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2001 LEGISLATIVE PROGRAM A) PROPERTY TAX REFORM Although the Legislature has taken some needed steps to enact property tax reform initiatives, the current system continues a known policy of regressivity — a policy that should be amended in order to develop a property tax system that is fair and equitable. The MLC supports the changes in the property tax system made by the Legislature during the past several sessions, particularly the reduction in the property tax rate for homes valued over $76,000 from 2.0% to 1.85% for taxes payable in 1998, to 1.7% for taxes payable in 1999, and to 1.65% for payable 2000 and 2001. The MLC supports continued compression in classification rates, known as "Phase 3." Phase 3 would reduce the classification rate on high-valued homes from 1.65% to 1.5%, on apartments from 2.4% to 2.0%, and on commercial-industrial property from 2.4% to 2.0% on the first $150,000 of value and from 3.4% to 3.0% on the excess. The policy of compressing classification rates will reduce the disparities in the property tax system between income received and property taxes paid. B) STATE TAKEOVER OF GENERAL EDUCATION COSTS The Governor has proposed that the State of Minnesota pay a significantly higher percentage of K-12 education costs. This would remove a large amount of property tax levy from some taxpayers, especially apartment owners, business owners and owners of high- valued homes. Currently, the state pays 72% of K-12 education costs. The Governor's proposal Would increase the state's percentage to approximately 85%. This additional property tax relief would cost the state approximately $884 million. To fund this additional relief, the Administration has been considering several options, including broadening the sales tax base and imposing a statewide business property tax. The Administration is also considering a reduction in homestead agricultural credit aid and/or local government aid for cities whose property taxpayers receive substantial tax relief due to the education buydown. The MLC believes that this, or any other major proposal that reexamines our current property tax and transfer payment system, merits serious consideration by the Legislature. C) ECONOMIC DEVELOPMENT TOOLS The Legislature has historically been reluctant to grant local units of government flexibility and latitude relating to economic development incentives. With the exception of tax increment financing (TIF), cities have been handcuffed in their attempts to attract new development. The Legislature should consider granting local units of government more tools to help them attract business. Tools such as property tax abatement and expansion of TIF usage for affordable housing purposes would be beneficial for cities throughout the state. The MLC believes that TIF has been an effective local government tool for both development and redevelopment. It also believes that TIF has been used responsibly and wisely by cities.