Here’s why property taxes in North Minneapolis are skyrocketing

North Minneapolis home sales have been hot and that’s one of the reasons property assessments have jumped. Photo by David Pierini

By Steve Brandt, Guest Contributor

(Steve Brandt spent 40 years as a reporter at the Star Tribune and is now an elected member of the Minneapolis Board of Estimate and Taxation)

It’s no news to Northsiders that their property assessments have gone through the roof.

In the two North Minneapolis wards, assessments on residential property have shot up by more than a third in just the last three years.

That’s meant a painful property tax increase for most homeowners in the Fourth and Fifth Wards. That was true in 2021, again this year, and it’s likely to happen again in 2023.

What’s behind these shocking tax increases?

Three factors converge here. The first factor here is how much the city wants to collect in taxes, which is a subset of what it wants to spend overall. Just like the cost of filling your gas tank has risen, the cost of goods and services the city buys rises with inflation. Think of all the petroleum products the city needs just to fuel its fire trucks and police cruisers. Then there are wage increases for city employees, who seek cost-of- living increases like the rest of us to keep up with inflation in their own households. Keeping taxes under control hasn’t been helped by the massive payouts the city has shelled out for police misconduct. Meanwhile, the pandemic and unrest have cut into the city’s collection of sales and special taxes on things like lodging and restaurants that subsidize its general fund.

The second factor is how state law converts your property’s estimated market value into a taxable value against which the city tax rate is applied. Homeowners actually get preferred treatment here, compared to owners of apartments or commercial property, the other major classes in the city’s tax base.

The third factor is how fast property values are rising in the assessor’s eyes, and that’s the factor that’s crushing the North Side. The citywide median home value rose 4 percent last year, compared to median increases of 15 and 12 percent in the Fourth and Fifth wards. The faster your property’s value increases in relation to others in the city, the more of a tax burden you’ll bear. And in a year like 2020, when the pandemic ate into the value of downtown office towers and rioting destroyed some commercial property, more of the burden shifted onto residential owners.

The city assessor is required by law to keep assessments within 5 percent of market value. That means assessors look at the prices of homes comparable to yours that sold recently in estimating your house’s value.

But the problem from a tax standpoint for the North Side is that it’s been hot among residential buyers. That’s great if you’re selling but the resulting higher prices are pushing up assessments. One major factor is that buyers see the North Side as the last affordable area of the city. Investor buyers who snap up homes as rental investments also drive up prices, and thus assessments. Some Northsiders worry about gentrification driving out people who can barely afford their taxes now.

All this is something of a shock because homeowners here got used to their home prices lagging the rest of the city for years. Steady but moderate increases in property values are certainly a far preferable scenario to recent sharp increases—or falling home prices. In my newspaper reporting days in the 1990s, prices fell as the market disinvested in the North Side. I remember adding up all of the home values for a particular block in Hawthorne neighborhood just south of Farview Park, and found that the block’s value had fallen almost in half. That was good news on the tax bill but bad news for those who hoped their homes would provide equity when they moved on to their next stage of housing.

What can be done about the recent sharp assessment jumps? One option that everyone can exercise is to challenge their property’s assessment. This once-a-year chance happens each spring. The most successful appellants are those who come with proof of comparable homes selling for less.

Another option is to make sure you apply for every state property tax credit or deferral that’s due to you. Here’s one place to start: https://www. revenue.state.mn.us/property-tax-refund

Another tactic will be to show up in September when the Minneapolis Board of Estimate and Taxation, on which I’ve served for five months now, determines the city’s maximum levy increase after the mayor recommends his budget. Or show up for the truth-in-taxation hearing later in the fall after your estimated 2023 tax bill has been mailed to you.

The Board of Estimate sets the property tax ceiling based on its impacts citywide. But as I approach my first such decision as a board member this fall, the impact of the mayor’s proposal on our lowest valued homes will be a powerful factor in my decision. Be sure your voice is heard.