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House property tax plan sees cuts, critics

ST. PAUL - The average rural Minnesota homeowner would pay 9.9 percent lower property taxes under a House Democratic proposal that faces a questionable future.

"This plan, linking it to income, will allow senior citizens to stay in their houses, families to stay in their neighborhoods and farmers to stay on the land," Property Tax Chairman Paul Marquart, DFL-Dilworth, said.

What Revenue Commissioner Warn Einess called a "supercharged" property tax refund based partially on a taxpayer's income would provide much of the tax relief. But Einess said Gov. Tim Pawlenty would not accept Democrats' method for funding the tax cuts, increasing income taxes on the state's richest residents.

Marquart's proposal would cost $543 million, most of which would come from a new, higher income tax rate on couples earning more than $400,000 a year. The new property tax relief money would spend:

-- $223 million to increase refunds.

-- $133 million to lower school levies.

-- $83 million to increase aids paid to local governments.

-- $104 million to fill gaps while the property tax system changes.

Figures from the nonpartisan House Research Department indicate a rural Minnesotan with household $60,000 annual income and a $164,000 home would pay $153 less in property taxes next year - a 9.9 percent decrease.

Much of the House proposal already had been announced. It is richer than the Senate's plan because of the income tax increase, which would generate nearly $450 million.

Senate DFLers' property tax package is smaller, spending $365 million, and doesn't include an income tax increase.

The Senate emphasizes sending state money to schools and other local governments. The House's main property tax reducer is the bigger refund.

House Tax Chairman Ann Lenczewski, DFL-Bloomington, said everyone would benefit from the House DFL plan.

However, that relief will not come if money is not available to fund it.

Pawlenty regularly reminds legislators he will not allow a state tax increase, and there are enough Republicans to prevent the Legislature from overriding his veto. Marquart said Pawlenty would have to "think twice" about vetoing a bill giving nearly every Minnesota homeowner a tax break, but Pawlenty's fellow Republicans say the governor means what he says.

Rep. Morrie Lanning, R-Moorhead, said he liked many of the ideas in the Marquart bill. However, he agreed with Einess that a new, higher income tax rate for wealthy Minnesotans would not fly.

"That's a non-starter as far as we are concerned," Lanning said.

Added Rep. Dean Simpson, R-Perham: "We're taking out of our right pocket and putting in our left pocket."

The DFL property and sales tax bill includes a variety of items:

-- A larger renters' property tax refund for people who earn up to $60,000 a year.

-- Most homeowners would get larger property tax refunds and the homestead market value credit would be phased out.

-- The state would pay $77 million in school operating levies, lowering taxes paid to schools.

-- Several other changes would lower school-related property taxes, including lowering farm taxes paid to school bond levies by 20 percent.

-- A Local Government Aid deduction for taconite aid paid to some northeastern cities would be dropped, increasing money they receive.

-- Newport would receive $75,000 more a year in state aid though 2013.

-- Browns Valley would receive a $100,000 annual state aid boost due to this month's flooding.

-- The existing one-year lag before changes in utility tax assessments affect local government aids would be eliminated, giving local governments more money.

-- Mahnomen, Mahnomen County and the school district would receive aid to make up for a dispute that has taken the White Earth tribal casino off the tax rolls.

-- Homeowners and renters would have an extra year to file for a property tax refund.

-- Homeowners could pay property taxes in eight installments instead of the current two.

-- The "this old house" tax break for people fixing up older homes would be reinstituted.

-- Taxes on the first $600,000 of a resort's value would be cut.

-- The tax break given to disabled Minnesota homeowners would increase.

-- Property taxes would go down for organizations such as the American Legion and Knights of Columbus as long as they donate a certain amount to charities.

-- Property taxes would fall for disabled veterans.

-- Scambler Township in Otter Tail County would receive permission to tax gravel.

-- Duluth could charge a higher food and beverage tax to help fund an addition to the Duluth Entertainment Convention Center.

-- Bemidji could fund a regional event center under a previously approved sales tax.

-- Crookston would be allowed add a half-percent sales tax to fund flood prevention efforts.

Don Davis
Don Davis has been the Forum Communications Minnesota Capitol Bureau chief since 2001, covering state government and politics for two dozen newspapers in the state. Don also blogs at Capital Chatter on Areavoices.