Department of Revenue Analysis of H.F / S.F. 2869, Conference Committee Report

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1 PROPERTY TAX Omnibus Tax Bill May 28, 2008 Articles 1, 2, 3, 5, 6, 10, 15, 17 Property Taxes and Local Aids Only See Separate Analysis for State Taxes DOR Administrative Costs/Savings Yes X No Department of Revenue Analysis of H.F / S.F. 2869, Conference Committee Report Fund Impact F.Y F.Y F.Y F.Y Article 1: Homeowner Property Tax Refund (000 s) Homeowner Property Tax Refund $0 $0 ($21,200) ($24,700) Article 2: Aids to Local Governments Local Government Aid Local Government Aid Appropriation Increase $0 $0 ($42,000) ($42,000) Local Government Aid Inflation Adjustment $0 $0 $0 ($10,520) General Fund Total $0 $0 ($42,000) ($52,520) County Program Aid County Program Aid Appropriation Increase $0 $0 ($22,000) ($22,000) County Program Aid Inflation Adjustment $0 $0 $0 ($4,540) Transition Aid $0 $0 ($464) ($464) General Fund Total $0 $0 ($22,464) ($27,004) Utility Valuation Transition Aid Utility Transition Aid, 4% Threshold $0 $0 ($2,110) ($4,220) Property Tax Refund Interaction $0 $0 $52 $103 General Fund Total $0 $0 ($2,058) ($4,117) County Out-of-Home Placement Aid $0 ($500) $0 $0 Article 3: Levy Limits Levy Limits Property Tax Refund Interaction (includes interaction from LGA and CPA) $0 $0 $4,240 $7,050 Article 5: Local Development Anoka Library Levy $0 $0 $0 $0 HRA Maximum Levy $0 $0 Unknown Unknown Metropolitan Council Transit Bonding $0 $0 $0 $0 Minneapolis and Crystal Housing Replacement Districts $0 $0 $0 $0

2 Analysis of H.F / S.F. 2869, Conference Committee Report Page 2 Fund Impact F.Y F.Y F.Y F.Y (000 s) Hopkins TIF $0 $0 $0 $0 Minneapolis Homeless TIF District $0 $0 $0 $0 Fridley TIF $0 $0 $0 $0 New Brighton TIF $0 $0 $0 $0 Austin TIF $0 $0 $0 $0 Bloomington TIF $0 $0 $0 $0 Bloomington Mall of America TIF $0 $0 $0 $0 Duluth TIF $0 $0 $0 $0 Wells TIF $0 $0 $0 $0 Northwest Multicounty HRA Levy Authority $0 $0 ($12) ($12) Oakdale TIF $0 $0 $0 $0 Dakota County TIF $0 $0 $0 $0 St. Paul TIF $0 $0 $0 $0 Minneapolis TIF $0 $0 $0 $0 Article 6: Property Taxes Retired Employee Health Benefits Property Tax Refunds $0 $0 ($25) ($34) Fergus Falls Historical Zone $0 $0 $0 $0 Electric Generating Facility Exemption $0 $0 $0 $0 Leased Seasonal-Recreational Land $0 $0 $0 $0 Platted Value Phase-In Modification $0 $0 (Negligible) (Negligible) Agricultural Provisions (Green Acres) $0 $0 Unknown Unknown Aggregate Resources Preservation Program $0 $0 $0 Unknown Bovine Tuberculosis Management Zone Credit $0 $0 ($368) ($368) Relative Agricultural Homestead $0 $0 (Negligible) (Negligible)

3 Analysis of H.F / S.F. 2869, Conference Committee Report Page 3 Fund Impact F.Y F.Y F.Y F.Y (000 s) Ag Homestead Class Rate Change $0 $0 ($365) ($365) Seasonal Restaurants $0 $0 (Negligible) (Negligible) First Responder Levy Authority $0 $0 (Unknown) (Unknown) Subordinate Service District - Refund Surplus $0 $0 (Negligible) (Negligible) Special Charges Collected as Spec. Assessments $0 $0 $0 $0 Abatement Limit Change $0 $0 $0 $0 White Community Hospital District $0 $0 ($9) ($9) VLAWMO Storm Sewer Utility Fees $0 $0 $0 $0 Crime-free 4d Multihousing Pilot Project $0 $0 $0 $0 Institutions of Public Charity Clarification $0 $0 $0 $0 School Audit Levy Property Tax Refunds $0 $0 ($104) ($104) General Fund Total $0 $0 ($104) ($104) Comfort Lake/Forest Lake Watershed Dist. $0 $0 $0 $0 Article 10: Minerals Taconite Economic Development Fund $0 $0 $0 $0 Article 15: Department Property Taxes & Aids Disabled Veteran Homestead Spouses $0 $0 $0 $0 Article 17: Miscellaneous Minneapolis Park Dedication Fee $0 $0 $0 $0 Appropriations to Department of Revenue Industrial Special-Use Property & Other Assess. $0 ($100) ($100) ($100) Nonprofit Institutions Assessment Survey $0 ($15) $0 $0 Taxpayer Assistance $0 ($100) $0 $0 Voss Database $0 ($200) $0 $0 General Fund Total $0 ($415) ($100) ($100) General Fund Total $0 ($915) ($84,465) ($102,283) Various Effective Dates

