Changes to

property tax

are assessed

'Compression'

of tax rates may

have shifted burden

to lower valued

residential homestead properties

By RON LARSEN

Journal Staff Writer

NEW ULM -- Because of the changes resulting from State Legislature's property tax reform this year, the spotlight has shifted to the mechanics of determining how much individual property owners in the four property classifications will pay in property taxes in 2002.

New Ulm's assistant city manager, Tom MacAulay, has analyzed the property tax system and has come up with an overview of the implications and ramifications of the changes made in the property tax structure for city officials.

He found that the city's tax capacity, representing the "tax base" available for taxation for the 2002 tax year, shrunk by 17.2 percent from the 2001 tax year.

He also found the "compression" of tax rates that occurred within the individual classifications had indeed shifted more of the tax burden onto the lower valued residential homestead properties. However, the shift was not a dramatic flip-flop.

"In 1991, residential homestead property represented just over a third (37 percent) of the city's tax capacity," MacAulay said. "That percentage has grown pretty steadily over the years to where it represented over half of the tax capacity. Now, in 2001, with the changes, it's getting close to two-thirds (61 percent) while commercial/industrial has shrunk to about a third (32 percent)," down from 49 percent in 1991.

So, if the city's tax capacity has shrunk, does that mean the market values on the city's taxable property have shrunk as well?

"No, they're too different things," MacAulay said.

In fact, the estimated market value of all taxable property in New Ulm in 2001 was $516,115,600, representing a 6.2 percent increase over 2000. The $485,771,400 recorded then was nearly 10 percent higher than in 1999.

A parcel's market value is the starting point in determining its tax capacity, however.

"The taxable value of each property is determined by applying the appropriate property class rate to the assessed market value," MacAulay explained.

Property classification rates are set by the State Legislature, and the assessed market value is set by the County Assessor.

For example, the rate for a residential homesteaded parcel valued at $80,000 is 1 percent so that parcel would have a taxable value of $800.

The taxable value of all parcels make up the city's tax capacity after being adjusted for "retained captured value" within the city's tax increment financing (TIF) districts.

In New Ulm's case, that amounts to $5,610,803 for the 2002 tax year (levied in 2001, payable in 2002). That's down a million dollars from 2001's tax capacity of $6,670,427; yet the net property tax levy -- the dollars the city will have to use -- of $3,182,865 for 2002 will be a $253,000 increase over 2001.

The net property tax levy is calculated by multiplying the tax capacity by New Ulm's tax rate of 54.7040. But that is only one of six separate levies, including Brown County and School District 88. By adding the six tax rates together, a total rate of 125.4210 is reached.

This year there will be another levy, that resulting from District 88's excess levy referendum in November. However, that rate is obtained by multiplying the property's market value by .0013566.

When that is figured in, the homestead credit is applied to the resulting total. Because of the many changes this year, city officials are still waiting for word from the Brown County Assessor's office on what the homestead credit on qualifying parcels will be, MacAulay said.

"We usually are able to notify taxpayers about what their tax will be before the public hearing on the budget," MacAulay said. "This is the first year that we couldn't do that."