Most Homeowners Will See Lower Property Taxes in 2012

Nearly 60 percent of homeowners will see their city property taxes drop in 2012, according to the latest budget figures.

The city’s tax levy will actually increase 1.11 percent over 2011—less than the 2.43 percent proposed in July and the 2.07 percent increase planned in September.

Markets and state laws

The widespread drop in residential property taxes is likely due to three factors: the decline of residential values; more-steady commercial, industrial and apartment values and .

Property taxes are not like an income tax in which people pay a fixed percentage of their home’s value. Instead, governments levy a set amount of money and property values are used to divvy up each taxpayer’s share of the levy.

Home values have dropped more precipitously than commercial, industrial and apartment values. That has, in turn, shifted more of the tax burden onto those properties.

The repeal of the market value homestead credit exaggerated those effects. Under the credit, the state gave homeowners a break on their property taxes and reimbursed the cities for the lost revenue—although it stopped reimbursing cities like Hopkins as its budget got tighter.

This year, legislators eliminated the credit to balance the state budget and help cities that no longer received state reimbursements. In order to avoid a big property tax increase for homeowners that received the credit, they replaced it with a market value exclusion—artificially reducing values and decreasing homeowners' share of the tax burden.

Because of , that change forced properties that didn’t receive the credit—commercial, industrial, apartments and expensive homes—to pick up the share of the tax burden cut from the market value exclusion properties.

Factoring in the market value exclusion, residential tax capacity dropped close to 20 percent. 2011 was the first time in at least a decade that commercial/industrial tax capacity exceeded residential tax capacity.

The value of the exclusion diminishes as a home’s price increases—peaking when the value hits $76,000 and dropping off altogether at $413,778.

A $225,000 home will pay $1,319 in city taxes in 2012 under the current plan, up from $1,252 for an identically priced home in 2011. But because property taxes are based on a home’s value relative to others in the community—not an absolute value—homes that retain their values will take on a greater share of the property tax burden when the market as a whole is dropping.   

Fewer expenses

The budget has also got a bit lighter since staff first brought a proposal to the council.

One of the best pieces of news was that insurance premiums will drop 17 percent, saving the city $13,000 in retiree insurance alone, said Finance Director Christine Harkess.

“We were amazed,” she said.

The retirement of senior employees—including the city clerk, a police captain and a sergeant—will also bring new people into the positions who will make less than the outgoing employees.

“Since I came here, we have tightened and tightened the budget, and there is really not a lot of surplus here,” Harkess said.

Staff will present the proposed budget to the community Dec. 6. Council will approve a budget Dec. 20.