4 Analysis of H.F / S.F. 2869, Conference Committee Report Page 4 EXPLANATION OF THE BILL Article 1: Homeowner Property Tax Refund Homeowner Property Tax Refund The proposal would make two modifications to the property tax refund available to homeowners. The proposal would reduce the maximum percent of income threshold for homeowners from 4% to 3.5% and increase the maximum property tax refund available to homeowners by 27.5%. Article 2: Aids to Local Governments Local Government Aid For aids payable in 2009 and thereafter, the bill makes a number of modifications to the city local government aid formula and also increases the appropriation by $42 million. A city jobs base would be created for cities with a population greater than or equal to 5,000. The bill also provides that 2009 city aid amounts would be based on formula factors used to calculate 2008 aid distributions. The minimum revenue need for a city with population greater than or equal to 2,500, before inflation adjustment, would be 285. Other modifications include increasing the small city aid base from $6 per capita to $8.50 per capita and including it in the formula aid calculation, changing the maximum aid cap for cities in 2009 by adjusting the percentage of net levy increase to 35%, and setting the minimum aid cap for cities in 2009 equal to the city s certified 2008 aid amount. For aids payable in 2010, the appropriation would be increased 2% over the payable 2009 appropriation. For aids payable in 2011 and thereafter, the appropriation would be increased 4% over the payable 2009 appropriation. County Program Aid The bill would increase the appropriation for county program aid by $22 million and make permanent the 2007 transition aid paid to counties. For aids payable in 2010, the appropriation would be increased 2% over the payable 2009 appropriation. For aids payable in 2011 and thereafter, the appropriation would be increased 4% over the payable 2009 appropriation. Utility Valuation Transition Aid The bill creates a new Public Utility Transition Aid, based on the difference between utility valuation under the old rules of valuation, and the new rules under Minnesota Rules, part The credit equals half the difference in pay 2009, and 100% of the difference in following years. The difference in utility value must exceed four percent of the jurisdiction s modified net tax capacity to qualify. Study of Aids to Local Governments The chairs of the House and Senate Tax committees would appoint five members each to a study group for the purpose of reviewing aspects of local government aid, such as distribution of local government aid, need and capacity factors, analytical methods, volatility, and aid to small cities. The group must report its recommendations to the Legislature by December 15, 2010.

5 Analysis of H.F / S.F. 2869, Conference Committee Report Page 5 EXPLANATION OF THE BILL (continued) County Out-of-Home Placement Aid The bill creates an out-of-home placement aid for counties. In payable year 2009 only, a county would receive $500,000 to be used to meet the county s cost of out-of-home placement programs if the percentage of households receiving food stamps divided by age-adjusted population is greater than 5%. The eligibility percentage is determined using data for certified 2008 county program aid. Article 3: Levy Limits The proposal would cap property tax levy growth for cities with a population greater than or equal to 2,500 and counties. The levy limit base would be equal to the previous year s levy plus aid multiplied by: one plus the lesser of 3.9% or the annual rate of implicit price deflator growth; one plus half the rate of annual household growth; and one plus half the rate of new commercial-industrial property value growth. The previous year levy aid base subject to the levy limit is equal to the net tax capacity levy minus special levies, plus local government aid, county program aid, taconite aid, wind energy production tax, and utility valuation transition aid. Article 5: Local Development Anoka Library Levy Under current law, the Anoka County Board may levy the lesser of.01% of the county s taxable market value, or $1,250,000, for library obligations. The proposal removes the $1,250,000 limit. HRA Maximum Levy The bill raises the maximum rate for housing and redevelopment special taxing districts from.0144 percent of taxable market value to.0185 percent. Minneapolis and Crystal Housing Replacement Districts The bill changes housing replacement tax increment financing (TIF) provisions. For the city of Minneapolis, revenues derived from its housing replacement district may be used for activities on qualifying parcels not listed in the TIF plan. For the city of Crystal, increment revenues from housing replacement districts one and two may be spent on qualifying activities located anywhere within the city. Local approval is required. Hopkins TIF The bill allows the city of Hopkins to spend increments outside the area of redevelopment increment financing (TIF) district Minneapolis Homeless TIF District The bill increases the size of Minneapolis homeless assistance tax increment financing (TIF) district from six acres to eight acres. Fridley TIF The bill allows the city of Fridley or its housing and redevelopment authority to establish one or more redevelopment tax increment financing (TIF) districts to be known as the Northstar Transit

