impact of the repeal of the existing MVHC program and the new exclusion will vary from community to community, depending on a number of factors, including tax base of the community and the local tax rate.

For cities the League said the new law should simplify the process. The city’s

certified property tax levy will no longer be reduced by the allocation of the MVHC credit with a “promised” reimbursement by the state for the loss of property tax receipts.

It means the city’s tax base will be made artificially smaller but the city won’t lose any actual money. For taxpayers, Johnson said it should result in no change to actual taxes paid.

“I think it’s a good change, but we’ll see,” said Johnson.

This year the council has tried to lower taxes again. Johnson said if everything goes as planned taxes on average priced home will go down by $9. This is the third year Rosemount’s taxes will go down.

The council must approve a preliminary budget and a maximum tax levy by Sept. 15. The council plans to pass the preliminary budget and levy at its Sept. 6 regular meeting.

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