Inflation, building projects weigh on local governments as 2023 property tax levies prepared

A larger school levy went into effect this year, bumping up Chaska homeowner Matthew Rydberg's property tax bill, so when he learned that the mayor wants to raise the city's levy by 20%, Rydberg paused.

It's a big bump amid the inflation, uncertain economic outlook and rising home values already squeezing taxpayers, but Mayor Mark Windschitl has campaigned for re-election this year on plans to invest in a new police station, public works building and library, among other things.

Rydberg, who said he votes for his interests and not according to a political party, said he wants to do his own homework before he decides whether to support the levy increase. In the end, the tax plan will likely guide his vote for the city's next mayor.

"I've got Nov. 8 circled and I will be voting," said Rydberg.

It's still a month or more until homeowners see their truth in taxation statements and next year's property tax bill, but an early look at proposed property tax levies across the metro shows that most cities and counties are raising levy amounts.

Some of the increases are for debt service, some for new buildings, and some to cover the rising cost of everything from police cruisers to the coffee filters for the City Hall coffee pot.

The economic trends are not all against homeowners: Inflation has driven up costs, but as the IRS recently reported, it will also see tax brackets and withholding amounts change in taxpayers' favor. Soaring home values might trigger panic, but if everyone's home value goes up, then none of the homeowners will see a larger slice of the tax pie, meaning their eye-watering assessment alone will do nothing to change their tax bill.

The short version in Chaska is this: the proposed levy goes up 20.26%, meanwhile the median-home value rises 24% and the tax rate falls 1.7%, thus a resident's city property tax hit would go up 20%, or $16 a month for a median-valued home.

"We have been publicly flat out saying, 'Hey folks, we have a big project going here and we have to raise your taxes,'" said Windschitl.

Similar stories are playing out across the metro, where an early look at proposed 2023 levies shows double-digit increases in some cities, while metro-area counties plan a range of things from no increase in Anoka to just over 7% in Scott.

St. Paul and Minneapolis have proposed 15.34% and 6.7% increases, respectively.

It's all still preliminary — final levy amounts are still weeks away — and any school bond referendum won't be decided until Election Day.

In the Ramsey County suburb of Gem Lake, population 528, Mayor Gretchen Artig-Swomley said inflation has ruined her tiny city's budget and is the main reason behind a proposed 34% levy increase, from $558,210 this year to $748,879 next year.

"It's not that we're doing any lavish spending here. We're just plowing the streets and keeping the lights on," she said.

The city contracts for its police and fire services from White Bear Lake, and both services will cost more next year. The lone employee will get a cost-of-living increase and a software package will be updated. Beyond that, it's just the price hikes driving things, she said.

"Everything we do costs more. The office supplies cost more. The little K cups that we supply our coffee machine with costs more. ... We are watching every penny," she said.

In White Bear Lake, a proposed levy increase of 23.3% will help the city pay for two more firefighters, said city Council Member Bill Walsh.

"Our call volume is up," he said.

Employee costs are another big factor as city salaries get into line with what a recent study said they should be. And a new public works facility will break ground in the spring.

So far, city residents seem to be supportive of the moves, said Walsh.

"White Bear Lake has one of the lowest tax rates in the metro area for cities of our size," said Walsh. "We will continue to have that even after these increases."

Like all homeowners in Minnesota this year, those in White Bear Lake saw their property assessments climb. The median home value went up by some 17.6%, said City Manager Lindy Crawford.

It's often the case that people assume that a big assessment bump means higher taxes next year, but that's not how it works, said Andrea Fish, assistant director of the property tax division at the state Department of Revenue.

"If one person's property value went up 30%, it's likely that a whole lot of their neighbors' did, too," she said. If those things alone were considered, then the tax rate would drop and the homeowners would pay similar taxes.

Taxpayers in New Brighton will see a small drop in city property tax rates, just like those in White Bear Lake, because home values have climbed. The city's proposed 2023 levy of $12.6 million is a 9.9% increase over this year.

Nearly half of that increase is for maintaining core assets and infrastructure, said Devin Massopust, New Brighton's city manager. The remainder is for the rising cost of professional services, cost-of-living adjustments for city employees and paying for a half position of a new police officer.

The good news for homeowners is that property taxes don't seem to be taking more of their income than they were 15 years ago, according to the Voss Report, a state Department of Revenue report that documents the residential property tax burden.

"Perhaps surprisingly, the median burden in most areas of the state is still lower than when the first Voss Report was published for 2007 taxes year payable," read a report released this month from the Minnesota Center for Fiscal Excellence.

The center also found that Minneapolis' 1.235% effective tax rate on the median valued home is below average when compared to the largest cities in each state, for the 12th time in the past 15 years.

Still, analyst Bob DeBoer said he crunched the numbers and found that the percentage of Minnesotans paying more than 5% of their household income on property taxes is rising. That's a level of payment that the state Department of Revenue classifies as tax stress.

The MCFE analysis said commercial property values are another concern, given that many have fallen due to the pandemic. If that holds, homeowners could be on the hook for more of their city's tax revenue.

One of the reasons that residential property taxes aren't as bad as they could be in places like Chaska, for example, is due to strong commercial sector growth. But if offices stay empty and the valuation of office towers falls, cities and counties will have to turn to homeowners.

Property owners will receive notices in November showing the estimated amount they will owe in property taxes in 2023 based on the maximum levies governments approved earlier this fall.

Minnesota counties, cities, school districts and other taxing authorities are then required to hold truth-in-taxation meetings between Nov. 25 and Dec. 28, giving the public a chance to comment. Final property tax levies must be adopted by Dec. 28.

So far, proposals across the metro have elicited mixed responses.

At a public hearing, Minneapolis resident Lisa Boyd told city's Board of Estimate and Taxation that she is "generally in favor of property tax increases when they're needed."

But, the Howe neighborhood resident added, she will be doing a "careful review" of the city's budget proposal to see where "the mayor's priorities lie."

Karen Cox told the St. Paul City Council last month she thinks the capital city's budget proposal fails to reflect the belt-tightening residents are having to do.

"If you haven't noticed what the world is like, inflation is killing us," she said.

In Chaska, voters for and against the mayor's proposed levy increase say they'll take their argument to the ballot box. Homeowner Patricia Williamson said she's voting against the mayor, in part because of his proposed levy increase.

"I would rather see them use their existing resources," she said, adding now is not the right time to raise taxes.

Chaska homeowner Jonas Sjoberg, meanwhile, said he was initially opposed to the levy increase but after studying the plan has come to support it.

"So our taxes, yes they will increase, but if we want the services that they have in Chanhassen or Eden Prairie, this is the way we have to do it. Chaska is now turning from being a rural community to being a true suburban community."

Staff writers Katie Galioto and Liz Navratil contributed to this report.