6 Analysis of H.F / S.F. 2869, Conference Committee Report Page 6 EXPLANATION OF THE BILL (continued) Station Project Area. The parcels are defined. Special exemptions allow an expanded list of purposes for which increments may be expended. Increments from TIF districts 11, 12, and 13 may also be expended within the Northstar Transit Station Project Area. The five year rule and decertification revenue use restrictions do not apply for the listed TIF districts. Additional TIF districts may be added until December 31, Local approval is required. New Brighton TIF The proposal allows the city of New Brighton to expend increments derived from the city s increment financing (TIF) districts 9, 20, and 26 outside the boundaries of the districts, but within the area described in statute and referred to as the Northwest Quadrant. Redevelopment TIF districts 31 and 32, and hazardous substance subdistricts 31A and 32A are extended by four years. Local approval is required. Austin TIF The proposal allows the city of Austin to spend increments from Tax Increment Financing (TIF) District No. 9 to reimburse the city s housing and redevelopment authority for money spent disposing of soils and debris in the district. Local approval is required. Bloomington TIF The proposal allows the city of Bloomington to extend the period for commencement of activity in the city s increment financing (TIF) district 1-I Bloomington Central Station from five years to ten. Local approval is required. Bloomington Mall of America TIF The bill makes several changes to tax increment financing (TIF) statutes. The bill adds specified parcels to the city of Bloomington s TIF district No. 1-G. All increments from 1-G must be used for specified debt and infrastructure costs. Living wage, affordable access, labor, and affirmative action restrictions are added. Local approval is required. The city of Bloomington is allowed additional taxes, which include sales, lodging, admissions and recreation, and food and beverages, in order to pay debt service on bonds for construction of a parking ramp. Duluth TIF The proposal allows the city of Duluth to extend the time limit from five to ten years for activities to be undertaken in Duluth Economic Development Authority increment financing (TIF) districts 20 and 21. Local approval is required. Wells TIF The proposal allows the city of Wells Downtown Development Program 1 tax increment financing (TIF) to exclude from the definition of increments rents paid by private tenants, and proceeds from the sale of a building. Local approval is required. Northwest Multicounty HRA Levy Authority Current Law: The Northwest Minnesota Multicounty Housing and Redevelopment Authority is a special taxing district operating in Kittson, Polk, Marshall, Pennington, Red Lake, and Roseau counties. Its authority to levy is subject to approval by the governing bodies of the above counties and their cities. Levy amounts are limited to % of the taxable market value of property within the district.

7 Analysis of H.F / S.F. 2869, Conference Committee Report Page 7 EXPLANATION OF THE BILL (continued) Proposed Law: The proposal authorizes the Minnesota Multicounty Housing and Redevelopment Authority to levy 25% of the total permitted amount (0.0036% of taxable market value) without the approval of counties and cities. Oakdale TIF The bill allows the city of Oakdale s housing and redevelopment authority to establish a redevelopment tax increment financing (TIF) district that has an original tax capacity equal to the tax capacity of the land. The parcels are defined. Local approval is required. Dakota County TIF The proposal allows Dakota County to add parcels without meeting the requirements of approval of the original TIF plan. Local approval is required. St. Paul TIF The city of St. Paul s Housing and Redevelopment Authority may create a TIF district comprised of properties in the existing downtown and Seventh Place TIF district. The district terminates December 31, The original net tax capacity is set at $1,801,052. Increment may only be spent on debt service for the convention center. The captured tax capacity must be included in ANTC computations for aid determination. Local approval is required. Minneapolis TIF The city of Minneapolis may create a TIF district comprised of properties in the existing pre-1979 TIF districts. The district terminates December 31, The original net tax capacity is set at $2,731,824. Increment may only be spent on debt service for Target Center. The captured tax capacity must be included in ANTC computations for aid determination. Local approval is required. Article 6: Property Taxes Retired Employee Health Benefits The bill allows schools to levy for retired employees health benefits, if there is a sunset clause in effect in the current collective bargaining agreement. The levy is limited to $600,000 per district. Fergus Falls Historical Zone The bill extends the current exemption of the former regional treatment center located in Fergus Falls. The property would remain exempt for 15 years, with a value phase-in beginning in the 13th year. Electric Generating Facility Exemption Current Law: With some exceptions, attached machinery and other personal property which is part of an electric generating system are subject to property tax. Proposed Law: Attached machinery and other personal property which are part of a simple-cycle combustion-turbine electric generating facility that exceeds 150 megawatts of installed capacity and that meets the following requirements are exempt from the property tax. At the time of construction, the facility must: (i) utilize natural gas as a primary fuel; (ii) be owned by an electric generation and transmission cooperative;

8 Analysis of H.F / S.F. 2869, Conference Committee Report Page 8 EXPLANATION OF THE BILL (continued) (iii) be located within one mile of an existing 16-inch natural gas pipeline and high-voltage electric transmission lines; (iv) be designed to provide peaking, emergency backup, or contingency services; (v) have received a certificate of need demonstrating demand for its capacity; and (vi) have received approval by the county and city where the facility is to be located. Construction of the facility must begin after January 1, 2008, and before January 1, Property eligible for the exemption does not include electric transmission lines or gas pipelines. Platted Value Phase-In Modification The bill modifies the phase-in of platted value increases for the seven county metro area. Under current law, the market value increase due to vacant platting property is phased-in over three years. The bill changes the phase-in period to seven years. The provision requires that qualifying property to have been classed as homestead before being platted, to have been owned by the same person for ten years prior to platting, and remains under the same ownership in the current assessment year. Agricultural Provisions The bill makes several changes to agricultural property valuation laws. Farm ownership restrictions are removed from MS , agricultural property tax preferential provisions commonly referred to as green acres. Only land used for agricultural production as defined below, continues to qualify for green acres treatment. Property formerly qualifying for green acres is grandfathered in until sold. The commissioner of revenue is required to develop a uniform valuation method for green acres. The payback penalty for land no longer qualifying is increased from three to seven years. The bill also attempts to clarify the relationship between farm homes, buildings, productive land, and wasteland. Class 2a includes agricultural production land. Class 2b becomes unplatted property not used for agricultural purposes, and timberland. Class 2c is timberland under a forest management plan between 20 and 1920 acres in size. Agricultural purposes include grain storage and drying, machinery storage, and short rotation woody crops. The less than ten acre restriction is removed. Class 2d becomes private airports. Class 2e is commercial aggregate deposit. Any of the subclasses may contain homestead property. These definitions also replace the agricultural use provisions in the green acres section. Aggregate Resources Preservation Program The proposal would establish the Aggregate Resource Preservation Property Tax Law. Property would be entitled to the valuation provided under this law if the following requirements are met: (1) the property is classified as residential homestead, farm homestead, or agricultural land; (2) the property is at least 10 contiguous acres; (3) the owner has filed a completed application with the county assessor; (4) there are no delinquent taxes on the property; and (5) a covenant on the land restricts the use for the property s surface to that which exists on the date of application and limits future use to the preparation and removal of the aggregate commercial deposit under its surface. The covenant is binding on the owner or owner s successor and runs with the land unless canceled.

