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House votes to raise most property taxes, some down

ST. PAUL - A third of Minnesota homeowners would pay lower property taxes under a bill the House passed 80-52 late Monday.

However, in order to pay for those property tax cuts, many other Minnesotans would pay higher income taxes.

The bill also stops businesses from enrolling in the state's top rural economic development program.

The measure differs from one already passed by the Senate and a proposal from Gov. Tim Pawlenty. Legislators have two weeks remaining in this year's session to work out differences.

"If your property taxes are high relative to your income, we are going to step in and provide relief," House Taxes Chairwoman Ann Lenczewski, DFL-Bloomington, said.

"If we do nothing, every property tax payer loses," added Property Tax Chairman Paul Marquart, DFL-Dilworth.

Marquart said homeowners' taxes have risen 82 percent since 2002, and will rise another $559 million next year if lawmakers do nothing.

Much of the property tax relief in the bill comes from elimination of the income tax deduction long enjoyed by homeowners who itemize their returns.

Anyone earning less than $200,000 annually with property tax payments of at least 2 percent of income would get a tax break under the bill, Marquart said.

About a third of Minnesota's homeowners would receive refunds, in effect lowering their property taxes. But many of the remaining homeowners would fund those tax cuts by losing property tax deductions they now receive on their income tax returns.

Marquart and Lenczewski said they do not know how many people would end up paying more taxes. However, figures they gave fellow lawmakers paperwork showing that in general the more a Minnesotan earns, the more taxes will increase.

A majority of households in all or nearly all income categories would be net losers under the plan, Pawlenty said.

"It's a disguised way to raise the income tax to buy down the property taxes without any reform," the Republican governor said. "We would take a dim view of that proposal."

The bill also curtails the Job Opportunity Building Zones program -- a Pawlenty pet project -- that gives many new and expanding rural businesses deep tax breaks. It allows businesses already in the program to continue, but JOBZ could not accept new businesses.

An attempt by Rep. Dean Simpson of Perham and other Republican rural lawmakers to maintain the existing JOBZ program failed 69-63.

"Now is not the right time to vote against JOBZ," Simpson said. "We don't have an abundance of jobs in rural Minnesota."

Rep. Morrie Lanning, R-Moorhead, said four businesses in his area invested more than $10 million, and created more than 100 jobs, averaging more than $22 an hour plus benefits.

"If that isn't a plus for Minnesota, I don't know what is," Lanning said.

The original author of JOBZ, Rep. Doug Magnus, R-Slayton, said the program may need to be improved, but needs to survive.

When JOBZ was started, young people "were taking off as soon as they could," Magnus said. And the population along the western part of the sate was dropping 20 percent to 25 percent.

Rep. Steve Drazkowski, R-Wabasha, said he attended two ribbon cuttings last week for businesses that moved to Zumbrota, "a community that has not had a ribbon cutting for more than a decade."

"If not for the JOBZ program, they would not have come to Zumbrota," he said.

An amendment to exempt military pensions from income taxes passed 75-54.

Senate and Pawlenty property tax plans look very different than what the House debated Monday.

A Senate-passed plan focuses on increasing state payments to cities, counties and townships $115 million. The theory behind the plan is if more money is sent to local governments, they would not have to increase property taxes.

The House plan increases local aids somewhat less than the Senate.

Pawlenty does not favor increased local aid as a way to control property tax increases because there is no guarantee that taxes would be held in check. However, the House did approve a weaker property tax cap than Pawlenty seeks.

The Republican governor favors a firm property tax cap, which would allow taxes to increase only as much as inflation. The Pawlenty cap would not apply to school districts or local governments with small populations.

The House bill requires the Duluth school district to take public testimony before accepting future lease-purchase contracts. It also requires a vote by the public on a lease-purchase agreement upon receipt of a petition signed by at least 15 percent of the registered voters.

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.