The city of Minneapolis is facing a major hole in its budget, and it’s a problem because it’s likely that residents will have to fill it with their taxes: specifically, real estate taxes would be being increased in 2025.
The situation in real estate is worrisome in Minneapolis. The pandemic funds are already depleted, and the unionized workers are demanding major raises to cope with the inflation of the last two years. That’s why the scenario is unenthusiastic for real estate owners, who could face a hefty tax punch.
In an interview with the Star Tribune, Mayor Jacob Frey and several financial officials expressed their concern about this challenge, aware of the complicated political situation: the ambitions of the progressive majority in the City Council could clash with Frey’s relatively austere stance, which anticipates a potential budget battle in the coming months.
How Much Will Property Taxes Increase in Minneapolis?
Frey admitted in his conversation with the aforementioned news outlet that it is going to be very difficult to stick to his original plan of increasing real estate taxes by 6.1% or less. If the city can’t control certain expenses and stick to its budget, the increase could be at least double digits. Frey promised to work “very hard” to avoid such a scenario.
The central challenge lies in how the city will generate enough revenue to cover the rising cost of its approximately 4,200 full-time employees, who represent the largest component of the city’s $1.8 billion budget.
According to budget director Jayne Discenza, officials do not yet have precise figures. They are in the process of projecting expenses for the year 2025.
Currently, the city does not have 4,200 employees; as of Thursday, there were 3,823 holding these positions. However, Frey stressed that the almost 400 vacant positions are essential and cannot be eliminated.
The staffing challenges at the Minneapolis Police Department are notorious, from patrol officers to arson investigators. Court-ordered police reforms following the killing of George Floyd and a history of racist and unconstitutional policing require additional hiring. At the general level, the city is facing numerous vacant positions, both in the public and private sectors, since the pandemic, and is actively hiring.
Frey has made it clear that layoffs are not an option. “We value our staff, and we will make sure to keep them here,” he said.
Property Values Fell in Minneapolis: Are Taxes Set to Go Down or Up?
For the first time in the last decade, real estate values in Minneapolis fell, the city’s appraiser’s office said last March.
The 3.1% citywide drop included a 1.2% drop in residential property values, but the problem lies in the downtown core business district, where the impact of the work-from-home shift has been manifest.
The value of downtown commercial real estate (think: high-rise office buildings) plummeted 13%. This is a major blow for investors of these securities and is also a new problem for owners of residential properties: it is the latter that will bear the burden of property taxes.
Let’s look at a comparison: In 2020, residential properties (including both single-family homes and multi-unit rentals) accounted for just over 66% of the total property tax base; now that figure has increased to just over 71%.
Could this shifting burden be changed, for example, by increasing taxes on owners of commercial or industrial properties more than on residential ones? Technically, yes, but that would require an act of the Legislature.