9 Analysis of H.F / S.F. 2869, Conference Committee Report Page 9 EXPLANATION OF THE BILL (continued) Upon application, qualifying land would be valued as if it were agricultural property, using a peracre valuation equal to the per-acre valuation of agricultural land in the county. The assessor shall not consider any additional value resulting from the potential alternative and future uses of the property. The buildings located on the land shall be valued by the assessor in the normal manner. Additional taxes are imposed when the land no longer qualifies for the agricultural valuation. The additional taxes are determined by computing the difference between (i) the current year s taxes determined with the agricultural valuation, and (ii) an amount based upon the property s current year s estimated market value of like real estate at its highest and best use and the appropriate local tax rate. This difference is multiplied by the number of years the land was in the program to determine the additional tax. The additional tax is a lien upon the property. When any portion of the property begins to be actively mined, the owner must file a supplemental affidavit within 60 days from the day any aggregate is removed. The acres actively being mined shall be valued and classified as commercial industrial property in the next assessment year and removed from the aggregate resource preservation property tax program. The additional tax is not imposed on that portion of property which is actively mined and has been removed from the program through this procedure. The restrictive covenant may be canceled in two ways: (1) by the owner with the additional taxes paid at the time of cancellation. (2) by the city or town if it changes the conditional use of the property, revokes the mining permit, or changes the zoning to disallow mining. No additional taxes are imposed. A county may terminate application of this program within two years of the effective date. A termination would apply prospectively and would not affect property enrolled in the program prior to the termination date. The definition of class 2b property is modified to include land with commercial aggregate deposit that is not actively being mined and is not otherwise classified as agricultural property. The bill also modifies the aggregate materials production tax distribution percentages and maximum allowable tax rates as follows: Tax Rate Maximum Current Law Proposed Law Per Cubic Yard Per Ton 7 15 Distribution Current Proposed Law Law County road and bridge fund 60% 42.5% City or town for roads and bridges 30% 42.5% Restoration of abandoned pits 10% 15% The bill also changes the definition of an importer of aggregate, allows the county auditor to retain an annual distribution fee of up to 5%, and restricts local jurisdictions receiving revenue from the aggregate material production tax from imposing any additional fees on aggregate production.

10 Analysis of H.F / S.F. 2869, Conference Committee Report Page 10 EXPLANATION OF THE BILL (continued) Bovine Tuberculosis Management Zone Credit The bill creates a property tax credit for farmers whose cattle herds have been sold to control bovine tuberculosis. The farm parcel must be within the Board of Animal Health s proposed Bovine Tuberculosis Modified Accredited Zone. The credit equals the tax on agricultural land for each year where cattle were located in calendar year The owner must apply to the county by December 1 of the levy year. Counties would be reimbursed for the credit by the state, and allocated proportionately to the affected jurisdictions. The credit ceases in the assessment year when the Board of Animal Health certifies that the state is free of bovine tuberculosis. Relative Agricultural Homestead Under current law, sons, daughters, and grandchildren of the owner or owner s spouse are eligible to receive agricultural homestead classification if they are actively farming the property on the owner s behalf. Parents of the owner are also eligible. The proposal would add brothers and sisters of the owner or owner s spouse to the family relationships eligible for agricultural homestead treatment. Agricultural Homestead Class Change The bill changes an agricultural homestead provision. The class rate for farmland in the first tier (indexed annually under current law, $790,000 for taxes payable in 2008) is reduced from 0.55% to 0.5%. Seasonal Restaurants The bill creates a new class for seasonal restaurants that meet the listed criteria. Proposed Property Taxes Date of Joint Public Hearing Under current law, Ramsey County, the city of St. Paul, and Independent School District No. 625 must hold their initial joint public hearing for proposed property taxes on the second Tuesday of December each year. The bill would modify the date of the public hearing by allowing the hearing to take place during the week of the second Tuesday of December each year. Tax Forfeit Land Proceeds Apportionment The bill strikes the word municipal and substitutes governmental when describing the apportionment of tax forfeit lands sales to local jurisdictions. First Responder Levy Authority The bill authorizes a county to levy taxes on property located within the area of unorganized territory to which a Responder or Fire Protection Association provides first responder services. The proceeds of the levy are to be distributed to the association. Subordinate Service District Refund Surplus Current Law: The property owners in the territory of a subordinate service district may request the removal of the district by petition of at least 75% of the property owners. The town board must hold a public hearing on the petitioned matter, and decide whether to discontinue the subordinate service district within 30 days after the hearing. Proposed Law: The bill would allow the town board of a removed subordinate service district to refund any surplus tax revenue or service charges collected from the district. The refund must be

