Q. The city is planning to increase property taxes 35% over the next 5 years. What is your opinion of this plan?
A. First, I am not certain of the source of this claim. It appears to be inconsistent with the Council’s 2021 Adopted Budget, which hypothesizes a property tax levy increase of 5.35% in 2022, 5.73% in 2023, 4.77% in 2024, 4.04% in 2025, and 3.76% in 2026. (2021 Adopted Budget, p. 93.) That adds up to 23.65%. Even after applying these percentage increases consecutively, the increase is only 26% over the starting value.
Second, saying that “the city is planning to increase property taxes x%” when you mean that the levy could increase x% is misleading. The magnitude of change in the City’s overall property tax levy generally will almost never equal the magnitude of change to any individual’s or entity’s property tax bill. Whatever the overall percentage increase in the overall levy, residential property taxpayers will likely experience a smaller percentage increase, or even a decline, because of tax-base growth and the effect of a property’s relative value on the calculation. (To see how this works, try out the levy simulator!)
What matters to taxpayers is their actual tax burden in real dollars. Knowing that the levy might increase x% over several years (just as all expenses ordinarily increase under inflationary economic conditions) doesn’t provide meaningful information about that concern.
Third, this framing obscures factors that must be considered when setting the levy. The appropriate size of the levy must take into account the ability of the City to raise needed revenue through other means. And the city is growing. It is both adding more taxable property, which decreases the share of the levy payable by everyone else, and it is adding residents that consume city services and resources, causing the City to incur growing costs that must be paid for.
Increasing the property tax levy by 26% over five years amounts to an average annual increase of about 5.2%. Discount an annual increase of 5.2% by the general rate of inflation (assuming 2%, which has been the average inflation rate since 2017), and you’re left with real annual levy increases of about 3.2% (though steadily declining over the forecasted period, to just 1.76% in 2026). Now factor in that the city is growing—its population has grown an average of 1.3% annually for the last decade. More people means more taxpayers as well as a need for more services, more wear on city-maintained property, etc. And the City has deferred maintenance on capital assets, which cannot continue indefinitely. Taking all those factors into account, I cannot conclude today that the Adopted Budget’s forecasted increases are unreasonable.
Finally, the budget is voted on every year, so the relevant question to me when determining the annual levy as a BET member will never be “what did the city council project might be a reasonable increase several years ago?,” but “what’s the appropriate levy to set for this year?”
Q. Do you feel Minneapolis taxes are too low, just right, or too high?
A. “Minneapolis taxes” comprise an array of various specific taxes, each of which is differently targeted. The result is a different balance of taxes paid by people in different classes. Besides property, sales, and use taxes, the City also has an entertainment tax, a lodging tax, and liquor and restaurant taxes in the downtown area.
The city’s revenue need is dictated by the expense of the services the city provides. Taxes are at the right level when the City can pay for the services its residents expect and value, and avoid defaulting on its debt.
In the 2020 City budget, only 27% of needed revenue was set to be raised through property taxes, and just 6% through the city’s sales tax. (Minneapolis 2020 Council Adopted Budget, p. 36.) But many of the City’s revenue sources are fixed or constrained in some way, leaving the property tax levy as the most flexible (and least regressive) means by which it can ensure it has the revenue needed to pay for the services its residents expect.
Whether an individual taxpayer experiences taxes as being “high,” “low,” or “just right” depends on how the balance of the various City revenue sources bears on them individually, in relation to their capacity to pay. So while from the perspective of the entire city the revenue might be necessary and reasonable because it ensures that the city is paying for services expected by its residents, every individual will experience the total tax burden differently.
Q. Should the maximum property tax levy be the same as the Mayor’s proposed levy? Or should it be more?
A. The BET comprises stakeholders with distinct interests in the City’s tax levy. The Mayor is one member of the BET. There are 5 other members whose interests and perspectives may be distinct from the Mayor’s. The board has that composition for a reason—so that members can independently assess proposals put before the board, in light of the interests they represent, and so that the varying interests have a say in the size of the levy.
As a member of the BET, I will independently assess matters brought before the board, consistent with the purpose of being an elected at-large member. Whether the maximum levy should be equal to the Mayor’s proposed levy depends on the specific proposal and the circumstances of the city at the time of the proposal.
Q. Who is harmed the most from high taxes?
A. For purposes of responding to this question I construe “high taxes” to mean relative to the tax burden experienced by other classes of people, in relation to one’s capacity to pay. Those who are poor—after considering both annual income and wealth in the form of other assets—have the least capacity to afford taxes. Consideration for the effects of taxes on the poor are why governments should generally favor progressive tax policies and revenue mechanisms, and avoid regressive policies and mechanisms.