My fellow columnist Joe Soucheray thinks that property tax increases in St. Paul are too high, that they reflect bloated government and that they may drive people out of the city, turning it into another Detroit. I disagree, for reasons I’ll explain.
But first, let’s review the basics.
First, the taxes on any property go to different jurisdictions. For 2011, of the total $3,251.76 that my wife and I pay, 36 percent goes to Ramsey County, 33 percent to St. Paul Public Schools and 26 percent, or $829, to the city itself. The rest goes to minor taxing districts like the Metropolitan Council.
Second, the total amount of tax raised depends on what local governments spend, not on the value of property in the city. But the spending that must be covered by property taxes then is allocated in proportion to the value of property. There are different rates for different types of residential and commercial, etc. Importantly for a city like St. Paul, real estate owned by state and local government and nonprofits like cathedrals, churches, private colleges and hospitals is not subject to the tax.
It is also important to acknowledge that, despite much political rhetoric about out-of-control taxes, the total price of Minnesota government, summing both state and local, is considerably lower now, relative to Minnesotan’s collective personal income, than it was 15 to 20 years ago. (Government employment is also a lower fraction of the workforce, but that is another story.)
My wife and I have an ugly but comfortable 111-year-old house on Como Avenue west of the fairgrounds. It cost $75,000 in 1986 and is assessed for tax purposes in 2011 at $230,200. This is down 24 percent from 2009, but, as then, even in a disrupted housing market, I think it would sell for 10-20 percent more than its assessed value.
Our taxes are flat from last year and won’t rise much in 2012. Adjusted for inflation, they are 13 percent below what we paid in 2006, at the peak of the housing market. Moreover, they are down 15 percent from 1997, which puts some perspective on the notion that taxes have risen inexorably year after year.
When the state increased transfers to local government in the late 1990s, it did reduce taxes for most property owners. And cutting back those transfers is the primary reason for recent increases.
Some people’s taxes are going up by double digits and perhaps did the same in prior years. But that is not the rule. The mean or average increase for St. Paul homeowners is far less than that. And the total amount raised by property taxes is estimated to increase 3.2 percent. After a year in which the Consumer Price Index increased 2.7 percent, this is not extreme. Objective data just don’t support the idea of either spending or taxes out of control.
Questions of waste and value in government, like beauty, are inherently in the eye of the beholder. But I think that my wife and I get value for money.
The $70 we pay in monthly tax for St Paul is less than we pay for phone and Internet service. We pay more for car insurance.
Ditto for the $90 a month for public schools. All three of my kids got most of their K-12 education in these schools and the cumulative total I have paid in school taxes over 25 years would not have put one of them through one of the excellent private high schools we have in our city. Moreover, it is important to me personally that a good education be available to all of my fellow citizens.
In the past three years, I have spent nearly $40,000 on our farm, including 5,000 feet of 2-inch PVC pipe, culverts, drain tile, concrete and gravel, and to contractors with backhoes, motor graders, front-loaders, dump trucks and dozers. I bought fuel and a new engine for my tractor. So I have an appreciation for how much it costs to build and maintain roads, bridges and other infrastructure, plow snow and all the rest. A student of mine heads a suburban school board, so I have heard about the enormous utility costs for one school building. And I understand why the county to which we pay $1,189 a year plus the schools and city spend as much as they do.
My wife and I are at the 90th percentile of household income and in the top 1 percent in terms of net worth. For our family, real estate taxes amount to less than 2 percent of our earnings. We consider that moderate. Soucheray and others have a different perspective. That is what introductory econ textbooks describe as “differences in tastes, preferences and values.” There is no right or wrong answer on this, and each citizen or taxpayer must decide for themselves.
Yes, the real estate tax sometimes involves injustices and imposes genuine hardships, especially on people with fixed incomes. But those who saw tax increases the last few years did so primarily because the values of their homes are rising, or at least not falling as fast as most others. That tells us that people, weighing all the costs and benefits of living in St. Paul, still find those neighborhoods desirable places to live and raise families. To argue that rising taxes will depopulate the city even as home prices increase in these neighborhoods relative to the metro area is to mimic Yogi Berra’s logic about a popular bar, that “nobody goes there anymore. It’s too crowded.”
© 2011 Edward Lotterman
Chanarambie Consulting, Inc.