11 Analysis of H.F / S.F. 2869, Conference Committee Report Page 11 EXPLANATION OF THE BILL (continued) distributed equally to the owners of any property within the discontinued district that were charged the extra tax or service fee in the previous tax year. Any surplus not refunded must be transferred to the town s general fund. Special Charges Collected as Special Assessments The bill expands the unpaid charges eligible to be collected as a special assessment to include delinquent vacant building registration fees under municipal programs designed to identify and register vacant buildings. Abatement Limit Change The bill changes the computation of total abatements from current levy to net tax capacity. White Community Hospital District The proposal authorizes the establishment of the White Community Hospital District in St. Louis County by resolution of the governing body of any two or more of the following: the cities of Aurora, Biwabik, Hoyt Lakes, and the towns of Biwabik, White, and Colvin. Once established any other city, town, or unorganized area in St. Louis County may join the district. The proposal would allow the hospital district a maximum levy of percent of the fully taxable market value of all taxable properties located within each participating city, town, or unorganized area. VLAWMO Storm Sewer Utility Fees The proposal would allow the Vadnais Lake Area Water Management Organization to certify to the county auditor any fees or charges imposed by the organization and the parcels on which the charges are imposed. The charges must be certified by December 31 to appear on statements for taxes payable in the following year. Unpaid charges are subject to the same penalties as ad valorum property taxes. Crime-free 4d Multihousing Pilot Project The bill requires class 4d low-income rental housing to participate in a crime-free multihousing program in cities and counties where the program is offered. Qualifying property must complete all phases of the program and be annually certified by city police or county sheriff. Property not in compliance one year after receiving a second notice would no longer qualify for class 4d. Property classified as class 4d for taxes payable in 2007 must meet the crime-free multihousing requirements by May 15, Institutions of Public Charity Clarification The bill requires the Department of Revenue to conduct an analysis of standards of assessment for institutions of purely public charity, and prohibits changes in assessment practices and policies of these properties. The report is due to the tax committee chairs by February 1, Effective following final enactment, until the earlier of either legislation establishing criteria for property taxation of institutions of purely public charity, or final adjournment of the 2009 regular legislative session.

12 Analysis of H.F / S.F. 2869, Conference Committee Report Page 12 EXPLANATION OF THE BILL (continued) School Audit Levy The bill modifies the school tax levy for judgment by allowing districts to replace federal funds that have been disallowed because of a federal audit by the Office of Inspector General of Local Collaborative Time Study. The repayment is to be made over three years. Comfort Lake/Forest Lake Watershed District The bill allows the Comfort Lake-Forest Lake Watershed District to add watershed management organization powers under M.S. 103B to its existing authorization. The watershed district covers 49 square miles of southern Chisago and northern Washington Counties and has a taxes payable 2008 certified levy of $307,500. Article 10: Minerals Taconite Economic Development Fund For production years 2008 through 2012, for distribution years 2009 through 2013 only, production tax proceeds are to be held in a new Iron Range Revitalization account. Funds from the account are to be spent on the public purposes listed by approval of the Iron Range Resources and Rehabilitation Board (IRRRB). Article 15: Department Property Taxes and Aids Disabled Veteran Homestead Valuation Exclusion The bill provides that a homestead must be owned by a disabled veteran or a disabled veteran and their spouse in order to qualify for the disabled veteran s valuation exclusion. The spouse of a disabled veteran may receive the valuation exclusion for one additional year after the disabled veteran dies, or until the property is sold or transferred, whichever occurs first. The property would not be eligible for the class 1b valuation exclusion. Article 17: Miscellaneous Minneapolis Park Dedication Fee Current Law: Current law gives joint authorization to the Minneapolis Park and Recreation Board and the Minneapolis City Council to require a reasonable portion of land be dedicated to the public or to impose a dedication fee on new housing units for public parks, playgrounds, recreational facilities, wetlands, or open space. Proposed Law: The proposal extends these standards for dedication of land to the public or a payment of a dedication fee to new commercial and industrial development. REVENUE ANALYSIS DETAIL Article 1: Homeowner Property Tax Refund Homeowner Property Tax Refund The estimates are based on property tax refund model projections.

