Rep. Lohmer: 'Changes' to the Homestead Tax-Credit Program Were Necessary

I have received a number of questions regarding changes in homestead tax-credit programs, including during a recent truth-in-taxation meeting. Here is an overview of what changed and why these improvements were necessary.

Minnesota switched this year from the old Market Value Homestead Credit to a new Market Value Exclusion. It is important to note we did not eliminate the property-tax relief for homeowners by changing from one program to the other. The difference is now the amount a home will be taxed on is reduced on the front end, rather than refunding a portion of the property taxes you owe on the back end. Both methods should provide about an equal amount of property-tax relief.

This change was necessary largely because the old credit did not work as intended. The state was supposed to reimburse each local government for its share of credit paid to homeowners. However, the state was not holding up its end of the deal; only once in the last decade did the state fully reimburse local governments statewide. Most of the cities in District 56A received $0 in reimbursement for 2011 even though they were entitled to as much as $416,006 (in Stillwater's case).

Often the state would reduce its reimbursement after local governments already had set their levies. This left many local governments setting their levies higher than necessary in anticipation of cuts to this reimbursement. Simply, the old credit actually failed at its core intention: reducing property taxes.

The new exclusion eliminates the state reimbursement to local governments but retains tax relief for homeowners. This is a system other states have used successfully and it is endorsed by a local organization. Now local officials can more effectively plan because we eliminated uncertainty of how much if any the state would reimburse them for the old Market Value Homestead Credit.

To help offset potential increases in property taxes during this transition to a new program, we expanded the Property Tax Refund (PTR) program available to taxpayers across the state. We recognized that although the switch to the new exclusion provides many long-term benefits, there may be glitches along the way.

The PTR is an effective way of delivering property tax relief directly into the hands of property taxpayers while bypassing the local governments. The increases in this program will benefit taxpayers by mitigating increases due to the one-time change to the new MVHE.

Sincerely,
Rep. Kathy Lohmer (R-Lake Elmo) District 56A