Local Video
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| A taxing trend: Downtown tax bills |
By: By SUZANNE ROOK, Senior Writer
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Posted: Friday, June 6, 2008 10:34 pm
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Four years ago, Rice County assessors said the three buildings on Division Street that make up J. Grundy’s Rueb ‘n’ Stein were worth $433,000.
Today, their value is 39 percent higher. And while that would be good news if the Rueb’s Joe Grundhoefer wanted to sell his property, it’s hard to swallow when the property tax bill comes in.
In 2004, Grundhoefer paid $10,892 in property taxes. This year, he’s going to shell out 78 percent more than he did four years ago.
The double- and triple-digit increases on downtown properties have made it increasingly difficult for owners to turn a profit, said Ross Currier, executive director of the Northfield Downtown Development Corp.
Rents in downtown are half those on Hwy. 3, he said. And the historic buildings, which define this city, require constant maintenance, something newer buildings don’t.
Coupled with a struggling economy, more and more downtown property owners are wondering what they can do, not only to stay in business, but to ensure the city’s historic district survives. For the last year, the NDDC has met with area legislators — former state Sen. Tom Neuville and Rep. David Bly — hoping they can help.
But even if they come up with something, Currier believes, the fix is two to three years off.
Staying afloat
Jim Herreid has owned property downtown since 1963, when he bought 111 East Fourth St. for $13,000.
PROPERTY TAX PRIMER
A classification system spelled out in state tax law is a large part of the reason commercial property taxes are higher than those on similarly assessed residences.
Homesteaded properties valued up to $500,000 are taxed based on 1 percent of their valuation. The classification system for commercial properties is more complicated, with the first $150,000 in valuation taxed at 1.5 percent. Properties valued by county assessors higher than that are taxed at 2 percent of the valuation for the value over $150,000.
Commercial property owners also owe a state tax that only they — and cabin owners — pay. That tax, instituted in 2001, was designed to allow the state to pay a larger share for education, said Gary Carlson, the League of Minnesota Cities intergovernmental relations director.
“The state,” said Carlson, “assumes the business property, because it’s income-producing, has a greater ability to pay.”
Ten to 15 years ago, the difference in property taxes for similar sized commercial and residential properties was even greater, said Carlson. Property taxes on commercial properties at that time were almost four times higher than for residential, he said. |
Fourty-five years and any number of purchases and sales later, Herreid is astonished. In all his years in Northfield, he said, there haven’t been tax increases like he has seen in recent years.
Since 2000, taxes on his Bridge Square property have gone up by more than 600 percent, he said.
On average, Currier said, downtown property owners have seen taxes rise by 30 percent each year in the last eight years, well above what homeowners are experiencing. All property owners should be treated equitably, he said.
Grundhoefer said he’s not expecting a rollback in taxes, just fairness in the future.
Paul Smith, a real estate agent, who, since 1989 has owned several buildings downtown, said he has to dip into his savings just to stay afloat.
Grundhoefer estimates he spends $3,000 per month on upkeep for his buildings, all more than 130 years old.
Most of downtown’s buildings, Smith said, were built in the 1870s, and should have been bulldozed.
“Only really dumb guys like us (downtown property owners) pumped, in some cases, millions of dollars into them. It’s like fixing your old car — you still have an old car,” he said.
But Smith, like Grundhoefer, Herreid and Currier, has stuck with downtown out of love, and, because he sees the value it brings to the city.
Catch-22
Herreid said property owners are in a no-win situation.
By improving their buildings, as downtown property owners have for the last few decades, the properties become more valuable, and therefore, are taxed more heavily.
And, he added, downtown buildings have fetched higher and higher prices in recent years. Those figures are used by county assessors to value property.
On the other hand, landlords, like Herreid and Smith say they’ve got to keep rents as low as possible in order to attract tenants.
“If they left, it would be the death of downtown,” said Smith.
Business owners like Grundhoefer and Mary Rossing, who owns Present Perfect on Division Street, said they have to work harder to keep their heads above water.
Grundhoefer said he has had to raise prices, but slowly, so customers aren’t stung by sticker shock. He, like, Rossing, has cut back on staff, taking extra hours where they can.
“I can’t pass on the costs. I’m barley making it as it is,” said Rossing, noting that price hikes would keep customers at bay.
“I don’t think people realize how fragile downtown is,” she said. “I don’t want to say it because it sounds like complaining, but it is the cold, hard truth.”
Better than nothing
The state regulates how property taxes are calculated. Commercial property owners pay more per dollar than homeowners.
The difference, said Gary Carlson, the League of Minnesota Cities intergovernmental relations director, comes because the state believes that businesses, which generate revenue, have a greater ability to pay.
While the tax structure was good in theory, said Currier, the NDDC executive director, it’s an idea whose time has passed. The burden on businesses is too great, he said.
In addition to asking local governments to hold the line on tax increases, the NDDC continues to press Bly for assistance. The parties plan to meet again next week.
Bly said there’s still much work to be done. While lots of ideas have been tossed out, no one solution has risen to the top.
The representative acknowledged that reducing one person’s tax burden typically involves increasing others’. He said he’s looking at other out-state communities to see how property taxes have impacted their downtowns.
If the situation is the same in other communities, he said, other legislators could be willing to support some future proposal.
Currier said that for now, he’s encouraging property owners to challenge their valuations. While the burden of proof is on the property owner, he said, any reduction is “better than nothing.”
— Suzanne Rook can be reached at srook@northfieldnews.com or 645-1113.
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I think Northfield needs to subscribe to trickle-down economics. Less tax on the Rueb means more beer can trickle down my throat.
Also, the Rueb needs to bring back the old mozzarella sticks... The smaller ones. The Perkins style they switched to are sub-par at best.
I agree about the mozzarella sticks. I used to dominate those back in the day. Bring back the old ones and you will make up the lost money in property taxes in a month or two. Good idea thecase33.
The two of you better get started...you have to eat a lot of mozz sticks to make up the difference....I am sure the Northfield cardiac unit needs more practice...LOL