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Progressive Politics in Minnesota, the Nation, and the World

Good Riddance to Limit Value

Posted: 05/16/05 19:20

by Paul Bartlett, Eagan
Accredited Minnesota Assessor (retired)

As municipalities throughout Minnesota held their 2005 budget hearings, there was a palpable public lament over the scheduled phase-out of limit value assessments. Good riddance to a terrible assessment law! It's just unfortunate that the financial damage done by limit value cannot be retroactively corrected.

Limit value has held a specious attraction. Afterall, one could reasonably ask "what's wrong with limiting the taxable value of my home?" Plenty! Read on.

Minnesota has a hopelessly complicated assessment and property tax system. The system mixes ad valorem tax policy with social policy and includes a number of tax concepts (homestead, limit value, tax capacity, "this old house", and more). It is a complete mystery to most property owners. As limit value fades into the sunset, one of the least understood provisions of Minnesota assessment law will thankfully end.

In a nutshell, Minnesota Assessors establish two homestead values: the assessed value (market estimate) and the limit value (taxable value). The assessed value is set annually; it should reflect current market value; and, it can be raised or lowered by any amount. The limit value is capped annually; it is not market derived; it is legislatively determined. The annual property tax is not based on the assessed value, but on the usually lower limit value. Limit value has been an unearned windfall for many and a financial drain for the less fortunate who have subsidized that windfall.

Let's debunk the principal myth. Limit value does not limit the total tax or levy within a municipality. It redistributes the tax. Home owners in stagnant value neighborhoods have subsidized rising value neighborhhods.

The key property tax variables are the levy (total dollars) and the tax base (total assessments). If the levy rises faster than the tax base, taxes will rise. And, visa versa. The levy increases that we are seeing now are largely due to decreased local government aids. Tim Pawlenty and the GOP controlled House are primarily responsible for those higher levies.

Limit value has skewed individual tax bills, but has had no affect on the total levy. The limit value cap is set by the legislature and has usually fallen in a range of eight to twelve percent. Thus, the taxable value of a homestead could not increase in one year by more than the cap. If the municipality contains only one assessment area, limit value is irrelevant. If the true market value exceeds the capped value, the tax rate simply increases due to the suppression of the tax base. If there were no cap, the rate would decline.

Limit value can create tax inequity between neighborhoods, resulting in a reverse Robin Hood effect. For example, I worked as an appraiser in the Edina Assessment department several years ago. Market trends vary widely between Edina neighborhoods; that data determining the subsequent year assessments. Neighborhoods that fell below the limit value cap subsidized neighborhoods that benefited from the cap. The reason is simple: while the total levy was never affected, the tax rate was forced higher due to the suppression of the tax base. Stagnant value neighborhoods were the losers; rapidly increasing value neighborhoods were definitely the winners.

The practical result of limit value has been the creation of different taxable levels for the same property class in the same municipality. For example, assume three neighborhoods, each displaying different market characteristics and an average annual eight percent cap:

Neighborhood Annual True Inflationary Increase Capped Increase Taxable (Limit) Level
A +5% (1.05/1.05) x (1.05/1.05) x (1.05/1.05) = 100%
B +15% (1.08/1.15) x (1.08/1.15) x (1.08/1.15) = 83%
C +25% (1.08/1.25) x (1.08/1.25) x (1.08/1.25) = 63%

As the above data demonstrates, the taxable level declines as the spread between inflationary increase and the limit cap widens. This example is based on the statutory target level of 100% and illustrates three years of accrued limit value discounting.

So what does this mean in English? Well, assume an accurately assessed $250,000 homestead in each neighborhood with a 1.25% tax rate:
A $250,000 x 100% x .0125 = $3,125.00
B $250,000 x 83% x .0125 = $2,593.75
C $250,000 x 63% x .0125 = $1,968.75
Due to limit value discounting, the tax disparity between the neighborhoods has grown greater each year, with neighborhood A heavily subsidizing neighborhood C.

Without limit value, the tax on each property would be the same, $2,562.50. Neighborhood B would see very little change; Neighborhood A would see a significant tax decline; For the owners in neighborhood C, well, their gravy train has jumped its tracks.

Due to limit value discounting, it is ironically true that a lower value home in one neighborhood can carry a higher tax than a higher value home in a different neighborhood. Using the above example, the tax on a $100,000 assessment in neighborhood A would be $1,250.00 ($100,000 x 100% x .0125). But, the tax on a $125,000 assessment in neighborhood C would be only $984.38 ($125,000 x 63% x .0125). The neighborhood A home would have a $100,000 ($100,000 x 100%) assessed and taxable limit value, while the neighborhood C home would have a taxable limit value of only $78,750 ($125,000 x 63%). In this tax obsessed nation, how did this little quirk occur?

(Annual assessments in Minnesota are usually determined by applying overall adjustment factors on a district or neighborhood basis. That process is referred to as trending or factoring. The above examples follow that method, and employ the simpler of the two limit value calculation methods.)

Article X of the Minnesota Constitution requires that taxes be uniform upon the same class of property. While tax rates have been uniform, limit value has created assessment and tax inequity, resulting in a defacto clash with the intent of the uniformity requirement.

So, let's debunk that other myth, that the average Joe has benefited from limit value. Nonsense. Owners who have realized the greatest inflationary gain in home value have received a direct tax subsidy from the less fortunate. Robin Hood took from the rich and gave to the poor. Well, the 'Grinch Who Stole Christmas' would be a better poster-boy for limit value.

Succinctly, home owners who have experienced the greatest unrealized capital gain have received the greatest tax subsidy. Does this seem fair?

