Minnesota's renters are the next in line to get the shaft from Gov. Tim Pawlenty as he continues to look to the already cash-strapped to pay for the $1.1 billion deficit. If he has his way, renters' credit will be slashed significantly beginning in fiscal year 2007. On average, renters will see a 20 percent decrease in their refund the first year and 25 percent the next, while some might not see any refund from the state of Minnesota at all.
According to the Minnesota Council of Nonprofits, nearly 275,000 Minnesotans will receive renters' credit this year. As the percentage of what's considered property taxes decreases, the threshold--the amount of personal property tax paid that exceeds 1 to 3.5 percent of income--will be harder to reach, so 12,634 renters will become ineligible for rebates.
Currently, 19 percent of total rent paid is considered the renter's share of personal property taxes. Landlords pay the taxes, but pass the tax on to renters in the form of higher rent. But under the new 2005-06 biennium budget proposal, Pawlenty wants to decrease the percentage of rent that's considered the renter's share to 16 percent the first year and 15 percent in 2006. This means that a family making $30,000 a year and paying $926 a month in rent will receive $1,174 back from the state in 2004 rebates and only $863 in 2006 rebates, a decrease of 33 percent.
"It's really unfair to heap this on to renters," says Rachel Callanan, a policy advocate for the Minnesota Coalition of the Homeless. "This is the only kind of assistance renters get through the tax code. Homeowners get the vast share of the refunds."
The ironic part of this fuzzy equation is that Pawlenty is attempting to justify these reductions based on the 2001 property tax reform package that created a property tax rate of 1.25 percent for all rental properties. Prior to these changes, landlords of low-income housing were taxed at 1 percent as an incentive to keep rents low. Meanwhile, some landlords of non-low-income properties saw a decrease in their taxes. But the assessed value for all Minnesota homes increased drastically over the last three years, essentially canceling out any tax relief property owners would have received.
On top of that, rents have crept up steadily in the Twin Cities metro area, from an average of $838 in 2001 to $850 in 2004. If landlords saw any savings, they didn't pass them on to renters. There's no reason to think landlords will drop rents with Pawlenty's new proposal, either.
Placing the tax burden on low- and moderate-income families and individuals is nothing new for Pawlenty, who continues to cut health and human services while coddling his wealthy constituents. Under another one of his proposals, multi-state corporations would pay income tax only on sales in Minnesota. This is a change in the current tax formula, which is based on 75 percent of sales and 12.5 percent of property and payroll, respectively. This tax-break proposal would result in $23.9 million in tax cuts for 4,500 major corporations in fiscal year 2006-07. So, Pawlenty has plans to prop up the budget on the shoulders of others: His proposal to reduce renters' credit would earn the state $30 million in 2007.
