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Paynesville Press - October 31, 2001

Proposed levy has uneven tax impact

By Michael Jacobson

While the school property tax levy will drop nearly in half in 2002, the reductions will be uneven, with homeowners, farmers, and business owners who pay more in taxes getting larger tax cuts. See chart on tax changes.

The school district is planning to levy $966,000 in 2002, $1,263,000 less than in 2001, a reduction of almost 57 percent. If voters approve the proposed $315 per pupil excess levy on Tuesday, Nov. 6, the total school levy would be $1,147,000 (including $181,000 for the excess levy), which would be $1,082,000 less than 2001, a drop of nearly 49 percent.

But not all voters will see their school taxes cut in half. "It certainly doesn't translate into a dollar-for-dollar decrease," explained Gary Olson, a financial advisor with Ehlers and Associates, the firm that consults the school district on financial matters.

"Not all pieces of property got treated equally," he added. "You're not going to have a uniform effect on all property."

Without the proposed excess levy, all property owners in the district would see a reduction in the school portion of their property tax in 2002, according to the latest estimates by Ehlers and Associates, using the best available information as of Thursday, Oct. 11. But a home valued at $50,000 would see their school taxes drop only 11 percent, while the school taxes on a $200,000 home would drop over 50 percent. A home valued at $500,000 would see its school taxes drop by 63 percent.

(The state did install a new tax credit that will help homeowners of low- and middle-valued houses. The credit - which applies to all property taxes, not just the school portion - peaks at $304 for a $76,000 home and declines until it reaches zero for a $413,000 home, said Olson.)

Including the proposed excess levy, the raw portion of the school property tax levy (not including the tax credit) would increase in 2002 for homes valued at less than $100,000. School taxes for homes valued at $300,000 and above will decrease by nearly 50 percent whether the excess levy is passed or not.

The change in residential property taxes is due to a rate change. Previously, homes were taxed at one percent of their first $76,000 in value, and 1.65 percent on value above $76,000. Now they will be taxed at one percent for the first $500,000 in value and 1.25 percent on value above that, said Olson. This rate change does not provide any benefit to homes valued at less than $76,000.

In previous years, two tax credits were specifically applied to school taxes for homeowners, but they have been replaced by a new tax credit that applies to all property taxes, said Olson.

"There's a redistribution of who is paying the tax," added Olson, who said his firm is seeing this trend in school districts across the state. "Obviously, the higher-valued homes paid more taxes (before), and they're getting bigger tax cuts."

Commercial and industrial property owners can anticipate around a 70 percent drop in their school taxes if the excess levy fails and around a 60 percent drop if it passes.

These reductions are thanks to commercial and industrial rate changes, said Olson. Before business taxes were based on 2.40 percent for the first $150,000 of value and 3.40 percent beyond that. Now they will be 1.5 percent for the first $150,000 and 2.0 percent beyond that.

Commercial property, along with seasonal property, will be subjected to a state-wide property tax in 2002 for the first time, according to Ehlers and Associates.

The tax rate for ag land actually increased in the lower bracket, said Olson. Before it was 0.35 percent for the first $115,000, then 0.8 percent for $115,000 to $600,000, and 1.2 percent above that. Now it's 0.55 percent for the first $600,000 and 1.0 percent above that. A new credit is also available for ag homesteads.

Ag land, though, will be impacted like residential homes by the excess levy, if it passes. Only the house, garage, and one acre of land is subject to the excess levy, at the same rate as residential homes. Ag land will not be subjected to taxes for the excess levy.

The late conclusion of the legislative session and the depth of the changes in the tax laws has led to delays in figuring property taxes for next year, said Olson. "It's only been recently that we've been able to get these calculations," he explained.

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