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Low-income rental properties win tax relief in MN budget

Housing advocates are claiming victory, thanks to an item in the state budget that was signed into law last week.

Owners of low-income rental property will benefit from the resurrection of a tax classification that was eliminated during a 2001 round of property tax reforms.

Chip Halbach, executive director of the Minnesota Housing Partnership, said qualifying apartment owners could see a 40 percent decline in their taxes payable in 2006.

“This is very important because we have the other costs of ownership like property insurance, utilities and security going up significantly, too. To hold down one of those operating components is particularly important,” Halbach said.

The tax classification is called “4d” in statute.

The Minnesota Association of Assessing Officers (MAAO) said it agreed with the provision.

“Our position has always been if the Legislature wants to provide tax relief to low-income properties, they should do it through a tax rate. That’s what occurred in the bill,” said Tom May, Hennepin County assessor and a member of the MAAO legislative committee.

May said the Minnesota Housing Finance Authority determines which properties qualify and the authority then notifies assessors.

The provision didn’t have the support of the tax bill’s author, Rep. Ron Abrams, R-Minnetonka.

“It reinstitutes a low-income rental housing classification for 4d but with much more restrictive qualifications than the old 4d. It provides a class rate of .75 percent. Again … this is a provision that I did not support in the (House) Property Tax Division, do not support, but because I was a conferee on behalf of the House position I felt compelled to negotiate what I thought was the best deal possible, given the circumstances,” Abrams said.

Certain apartments fit into the 4d tax class if they meet qualifications, such as receiving federal Section 8 housing subsidies. Before the 2001 property tax reforms, the tax rate on these apartments was half the rate paid on apartments in the open market. In 2003 and 2004, property tax rates on low-income apartments went up by double digits.

The new law didn’t go as far as proposal earlier this year. Legislation was introduced during the regular session that would have directed tax assessors to value rental apartments based on their income.

“In reducing the affordable rental tax rate, the Legislature offsets some of the financial damage, and it buys us time to develop a lasting solution to the tax problem,” Halbach said. “The state should require tax assessors to value rental housing units on the basis of their actual, not hypothetical, income.”

That approach, however, isn’t supported by the MAAO.

The legislation requires a report by the state Revenue Department on 4d low-income rental housing by Feb. 1, 2007.

The tax bill contained numerous provisions relating to housing and property. Those included a two-year extension of the phase-out of limited market value and supportive housing for the people experiencing long-term homelessness.

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