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MEMORANDUM TO: Roseville City Council FROM: Bill Malinen, City Manager DATE: August 4, 2011 RE: Market Value Homestead Credit(MVHC) You may have recently seen the LMC bulletin that described the changes to the MVHC program as a result of the special session of the MN legislature. As a part of the budget passing legislation, the current MVHC credit and reimbursement program will be eliminated beginning with taxes payable in 2012. In place of the current MVHC program, homeowners will receive an exclusion of a portion of the market value of their house from property taxes. The exclusion is computed in a manner similar to the current market value homestead credit. However, the impact of the repeal of the existing MVHC program and the new exclusion will vary from community to community, depending on a number of factors, including tax base of the community and the local tax rate. Under the new system with no MVHC credit and reimbursement, each city will receive those revenues as property tax payments that will occur with the normal property tax distribution process, which will accelerate the first half of the payment by as much as three or four months providing a small cash flow advantage. For cities and other local units of government, the elimination of the MVHC program will to a degree simplify and clarify the property tax process. No longer will a city's certified property tax levy be reduced by the allocation of the MVHC credit with a"promised" reimbursement by the state for the loss of property tax receipts. For homes valued at less than $76,000, the exclusion is equal to 40 percent of the home's market value. For homes valued between $76,000 and $413,800, the exclusion is $30,400 minus 9 percent of the value over $76,000. The table below illustrates how the new market value exclusion compares to the existing MVHC program. 4 III a j M 14mrhet Vla 111 in, o °01,01 ° p n u p MY I ,M1IIII $110', i of P IXF III J f Iii , MII ,.. 5 1 i Illl li"III ^ .% :54 G(I' The new market value exclusion for homes will mean that beginning in 2012, each city's tax base will be reduced and the city's tax rate will rise to obtain the same property tax levy. Although the homestead exclusion is computed in a mathematically similar manner to the repealed MVHC, the new system will shift taxes among properties within each community, especially to commercial, industrial, apartment, and other properties that will not receive the benefit of the homestead market value exclusion. The current MVHC program, if it was fully funded, would provide $261 million per year in state-paid homeowner tax reductions. That $261