Andy Babula, finance professor and director of the real estate program at the University of St. Thomas Opus College of Business, recently spoke with MPR about the rising property taxes in Minnesota, what they fund, and how they impact homeowners.
From the interview:
Host: Well, for our listeners, could you give us a sense for what exactly property taxes pay for and why it comes up like this every year?
Babula: Property taxes are the primary way that cities and, actually, counties and school districts as well, raise revenue for their services. And those services include everything from public safety, such as the police force, to maintaining and repairing roads, and pretty much all the labor costs behind running city government.
Host: And from your perspective, as both someone on the ground, probably dealing with clients and with your real estate program through the university, what is your sense for these sticker shock moments for folks? Is it surprising to you? Does it feel like it's extreme compared to prior years?
Babula: Well, it’s definitely extreme compared to prior years. I think the Minneapolis and St. Paul budget increases, which were originally about 8%, were the highest in a couple of decades. And other cities are seeing similar increases. So it’s a tough pill to swallow for people when they’re already feeling, over the last several years, that prices across the board have gone up, and now they’re seeing their property taxes go up. So it can be difficult.
Host: And part of the contributing factors that I’m reading about are just inflation, funding throughout the COVID-19 pandemic relief funding that dried up. And now cities are perhaps left with different expenses. What are you hearing through the grapevine on what some of these contributing factors are?
Babula: Right. I mean, those are exactly correct. And the biggest factor in the individual property taxes is the expenses or the expenses for that city or county or school district. So those expenses are going up in some cases. In many cases, it’s because the cost of goods and services are increasing. In some cases, there are additional services that cities are trying to implement that add to their budget. So it’s a combination of factors. As you mentioned, there were a lot of COVID relief dollars that had been able to help prop up city budgets for a few years, and those have dried up. And so the only way for cities to make up that lost revenue is through property taxes.