13 Analysis of H.F / S.F. 2869, Conference Committee Report Page 13 REVENUE ANALYSIS DETAIL (continued) Reducing the income threshold to 3.5% would increase the amount of property tax eligible for refund. Approximately 14,000 current filers would have an increased amount of property tax eligible for refund. It is assumed that approximately 10,000 new claimants would become eligible and file for a refund due to the reduced percentage of income threshold. Under current law, approximately 49,000 homeowners receive the maximum refund available based on their income. Maximum refund caps would be increased between $100 and $500 beginning in FY The proposed changes would increase state-paid property tax refunds beginning in FY Tax year impact was allocated to the following fiscal year. Article 2: Aids to Local Governments Local Government Aid Increasing the appropriation for local government aid would increase state general fund costs beginning in FY The annual inflation adjustment would increase appropriations for local government aid in FY 2011 and thereafter. There is no state cost associated with all other formula modifications because total aid would be set to a fixed appropriation level each year. All other formula modifications would shift aid to certain cities impacted by the changes and away from other cities receiving local government aid. County Program Aid Increasing the appropriation for county program aid would increase state general fund costs beginning in FY The annual inflation adjustment would increase appropriations for county program aid in FY 2011 and thereafter. The following counties would receive transition aid in FY 2010 and thereafter: Aitkin, Chippewa, Cook, Kanabec, Kittson, Traverse, and Wilkin. Total transition aid would equal approximately $464,000 in FY 2010 and thereafter. Utility Valuation Transition Aid Simulated on taxes payable 2008 data. The new credit totals $2.11 million in payable 2009 and $4.22 million in payable Utility Valuation Replacement Aid Under the proposal, 14 cities and 29 towns would be eligible for utility valuation transition aid. It is assumed that the local government units receiving an increase in aid would reduce property tax levies, decreasing the property tax on all property including homesteads. The decreased property tax burden on homesteads will reduce state-paid homeowner property tax refunds by approximately $52,000 in FY 2010 and $103,000 in FY Tax year impacts are allocated to the following fiscal year. County Out-of-Home Placement Aid The only county eligible for out-of-home placement aid is Beltrami County.

14 Analysis of H.F / S.F. 2869, Conference Committee Report Page 14 REVENUE ANALYSIS DETAIL (continued) The proposed out-of-home placement aid would increase state costs to the general fund by $500,000 in FY 2010 only. Article 3: Levy Limits Based on the implicit price deflator for the 1 st quarter of 2007 to 1 st quarter of 2008, the assumed growth is 6.2%. Thus the 3.9% cap would be applied. The statewide average household growth rate is approximately 1.1%. The statewide average new commercial-industrial value growth rate is approximately 0.2%. Based on certified pay 2008 and projected pay 2009 property tax levies and aids, an estimated 72% of cities with population greater than or equal to 2,500 and 87% of counties would be subject to the proposed levy limits. Under the proposed levy limits, city levies would be reduced by 4.4%, or $74 million. County levies would be reduced by 2.1%, or $52 million. This assumes cities and counties below their levy cap would not levy the maximum allowable amount. The reduced levies would decrease property taxes on all property including homesteads. It is assumed that cities and counties receiving an aid increase would decrease property tax levies on all property including homesteads. The decreased property tax burden on homesteads caused by the levy decreases will reduced state-paid homeowner property tax refunds by about $4.24 million in FY 2010 and $7.05 million in FY Article 5: Local Development Anoka Library Levy The Anoka County library system expects to build a new resource library in the next two or three years. Debt levies would increase by $900,000 in levy year 2010, payable Net taxes on homestead property would increase, resulting in increased property tax refunds by $34,000 in FY Number of Taxpayers: Owners of property in Anoka County would be directly affected. HRA Maximum Levy The cap increase is a 74% increase over current law. According information on the 2007 Taxlist Abstract, special taxing district HRAs levy $32 million in tax. Not all HRAs levy at the current limit, and an unknown number would levy over the old limit. Net taxes would be affected by the levy change. A portion of those levies would be paid by homesteads. Property tax refunds would be proportionately affected by homestead net tax changes. Number of Taxpayers: Unknown. Minneapolis and Crystal Housing Replacement Districts The proposed exceptions to the general TIF provisions may have an impact on the local tax base and tax rate in the future and may result in a small increase in property tax refunds paid by the state.

15 Analysis of H.F / S.F. 2869, Conference Committee Report Page 15 REVENUE ANALYSIS DETAIL (continued) Hopkins TIF The proposed change to Hopkins TIF provisions may have an impact on the local tax base and tax rate in the future and may result in a small increase in property tax refunds paid by the state. Minneapolis Homeless TIF The proposed changes to Minneapolis TIF provisions may have an impact on the local tax base and tax rate in the future and may result in a small increase in property tax refunds paid by the state. Number of Taxpayers: None. Fridley TIF The proposed exceptions to the general TIF provisions may have an impact on the local tax base and tax rate in the future and may result in a small increase in property tax refunds paid by the state. New Brighton TIF The proposed changes to New Brighton s TIF provisions may have an impact on the local tax base and tax rate in the future and may result in a small increase in property tax refunds paid by the state. Austin TIF The proposed change to Austin s TIF provisions may have an impact on the local tax base and tax rate in the future and may result in a small increase in property tax refunds paid by the state. Bloomington TIF The proposed changes to Bloomington s TIF provisions may have an impact on the local tax base and tax rate in the future and may result in a small increase in property tax refunds paid by the state. Bloomington Mall of America TIF The proposed exceptions to the general TIF provisions may have an impact on the local tax base and tax rate in the future and may result in an increase in property tax refunds paid by the state. Duluth TIF The proposed changes to Duluth s TIF provisions may have an impact on the local tax base and tax rate in the future and may result in a small increase in property tax refunds paid by the state. Wells TIF The proposed exceptions to the general TIF provisions may have an impact on the local tax base and tax rate in the future and may result in a small increase in property tax refunds paid by the state. Northwest Multicounty HRA Levy Authority It is assumed that the maximum permitted amount, about $326,000, would be levied. This amount is assumed to be in addition to the levy amount already approved by county and city governing bodies.

