House property tax reform proposal sees changes on the floor

In an author’s amendment added to the House omnibus tax bill on Monday during the floor session (HF 3149), Rep. Lenczewski made some significant changes to the Homestead Credit State Refund in response to several concerns that have been raised about this proposal since its introduction.

As a reminder, this proposal would take the resources currently going to the Property Tax Refund for homeowners (the circuit breaker), the Market Value Credit and the income tax deduction for real property taxes, and put those dollars into the Homestead Credit State Refund, which is structured as a greatly expanded Circuit Breaker. Households whose property taxes exceed 2% of their incomes and with incomes below $200,000 would be eligible for the Homestead Credit State Refund.

The amendment contains two major changes to the Homestead Credit State Refund, compared to how the provision came out of committee:

  1. Instead of phasing out the Market Value Credit completely over five years, the amendment would leave 100% of the Market Value Credit in place for 2009, and reduce it by 40% in 2010 and leave it at that level in future years. This responds to a concern that, with current rates of participation in the Circuit Breaker, not all the resources allocated for the Homestead Credit State Refund would be distributed in the form of property tax reductions.
  2. The amendment also responds to a concern that the Homestead Credit State Refund would shield homeowners from property tax increases, and therefore would stimulate increases in local property taxes. The amendment includes levy limits on local governments that would go into effect in 2010 only if statewide city or county spending in 2009 would increase more than a measure of growth (similar to levy limits used in the past, and less restrictive than the levy limits the Governor has proposed.)

One other big change in the tax bill: another floor amendment exempts military pensions from the income tax – this provision would phase in over four years. This provision is paid for by eliminating the state’s Political Contribution Refund – a refund of $50 for individuals or $100 for married couples for donations to qualifying candidates and political parties. These are similar to provisions that were in the Governor’s budget proposal.

-Nan Madden

About Nan Madden

Nan Madden is director of the Minnesota Budget Project.
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