When Hopkins homeowner Mark Jensen sat down to talk during the city’s budget hearing, his comments came down to a single question: Why does he pay so much more in property taxes than homeowners in neighboring communities?
Hopkins Finance Director Christine Harkess and City Council members talked about tax rates, state redistribution programs, property classes and other arcane matters. The subject is undoubtedly complicated.
Yet Jensen’s question had a very simple basis in reality.
Hopkins has the second-highest residential tax bills among seven west metro communities that Patch surveyed and the highest taxes among its immediate neighbors.
The owner of a $250,000 home in Hopkins will pay $1,549 in 2013. That same home just across the border in Minnetonka would have a tax bill of $952.17—about $600 less than in Hopkins.
Why are Hopkins homeowners like Jensen paying so much more?
City tax bills for select home values$150,000 $250,000 $350,000 $450,000 Eden Prairie $536 $894 $1,252 $1,610 Edina $421 $701 $982 $1,262 Golden Valley $871 $1,453 $2,034 $2,616 Hopkins $930 $1,549 $2,169 $2,789 Minnetonka $571.30 $952.17 $1,333.04 $1,713.91 Richfield $960.08 $1,600.13 $2,240.18 $2,880.23 St. Louis Park $717.33 $1,195.55 $1,673.77 $2,151.99
NOTE: None of the tax amounts in this story take into account the homestead market value exclusion, which lowers the tax bill for owner-occupied, primary residences worth less than $414,000. The amounts cover only the city portion of the property tax bill.
Taking the weight off homeowners
On its face, taxation comes down to government spending. Each year, cities approve budgets that they use to determine how much to levy from taxpayers. These budgets vary from community to community based on what amenities residents want, how well they want those amenities maintained and how quickly they want services delivered.
Art centers and water parks will drive up the cost of government—as will extra public works employees to plow the streets or police officers to patrol the community. Every city will strike its own balance between affordability and amenities—a balance that will be reflected in individual tax bills.
Yet Minnesota property taxes aren’t like an income tax, in which people pay a fixed portion of what they make. Instead, cities levy a specific dollar amount and use property values to divvy up each taxpayer’s share of the total.
Click here for a detailed explanation of how property values and property taxes work.
That means an individual tax bill is hugely dependent on the other types of property in a city. When a community has a lot of valuable commercial and industrial property, that takes some of the burden off homeowners. Conversely, homeowners in communities without these types of property must pick up a bigger share of the tax bill.
“A lot of it depends on the value of the city,” Harkess said.
Eden Prairie, for example, has the second-lowest residential tax bills among the surveyed cities and has the highest amount of commercial-industrial property per household, according to the Metropolitan Council. Properties like Eden Prairie Center and the retail sites surrounding it, plus major business locations, cushion the tax impact on Eden Prairie homeowners.
On the other end of the spectrum, Richfield has the highest tax bills and the lowest amount of commercial-industrial property per household.
See the first PDF above for a look at the correlation between tax bills and the amount of commercial-industrial property in a community.
Overall city government spending appears much more comparable between communities when looked at on a per person basis. While the highest tax bill was more than twice the amount of the lowest tax bill, the highest per person spending is only 29 percent greater than the lowest.
Per person city spendingCity Per capita budget Eden Prairie $637.23 Edina $654.05 Golden Valley $742.41 Hopkins $593.17 Minnetonka $575.09 Richfield $576.77 St. Louis Park $693.08
NOTE: Values were calculated by dividing 2013 general fund expenditures by the American Community Survey's latest population figures. For cities that haven't yet formally approved a budget, Patch used the most recent budget figures in the 2013 planning process.
The same cities don’t even come out on top. Where Minnetonka was the third lowest among its neighbors in terms of its tax bills, it was the lowest in terms of per-person spending. Richfield, which had the highest tax bills overall, had the second lowest per-person spending.
This may not be a coincidence. When commercial-industrial properties alleviate the burden on homeowners, those homeowners may be more inclined to use tax money to buy additional services—and less inclined to press their government for lower taxes. Golden Valley, for example, had the most commercial-industrial tax base per household of the cities surveyed and the highest per capita spending.
See the second PDF above for a look at the correlation between general fund spending and the amount of commercial-industrial property in a community.
While the amount of commercial property helps homeowners tremendously, it's definitely not the only thing that decides property taxes.
"Another category of revenue is the other sources of income that cities have and the way they do their business," said Merrill King, finance director for the city of Minnetonka.
For example, in Edina, street reconstruction is special-assessed to homeowners, which is not the case in Minnetonka. In Minnetonka, the cost of streets comes out of property taxes.
Eden Prairie has municipal liquor stores, giving them another source of income.
"Another piece for Eden Prairie is that they are still a growing community," King said. "The kind of revenue that they get can relate to getting brand new developments out in non-developed areas. The rest of the cities in the comparison are 'built out.' All we have is in-fill development."
The city of Richfield still gets $1.2 million in local government aid, and none of the other cities in the comparison do.
"The sources of revenue can really change what's going on for you," King said.
A huge help for the city of Minnetonka is a very low general obligation debt, which is supported by property taxes.
Another consideration: "We are the second largest loser in fiscal disparities, which means our property tax base supports these other communities," King said.
Under the fiscal disparities program, taxing jurisdictions in the seven-county area contribute 40 percent of the growth in commercial-industrial property tax base since 1971 into an area-wide shared pool. Shared tax base is then redistributed back to jurisdictions, reducing fiscal disparities.
Minnetonka's residential property taxes would be 10 percent lower without the fiscal disparities program.