X = what? Cities grope for way to describe new property tax law

"Complicated" is a word that comes up repeatedly these days when you talk with city managers about the new Homestead Market Value Exclusion.

This is what the Legislature approved last spring to replace the old Market Value Homestead Credit. Now, rather than the state reimbursing cities and counties for homesteaded property tax reductions, the taxable value of some homes will be reduced for taxing purposes, leaving local municipalities with a revenue gap.

Tim Pugmire did a good job of explaining the change earlier today on Morning Edition. You can read or listen to his report here. Ground Level's Dave Peters also has written a nice piece describing how the new law might play out across the state, which can be found here.

But even as cities grapple with the impacts of the new exclusion--even those that keep levies flat will end up raising taxes on some taxpayers--they also have to figure out how to explain the intricate system to the public. Aside from communicating the sheer math of it all, cities want citizens to understand the Legislature's role in rate increases. Conversely, lawmakers are working to place the onus on city leaders.

"I don't think the public is fully prepared," says Chad Adams, city manager for Albert Lea, which has proposed raising its total levy by 2 percent. "We know that even if we go down to zero, a number of our properties, particularly the commercial and industrial, will see a tax increase."

The city is hosting a meeting this evening for local business owners at 6:30 at the Freeborn County government center to provide details. Adams says he'll also spend some of October meeting with residents in the various city wards. "I think since it's so complicated, it's difficult to explain," he says. "We just want to make people aware that something will happen. Just enough will be helpful."

To assist its membership in similar endeavors, the League of Minnesota Cities is creating several documents that can be passed around or included with truth-in-taxation statements this fall. They will feature simple explanations and charts comparing the bottom line effects of the credit versus the exclusion for various home values.

The Minnesota Department of Revenue has issued its own document unraveling the impacts on homestead benefits. It helpfully explains the old credit as "X - Y = Z." According to the document, "If your initial tax was X, and your credit was Y, then the tax you had to pay was Z." By contrast, it explains, "Under the new law, an exclusion changes the initial tax amount (X), and with the credit gone, the new initial tax becomes the final tax (X = Z)."

If you're lost, you're not alone. Like everybody keeps saying, it's complicated.

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