Owners of newer houses have fared even worse under limit value. Because new houses are generally assessed at a higher percent of market value than the existing stock, and because owners of new houses have received no benefit from accrued limit value discounting, these owners can expect to pay fifty percent (or more) more tax than the owners of comparable value "older" homes.

This is not a Republican vs Democrat or conservative vs liberal issue. I am a liberal DFL'er, and my position is that comparable value homes should carry comparable tax obligations. Limit value is an obstacle to tax fairness. I realize that many of my fellow DFL'ers support limit value.

In the past, limit value has raised its ugly head on the eve of its extinction, and been extended. If either party, GOP or DFL, move to again prolong its life, call your legislators with one unequivocal message: "I'm as mad as hell and I'm not going to take this anymore".

Good riddance to limit value! With its repeal, our property taxes will be fairer. And, the goal of the ad valorem system, connecting the tax to value will be restored. As the value lost to the cap is added back to the assessment base, tax rates should drop noticeably. For everyone who has benefited by limit value, someone else has paid more than their fair share. It is a zero sum game.

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Limit Market Value

Posted: 05/14/05 09:20

By Paul Bartlett

During a recent interview on MPR (05-11-05), Pawlenty stated that he would support a continuation of Limit Market Value (LMV), contradicting his prior position that LMV should be phased-out as scheduled.

LMV is an arcane property tax law that shifts the tax burden from
individuals who have realized the greatest actual or potential capital gain to individuals who have not been so fortunate. It is a scam. It is a disgrace. And, it has created what is possibly the most inequitable property tax system in the country. LMV is Minnesota's version of reverse Robin Hood, where we "take from the poor and give to the rich."

If you own a house that has not kept pace with the inflationary trend, or even worse, if you own a new house, your property tax is likely about 50% higher than it would be without LMV. Your excess tax pays the subsidy to the LMV recipients. LMV violates the intent of Article 10 of the Minnesota Constitution (requiring uniform tax rates) by tinkering with the underlying assessments. The result: Uniform rates but not uniform taxes.

LMV is scheduled to sunset at the end of 2007. There are multiple bills in the legislature to extend LMV beyond that date, and with Pawlenty's flip flop support, extension is nearly fait accompli. If you are concerned with that old fashion notion of tax fairness, call or write Pawlenty and your state House and Senate members and demand an end to LMV.

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Speaking as a Pharmacist

Category: Minnesota Politics
Posted: 05/13/05 12:09

by Dave Mindeman

I happen to be a pharmacist and I hope that people don't get the impression that there are a lot of pharmacists in Minnesota who refuse to fill birth control pills as a matter of "conscience". That is not the case. As in every profession, there will be people who think that their own moral compass must be the guide for everyone. The vast majority of pharmacists do their jobs and complete the orders that your doctor has instructed for you via the prescription in a timely and routine manner.

These cases of pharmacists refusing to fill birth control prescriptions are not standard practice. Unless the pharmacist had an extensive conversation with the patient about their medical history, I would be surprised if the pharmacist in question really knew what the oral contraceptives were for. Birth control pills can be used for other purposes. Irregular or painful menstruation is a common non-contraceptive use. Oral contraceptives are made up of female hormone combinations.. they are not some unusual chemical compound.

But to simply refuse a prescription for a personal moral reason is crossing a line that no profession should allow. I realize the pharmacists in question would say they are acting for "life", at least by their own definition, -- but anyone in any medical profession knows this issue is not black and white, live or die.

The biggest thing I object to here is the copout coming from the employers of the pharmacists. I guess they think they are not offending anyone by saying they are leaving it up to "individual conscience".

Well, I have a problem with that. If my individual conscience can enter in these kind of business decisions, then I will exercise my right of conscience and refuse to collect those $3 co-pays on prescriptions for the indigent. I will exercise my right of conscience when the State of Minnesota refuses to pay for a more expensive heart medication because it doesn't fit into their "cheap" formulary, by giving these patients their legislators phone number. I will exercise my right of conscience when a person of modest means comes to my pharmacy to purchase an expensive drug that I know can be purchased in Canada for half the amount, by helping them to the website. My employer would say I do not have the right to exercise that type of "conscience", and if I did those things I would in all likelihood be fired.

Oral contraception has been a part of our lexicon for several decades now. As the militant anti-abortion community stretches their influence under a permissive right leaning government, we will see the boundaries of allowable behavior stretched to the limit. If this type of argument, used against contraception, is to be consistent, then why aren't they boycotting the fertility clinics? In vitro fertilization accounts for large numbers of discarded fertilized eggs. Yet they turn their heads because to deny infertile couples an opportunity at having children would certainly have a negative effect on public opinion -- oral contraception is easier to complicate because education on the issue can be interpretive.

It is a sad commentary on our times that when a woman walks into a pharmacy to get a prescription filled, she has to risk subjecting herself to an embarrassing and awkward "moral" lecture. If a pharmacist does that to you, don't get mad, get even. Take your complaint to corporate headquarters. Take your business elsewhere and tell your friends to take their business elsewhere. Complain to your insurance carrier and demand an explanation of why a pharmacy contracted with them would be allowed to refuse a legitimate prescription. Complain to your doctor and make sure he documents your complaint. And finally, complain to the State Board of Pharmacy. They are reluctant to get involved at the moment because pharmacists do have some discretion about filling prescriptions because of narcotic situations. However, oral contraceptives do not meet those criteria and if enough complaints come in, they can and will issue a board directive which could allow for disciplinary action.

Please do not judge my profession on the few "wing nuts" that exist in it. Pharmacy has always had an exemplary reputation in the public eye. It is too bad the actions of a few have to blacken it.
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