Assessment challenges grow, add to budget pressure
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Cities, counties and school districts in Minnesota are paying out tens of millions of dollars this year because property owners are increasingly challenging their assessments in court.
The number of those lawsuits has risen dramatically, adding to the pressure on local governments already dealing with tight budgets.
Ramsey and Hennepin counties, for example, have issued about $45 million worth of tax refunds this year as a result of property owners fighting to lower the values that assessors placed on their property.
Craig Wodnick is among those trying to get a refund on his property taxes. He doesn't think his street sweeper repair shop, a pole barn on St. Paul's East Side, was worth $319,000 in January 2009.
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Wodnick pointed out several similar buildings in the neighborhood that had much lower tax assessments, so he is appealing his.
"Every building here, there's five of them. None of them are the same," he said. "Why's that? I'm not even so against how much the tax is. To me it's more like if there was some fairness to it."
If Wodnick wins, he'll get a refund for part of the property taxes he paid over the past two years, plus interest, a figure that could be close to $10,000.
Declining property values are helping drive the increase in appeals, said Stillwater attorney Robert Hill. When real estate prices were rising during the middle of the last decade, he'd file fewer than 10 cases some years. These days he handles hundreds.
"I'm not proud of this but it happens to be true: The worse the economy does, the better it is for property tax professionals," Hill said.
Tax assessments tend to lag behind the current market. Property taxes due in 2012 will be based on an assessment done in January 2011. That, in turn, was based on market data from 2010.
When values rise, property owners think "''Wow, this in an OK value. My property's worth more than this,'" said Stephen Baker, Ramsey County assessor. "If values are falling, they look, 'well no, my property's not worth that anymore. This is unfair.'"
Baker said the best time to challenge property tax assessments is in the spring. That's when Minnesota counties mail out their proposed assessments. At that stage, he said, disagreements can often be settled quickly, without the need for court filings.
The legal route is much more time-consuming.
The Minnesota Tax Court has only six employees -- three judges and three staffers. The judges don't have law clerks, and they're responsible for all of Minnesota's property tax lawsuits.
The court is on track to receive more than 6,000 petitions this year, close to three times the number in 2007. Almost all are property tax cases and the vast majority of those involve commercial or industrial properties.
Most will settle out of court. But even so, Chief Judge George Perez says many property tax lawsuits can't be resolved within a year the way they used to.
"The number of cases translates into more trials, more pre-trials, more motion hearings, more discovery motion hearings," Perez said. "So all those things have pushed that one year into, perhaps a year and a half and maybe two years and in some cases even longer than that."
Taking a case to tax court also carries risks for the property owner. The court sometimes finds a property's assessment is too low. That means a bigger tax bill, not a refund. But the flurry of tax appeals has -- on balance -- cost local governments money.
