Think land values are high? State says county should have gone higher
In the case of a county out of compliance with the state’s acceptable range, the State Board of Equalization issues a corrective order to raise or lower property values accordingly.
BRAINERD — While taxpayers across Crow Wing County continue to digest an average 35% spike in residential and seasonal property values, the state says the county didn’t go high enough in some cases.
Land Services Director Gary Griffin told the County Board Tuesday, May 24, an evaluation of the county’s 2022 property assessments showed the value of rural vacant land fell about 5% short of the state’s required 90-105% median sales ratio. This ratio measures the relationship between assessed values and the actual sales price, or how close assessments are to market value on an overall basis, according to the Minnesota Department of Revenue.
“Just a point to, I guess, help refresh or remind you guys that this is a state-prescribed process,” Griffin said. “ … I’ve been doing this for 12 years for Crow Wing. Never had a state board order, and this is the closest we ever came.”
In the case of a county out of compliance with the state’s acceptable range, the State Board of Equalization issues a corrective order to raise or lower property values accordingly. Griffin said although Crow Wing’s rural vacant land values sat at an 85% ratio, the board will not issue a correction. Instead, the revenue department offered a strong recommendation for the county to increase its values appropriately for 2023.
Griffin said the report comes despite an average 31-32% increase in the value of rural vacant land in Crow Wing. Rural vacant land, per state law, consists of “parcels of property, or portions thereof, that are unplatted real estate, rural in character and not used for agricultural purposes, including land used for growing trees for timber, lumber, and wood and wood products, that is not improved with a structure.”
Griffin said the land services department counted more than 2,000 individual contacts with concerned residents since it mailed property valuations in March. Meetings of local boards of appeal and equalization — which provide the opportunity to appeal values or tax classifications — saw unusually high attendance this spring. And the next step for those still dissatisfied, the County Board of Appeal and Equalization meeting set for next month, will require six days to include everyone wishing to appear on the agenda. This is typically accomplished in one day.
Griffin noted much of this frustration is based on a misunderstanding of the relationship between property values and property taxes — many of those with concerns believed if their property value rose by 50%, for example, their taxes would increase at the same rate, he said.
What residents pay in property taxes is determined by many factors — most importantly, how much money local governments decide to collect as part of their property tax levies to cover their spending. The recent valuation notices apply to the 2023 tax year, for which county commissioners and other jurisdictions will not set levy amounts until December. Values, on the other hand, are based on the real estate market and sales of nearby, similar properties.
The news of the revenue department’s warning appeared to strike a nerve with commissioners, who also reported being inundated by calls from constituents frustrated by the increases.
“We’re already at an average of 35% … and the state thinks they need more than that? And it’s their process,” said Commissioner Steve Barrows. “It’s their process we have to adhere to. That’s unacceptable. And I know they were trying to do something at the Legislature, and they can’t get their job done. That’s on them. That’s not on us. And it penalizes every one of our taxpayers in Crow Wing County. And that is unacceptable.”
“Well I don’t think there’s any of us that disagree with you,” added Commissioner Rosemary Franzen.
Barrows’ criticism of the Legislature comes as the state body missed a late Sunday deadline before the end of the session, meaning a number of major spending bills — including a wide-ranging proposal to provide tax relief to Minnesotans — were not accomplished. Earlier this month, commissioners voted unanimously to send a letter to lakes area legislators , asking them to support changes to state law that would expand the impact of the homestead market value exclusion and make more people eligible for the homestead credit refund.
Commissioner Paul Koering asked what would happen if Crow Wing County refused to comply with an order from the state.
“What’s the penalty if we’re not the good child and we don’t do our — don’t do what they tell us to do?” Koering asked.
Griffin said the state would take valuation into its own hands, increasing or decreasing values as it sees fit. County Administrator Tim Houle added laws requiring local governments to comply with various state mandates often carry the threat of a loss of state aid if those mandates are ignored.
“So they’ve got a pretty good hook in ya,” Houle said.
How property valuation works — and what that means for taxes
County officials last month sought to clarify the relationship between valuation and taxes while also presenting statistics to show Crow Wing County is not alone in its steep value increases — even though it appears to be experiencing some of the biggest climbs in the state.
Residential and seasonal/recreational property values in Crow Wing rose at an average rate of 35%, just topping Cass at 31% and Aitkin at 29%, based on data Griffin said was gathered from other county assessor’s offices. The estimated market value as a whole in Crow Wing, including all types of properties, was $17.1 billion, more than 66% higher than the value in 2016 .
The rise in values is a direct reflection of the housing market, which indicates people are willing to pay higher prices for a tight inventory of housing stock. And real estate changed hands last year in Crow Wing County at levels not seen since before the Great Recession, Griffin said.
Sales of comparable properties are the basis of the property valuation process, which is conducted by county government officials but is driven by rules set by the state Legislature. And there’s a lag built into the system: property values as of January 2022 are based on sales between October 2020 and September 2021.
A frequent metaphor employed by Houle and other county officials in explaining the relationship between values and taxes is to envision the property tax levy as a pie. Each county taxpayer is responsible for a slice of the pie, and the size of that slice is determined by one’s property classification and value relative to others. No matter what happens to values overall, however, the size of the pie itself does not change once the County Board sets the dollar amount of its final levy. The same pie metaphor applies to school districts, cities, townships and other special taxing districts, the levies for which combine to impact one’s overall tax bill.
Five main reasons exist for why a property owner might see a higher tax bill one year to the next, a land services news release explained. These include increases in government spending, a property’s market value decreasing less than other properties or increasing more than other properties, a change in property classification, or changes to state rules. This happened in 2011, for instance, when the state converted the homestead credit to a homestead exclusion.