'Incredibly inequitable': Schools surrounding Minnesota's cabin country homes struggle as taxes go to state

DULUTH – A decades-old shift of some property taxes paid by cabin and second home owners has meant millions in lost revenue for lakes-heavy Minnesota school districts.

For more than 20 years, a portion of property tax that last year totaled about $42 million has been paid by seasonal property owners to the state's general fund, instead of local school districts. The change was made during lean times, said Sen. Grant Hauschild, DFL-Hermantown, but it's been especially devastating to school districts in northeast and central Minnesota cabin country.

For the second year, he's trying to push through a bill that would move some of the seasonal property taxes back to schools, an easier request than shifting it all back to the school districts. It's intended to reduce the financial burden on residents asked to approve property tax increases for classroom costs including teachers and educational programs.

Hauschild said at a recent Senate tax committee hearing that these are property taxes paid by seasonal residents, many of whom are wealthy. Some of the poorest communities in the state, including Ely and Hoyt Lakes, are surrounded by these property owners, but they struggle to pass operational levies to raise money for their schools.

"It's incredibly inequitable," Hauschild said. "It's the opposite of the Minnesota Miracle, and it's screwing my communities."

School districts across the state are preparing for cuts just two years after historic investments in education, and regaining some of that tax revenue would help, educators say.

The Grand Rapids school district of 4,000 students has eliminated 70 teacher and aid positions in the past five years, and in 2023 suffered a crushing rejection of an operating levy.

"Tax revenue from cabin properties in Grand Rapids should stay in Grand Rapids for our students," said Grand Rapids teacher and former union president Carol Copp. "The burden is falling squarely on the shoulders of community members who do not own million-dollar homes on the lake. These are community members working two and three jobs."

With seasonal properties making up 30% of the city's tax base, that money would have been "a game changer," she said, for schools dealing with large class sizes and cuts to programs and jobs.

Instead, rural school districts fight to raise the kind of money that metro-area districts more easily can, Copp said, making ZIP codes determinants of a students' education.

To offer immediate relief to districts with levies already in place, $8.8 million would need to be allocated this session, said Sam Walseth, a lobbyist for the Minnesota Rural Education Association.

A formula would determine how much of a "discount" a district would get for an operating levy, up to 50% in some cases, he said, to bring down the cost to property owners. More than 90 school district's are without an operating levy, mostly in central and northeast Minnesota.

A portion of the taxes paid by seasonal property owners continue to go to schools for things like debt service and building projects; the only carve-out is for the educational expenses operating levies pay for.

Sen. Robert Farnsworth, R-Hibbing, is a co-author of the bill. At a hearing last week he said aside from tax revenue loss, the number of seasonal homes in northeastern districts means less year-round housing for people with families and kids attending area schools.

"It's a cabin culture, and that's OK, but I think that's something we should consider, that opportunity we are losing," he said.

The bill doesn't propose changes to taxes that seasonal property owners pay, and districts would still need voter approval to increase levies.

But it would give them more leverage to convince voters, to say the increase wouldn't be as much, said Lake Superior School District Superintendent Gina Kleive, whose district includes Two Harbors and Silver Bay and runs north to the Canadian border.

School districts lobbying at the Capitol in recent days said they've maxed out their various levies, she said.

"I thought, 'Oh my goodness, we have zero dollars in all those areas,'" Kleive said.