Legislators work to restore homestead credit

Responding to growing frustration by Minnesota homeowners who are angry that the state will eliminate a longtime tax break, two DFL legislators say they plan to restore the market value homestead credit.

State Rep. Ann Lenczewski, DFL-Bloomington, unveiled the legislation today, even though the Legislature won't convene for another four months. She said Minnesotans who are not aware that the credit has disappeared may find out this week, as local government officials set their preliminary tax levies for next year.

"This is when Minnesotans will wake up and say 'What happened to my homestead credit?' and 'I want my homestead credit back,' " she said.

The homestead credit program provided about $538 million in property tax relief over two years to about 95 percent of homeowners. The state paid local governments to make up for the loss in revenue, which this year averaged about $202 per home. The maximum was $304.

To reach the budget deal that erased a $5 billion budget deficit and ended the state-government shutdown, Gov. Mark Dayton signed the Republican-backed tax bill that eliminated the credit. The deal replaced the credit with a new program called the homestead market value exclusion, which will lower the value of a person's home for tax purposes.

Lenczewski isn't buying the substitute.

"The exclusion is a delusion, or at best an illusion," she said.

Lenczewski said the resulting lower tax base will force local governments to increase property taxes.

"If you have a home that's worth $200,000, and now for tax purposes you're going to be taxed at $180,000 say, you've shrunk the base," she said. "Now the city council has to come in and levy a higher rate to get the exact same dollar they got the day before, or they could cut."

The bill's co-author, state Rep. Paul Marquart, DFL-Dilworth, said he's already heard an earful from constituents who are upset by the changes. Marquart said rural Minnesota will be hit especially hard by the elimination of the homestead credit because it applied to all but the most expensive homes.

"We don't have a lot of homes [valued at] over $414,000 where the program applies to," he said. "You're talking about almost every single home losing this homestead credit, which means an increase in property taxes."

Marquart and Lenczewski blame Republicans for ending the credit. But they're asking those same Republicans to now join them in a bipartisan effort to bring it back for the 2013 tax year. They didn't say how they would pay for it.

Republicans point out that the state fully reimbursed local governments for the market value homestead credit just once in the last eight years.

State Rep. Jenifer Loon, R-Eden Prairie, said the new exclusion brings certainty to the property tax system.

"I think where we get into trouble is when cities or local governments are promised certain amounts of money forthcoming or benefits from the state," said Loon, vice chairwoman of the House Tax Committee. "And when those monies don't flow as promised, then they are in a budgeting bind."

The homestead credit flap is just the latest effort by House Democrats to blame local property tax increases on Republicans, who hold the majority of seats. Democrats also argue that GOP decisions on education funding are the reason so many school districts will seek voter-approved tax increases this fall.