16 Analysis of H.F / S.F. 2869, Conference Committee Report Page 16 REVENUE ANALYSIS DETAIL (continued) If the maximum amount were levied the result would be about a $12,000 increase in state-paid homeowner property tax refunds. Oakdale TIF The proposed exceptions to the general TIF provisions may have an impact on the local tax base and tax rate in the future and may result in a small increase in property tax refunds paid by the state. Dakota County TIF The proposed exceptions to the general TIF provisions may have an impact on the local tax base and tax rate in the future and may result in a small increase in property tax refunds paid by the state. St. Paul TIF The proposed exceptions to the general TIF provisions may have an impact on the local tax base and tax rate in the future and may result in a small increase in property tax refunds paid by the state. Minneapolis TIF The proposed exceptions to the general TIF provisions may have an impact on the local tax base and tax rate in the future and may result in a small increase in property tax refunds paid by the state. Article 6: Property Taxes Retired Employee Health Benefits The analysis assumes a levy increase of $600,000 in the first year. Therefore property taxes on homesteads would increase, resulting in a PTR increase of $25,000 in FY A PTR increase of $34,000 is carried for FY Fergus Falls Historical Zone The property is currently owned by the city of Fergus Falls and has JOBZ designation. The bill exempts the property by statute, even if sold to a developer. The local tax base would not increase for the duration of the exemption, which it would if sold to a developer under current law. The extended exemption would therefore raise the local tax rate for other properties, including homesteads. Property tax refunds would increase slightly due to shifting of taxes onto homesteads from the favored parcels. Electric Generating Facility Exemption It is assumed that the electric generating facility in the city of Elk River in Sherburne County would be the only facility affected by the proposal. The preliminary total cost of attached machinery and other equipment, excluding currently exempt pollution control equipment, that would be exempt from personal property tax is estimated to be about $85 million. Under the current contingent plan, it is assumed that the facility will be completed in 2009 and will affect property taxes starting with payable year 2011.

17 Analysis of H.F / S.F. 2869, Conference Committee Report Page 17 REVENUE ANALYSIS DETAIL (continued) Upon completion of the proposed facility, the property tax exemption will reduce the local tax base relative to the base under current law and cause a property tax shift to all other property including homesteads. The increased property tax burden on homesteads caused by the exemption will increase statepaid homeowner property tax refunds by about $80,000 beginning in FY Number of Taxpayers: The proposal would primarily affect one facility. Property owners in Sherburne County would also be affected. Platted Value Phase-In Modification According the 2007 fall mini abstract, there is $1.2 billion of metro platted value exclusion. The proposal was modeled on a taxes payable 2008 simulation. It is assumed that the change in exclusion amount applies to residential non-homestead. It is assumed that relatively few properties would qualify under the amended language, since in most cases property would be sold to a developer who is not the original owner. Net taxes would be affected by the levy change. Property tax refunds would be proportionately affected by homestead net tax changes, resulting in a small increase in property tax refunds. Number of Taxpayers: Unknown. Agricultural Provisions The number of acres changing classification under the provisions of the bill is not known. Some counties may enter the green acres program as a result of these changes. An unknown percentage of non-tillable acres is pasture and other agricultural use. The changes in land value as a result of this bill would inversely alter tax rates on all property in affected jurisdictions. Net taxes on homestead property would be change, resulting in changing property tax refunds by an unknown amount. Number of Taxpayers: Owners of qualifying class 2 property would be directly affected. Aggregate Resources Preservation Program Aggregate Resource Preservation Program It is not known how many acres of property with commercial aggregate deposit would enroll in the program. Qualifying land in the program would be valued as agricultural property, and is prevented from being classified as commercial industrial property before aggregate removal begins. This classification change would reduce the taxable property base, causing a tax shift to all other property including homesteads and increasing state-paid homeowner property tax refunds. Aggregate Materials Production Tax There would be no impact to the state general fund from the modifications to the aggregate materials production tax received by local government jurisdictions. Aggregate material production tax collections totaled approximately $4.2 million in CY The proposal more than doubles the maximum allowable tax rates that may be imposed. Number of Taxpayers: 34 counties currently imposing the aggregate materials production tax.

