By Ivan Raconteur
McLEOD, WRIGHT, AND CARVER COUNTIES, MN Although some cities are experiencing significant decreases in assessed property value, overall changes are moderate, according to local county assessors.
In McLeod County, assessed property values overall will decrease about 5 to 10 percent for 2011 (about the same as in 2010), according to McLeod County Assessor Sue Schulz.
However, some specific communities will see sharper drops.
In the City of Winsted, for example, assessed values will drop about 20 percent for 2011, Schulz said.
Lester Prairie was hit with about a 20 percent decrease in values for 2010, but will see a much more moderate drop of about 5 percent for 2011.
Other areas in the county that could experience significant reductions in value for 2011 include the cities of Brownton and Plato, where values may drop by 20 percent.
Agricultural values across the county are generally staying the same, Schulz said.
In Wright County, assessed values for residential property are expected to decrease by about 5 to 8 percent overall, while agricultural property could decrease by as much as 10 percent, according to Wright County Assessor Greg Kramber.
In Carver County, assessed values decreased by not quite 8 percent overall, according to Carver County Assessor Angela Johnson.
Residential values are down about 7 percent, while commercial/industrial properties are down about 5 percent.
The market value of agricultural property is down slightly, but taxable market value did not change, because most of the agricultural property in the county is in programs such as Green Acres or Agricultural Preserve, Johnson explained.
Assessed values are “pretty even” across the county, with no pockets of extreme variation, according to Johnson.
“Things are pretty stable right now,” Johnson said. “There may be some slight decreases, but we don’t see any major decreases at this time.”
How are assessed values determined?
In order to understand why assessed property values change in some areas, but not others, it is important to understand the assessment process.
Assessors use historical sales to estimate each property’s market value as of the assessment date, which is Jan. 2 each year.
By law, assessors must look at qualifying sales that occurred between Oct. 1, 2008 and Sept. 30, 2009 to estimate a property’s value as of Jan. 2, 2010, which will then be used to calculate property taxes payable in 2011.
Schulz said assessors cannot use foreclosures or short sales in determining values.
Kramber and Schulz said the lag between the time period used in the calculations and the time property taxes are paid can lead to confusion among property owners.
In addition to considering qualifying sales, assessors are required to conduct sales ratio studies.
These show the relationship between the assessor’s estimated market value of a property and the actual sale price of the property.
Each year, assessors performs sales ratio studies on properties that have been sold in their jurisdiction.
These are based on Certificates of Real Estate Value (CRVs), which must be filed anytime a property is sold.
A minimum of six qualifying sales within a taxing district are required in order to complete a sales ratio study.
Assessors use the median sales ratio as the statistical measure of the overall level of assessment in a taxing district.
The median ratio is the midpoint of all the ratios when they are arranged from highest to lowest. The median is used because it is not affected by extreme ratios.
Minnesota Department of Revenue guidelines require that the median ratio of a sales ratio study be between 90 and 105 percent.
This explains why assessed values may change more in one taxing district than another.
For example, the ratio in the City of Winsted was 116 percent. Schulz was required to decrease assessed values in order to bring the ratio into the range mandated by the department of revenue.
“If we don’t make that adjustment, the state will come in and do it,” Schulz said.
In another example, the ratio for agricultural land in McLeod County is 96 percent, which falls within the acceptable range. Therefore, the county was not required to make additional adjustments to bring agricultural land into compliance.
“We are starting to see some stabilization,” Schulz commented.
It should be noted that property values are only one part of the process.
“Value doesn’t determine tax. It determines your share of the total,” Schulz said.
She explained that there are cases when values decrease, but property taxes increase.
For example, in Hutchinson, assessed values decreased by 5 to 10 percent, but the school levy increased by 30 percent, so property taxes actually went up.
“If cities raise their levies to make up for the loss of revenue, taxes can increase,” Schulz said.
Kramber and Schulz said they understand the impact of valuations on property owners.
Kramber said the loss of value does affect people, especially those who are trying to refinance their property.
How are property taxes determined?
Each jurisdiction determines the revenue needed from property taxes by taking its total budget and subtracting all non-property tax revenue. This determines the tax levy for that jurisdiction.
The levy is then spread over all taxable properties according to their net tax capacity.
A property’s tax capacity is calculated by multiplying the taxable market value by the state-mandated classification rate for that property.
The final step is to calculate the local property tax rate by dividing the property tax revenue needed in a jurisdiction by its total tax capacity.
Each county auditor also calculates and applies any homestead credits, referendum levies, and (for some property types) the state general tax.
Each year, between Nov. 10 and Nov. 25, all property owners receive a “Truth in Taxation” notice by mail.
These notices include:
• valuation and classification information for the current and previous assessment years;
• current-year property tax amounts; and
• an estimate of how taxes may change for that property based on taxing district and local budget decisions for the following year.
The notices also include dates for meetings during which local budgets and levies will be discussed.
The meetings are intended to give taxpayers an opportunity to voice their concerns about proposed budgets, not as a forum for taxpayers to appeal their market value or their individual proposed property tax amounts.
The Truth in Taxation statements are different than the property tax statements that counties mail to property owners by March 31 each year.
The property tax statements include an itemized list of property tax due to each taxing authority.
Schulz said that because some people may find Minnesota’s property tax system confusing, the 2010 legislature mandated the formation of a property tax working group to look for ways to simplify the system.
The 13-member group will be made up of a broad range of people, Schulz said.
The group will look for ways to simplify the system, ways to shorten the two-year cycle from assessment through property tax calculation, and will determine the cost versus benefits of all components of the tax system.
The group must report its findings to the legislature by Feb. 1, 2012.
Why property taxes vary from year to year
The Association of Minnesota Counties provided the following list of reasons property taxes may vary from year to year.
• Market value for a property may change
• Market value of other properties in the taxing district may change, shifting taxes from one property to another
• The state general property tax may change
• The city budget and levy may change
• The township budget and levy may change
• The county budget and levy may change
• The school district budget and levy may change
• A special district’s budget and levy may change (i.e. Metropolitan Council, watershed districts)
• Special assessments may be added (street improvements, etc.)
• Voters may have approved a referendum
• Federal or state mandates may have changed
• Aid from federal and state governments may have changed
• The state may have changed property class rates
• Other state laws may have changed the tax base.
Kramber noted that another reason property taxes could change is a change in classification. In Wright County, several parcels changed from agricultural to other classifications recently because they no longer qualify as agricultural.