18 Analysis of H.F / S.F. 2869, Conference Committee Report Page 18 REVENUE ANALYSIS DETAIL (continued) Bovine Tuberculosis Management Zone Credit The proposed Bovine Tuberculosis Modified Accredited Zone (BTBMAZ) includes portions of Beltrami, Roseau, Lake of the Woods, and Marshall Counties. According the Minnesota Board of Animal Health, eleven herds have been found to have bovine tuberculosis since eligible cattle herds remain within the BTBMAZ. For this analysis, it is assumed that all 300 will participate in the credit. The average farm in the townships in the Bovine Tuberculosis Management Zone is assumed to have a market value of $250,000. The net tax on the land portion of each farm is assumed to be $1,227. Relative Agricultural Homestead It is assumed that few additional parcels would become eligible for agricultural homestead treatment. A tax shift created by additional agricultural homestead classifications would shift tax burdens to other properties including homeowners. The tax shift thus would increase homeowner property tax refunds by a negligible amount for taxes payable in 2009 and following years. Agricultural Homestead Class Rate Change The proposal was simulated on a payable 2008 property tax model. Property taxes on agricultural land would decrease 6.5% statewide under this proposal. The classification change would result in property taxes being shifted from farmland to homestead property. As a result, property tax refunds would increase by $365,000 annually. Number of Taxpayers: About 100,000 properties would be directly affected. Seasonal Restaurant Class For the purposes of this analysis, it is assumed that a few parcels will qualify under the provisions of this section. It assumed that qualifying restaurants were previously classed as commercial property. Property taxes would shift onto homesteads, resulting in a negligible increase in property tax refunds. Proposed Property Taxes Date of Joint Public Hearing The proposal would have no impact on any state funds. Tax Forfeit Land Proceeds Apportionment This change is considered to be a technical revision that reflects current practice. However, a strict interpretation of the correction may mean an alteration of the allocation between jurisdictions. Number of Taxpayers Affected: none. First Responder Levy Authority The size of the levy and number of parcels directly affected are unknown. The increase in the property tax could result in a small increase in state-paid homeowner property tax refunds

19 Analysis of H.F / S.F. 2869, Conference Committee Report Page 19 REVENUE ANALYSIS DETAIL (continued) Subordinate Service District Refund Surplus A town board choosing to refund some portion of property tax revenue would reduce the tax burden on all property owners including homesteads. This property tax reduction on homesteads would reduce property tax refunds, resulting in a savings to the state general fund. The general fund savings is assumed to be less than $5,000 beginning in FY Number of Taxpayers: Unknown. Special Charges Collected as Special Assessments The proposal would have no impact on the state general fund. Abatement Limit Change The proposal would have no impact on the state general fund. White Community Hospital District It is assumed that the hospital district would include only the cities of Aurora, Biwabik, Hoyt Lakes, and the towns of Biwabik, White, and Colvin. Given the hospital district composition above the maximum levy amount would be about $220,000. This increase in the property tax could result in a small increase in state-paid homeowner property tax refunds. VLAWMO Storm Sewer Utility Fees The county auditor may charge VLAWMO a fee in the amount necessary to recover administration costs. VLAWMO imposed fees and charges will not affect the levy amount and therefore will not impact the general fund through changed property tax refunds. Number of Taxpayers: VLAWMO covers approximately 25 square miles in the northeast metropolitan area. The watershed encompasses the City of North Oaks and portions of the Cities of White Bear Lake, Gem Lake, Vadnais Heights, Lino Lakes, and White Bear Township. Crime-free 4d Multihousing Pilot Project It is assumed that almost all class 4d property would be in compliance with the program by May 15, A few non-compliant properties may have an impact on the local tax base and tax rate in the future and may result in a small decrease in property tax refunds paid by the state. Institutions of Public Charity Clarification The continuation of current practices would have no immediate effect on the state general fund. Upon expiration of the moratorium, an unknown, and possibly significant, number of properties could shift classification to this class. The reduction in tax for these properties could result in a net tax shift to homestead properties and an increase in homeowner property tax refunds. School Audit Levy According the Department of Human Services, $8.4 million of federal funds may be required to be paid back, pending litigation and negotiations. The appropriation is expected to be $2.8 million.

20 Analysis of H.F / S.F. 2869, Conference Committee Report Page 20 REVENUE ANALYSIS DETAIL (continued) Net taxes would be affected by the levy change. A portion of those levies would be paid by homesteads. Property tax refunds would be proportionately affected by homestead net tax changes. Property tax refunds would increase $105,000 in taxes payable 2010 and Number of Taxpayers: Taxpayers in 32 counties. Comfort Lake/Forest Lake Watershed District The proposed addition to the watershed district s taxing authority may have an impact on the local tax base and tax rate in the future and may result in a small increase in property tax refunds paid by the state. Article 10: Minerals Taconite Economic Development Fund There is no general fund impact due to the redirection of production tax proceeds between IRRRB accounts. Article 15: Department Property Taxes and Aids Disabled Veteran Homestead Valuation Exclusion The bill would limit the disabled veteran s valuation exclusion for surviving spouses to one additional year. The first year any homestead property receiving the valuation exclusion would become ineligible for the benefit would be for property taxes payable in There would be a negligible cost to the state general fund in FY Article 17: Miscellaneous Minneapolis Park Dedication Fee There is no state cost associated with this proposed change. Appropriations to Department of Revenue The bill includes appropriations for fiscal year 2009 and thereafter of $100,000 for industrial special-use assessment assistance. The bill also includes one-time appropriations for fiscal year 2009 of $15,000 for non-profit institutions assessment survey, $100,000 for taxpayer assistance, and $200,000 for Voss database creation. Source: Minnesota Department of Revenue Property Tax Division Research Unit hf3149(sf2869)_pt_ccr/lm, mtw, nrg