Many Minnesotans just paid off the second half of their property taxes for the year. But local governments are already deep in discussions that will determine what homeowners owe in 2024.

Under St. Paul's proposed plan for next year, the owner of a $267,400 median-value home would owe $1,254 in city taxes, plus $1,051 in fees for city services. That doesn't include taxes for Ramsey County, the school district or other jurisdictions.

Wondering why it costs that much? Here are five things to know about your city tax bill.

Elected leaders set the annual property tax levy

While creating a fiscal plan for the year ahead, officials decide how much the city needs to collect in property taxes to fund services — from pothole patching and snow plowing, to police and fire, to parks and libraries.

That total is the property tax levy. St. Paul Mayor Melvin Carter's budget proposal for 2024 includes a levy of $208 million, which would make up about a quarter of the city's overall revenue. The City Council will vote on a final budget in December.

Dollars are split between city departments to pay for salaries, equipment and other expenses.

How the city spends a St. Paul homeowner's property taxes
Breakdown for a median-value home under proposed 2024 budget
*General government includes funding for the City Attorney's Office, City Council, Department of Planning and Economic Development, Emergency Management, Office of Financial Services, Mayor's Office and Office of Technology and Communication.
Source: City of St. Paul

St. Paul's proposed levy for 2024 would mark a 3.7% increase from this year. But an individual homeowner's property taxes will not automatically increase by the same percentage.

That's because other factors, such as growth in the tax base and assessment trends, help determine each property owner's slice of the levy pie.

Additionally, a variety of other funding streams — such as aid from the state and fees for certain services — cover the costs of running a city. Fluctuations in those sources can influence city leaders' budget decisions.

City property taxes and other fees for homeowners have been going up

Between 2005 and 2023, an owner of a median-value St. Paul home has seen their city property tax bill grow by 200% — more than three times faster than inflation.

City officials offer a few explanations. Notably: In the 12 years prior to 2006, St. Paul did not increase its property tax levy, leaving more recent city administrations to play catch-up.

Additionally, large property tax increases in 2018 and 2023 were partly driven by a change in how St. Paul bills residents for street maintenance. Following court orders, those costs shifted from individual assessments to the property tax levy.

The switch placed more of the city's tax burden on homeowners because the 20% of St. Paul properties that are tax-exempt — including churches, universities and hospitals — no longer contributed funding for street work.

Flat fees for trash, recycling, water and storm and sanitary sewer services have also risen over time. Together, those charges cost almost as much as property taxes for a median-value St. Paul homeowner. But unlike property taxes, those dollars are dedicated to a specific purpose.

St. Paul's aid from the state has not kept up with inflation

Property taxes and local government aid (LGA) are the city's two main funding sources that don't come with restrictions.

The Legislature launched its LGA program in the 1970s with the goal of reducing property tax levies. Each year, the state distributes some of its income and sales tax revenue to cities, using a formula based on population and other data.

Facing shortfalls two decades ago, the state cut LGA and never fully filled in the gap. The Legislature voted to increase St. Paul's allocation by $8.8 million in 2024, but city officials say that's still $69.4 million less than the city would get now had funding kept pace with inflation.

On top of that, officials say under the current LGA formula, St. Paul has the largest gap of any city between its funding needs for basic services and its ability to raise money through property taxes.

In 2000, nearly a quarter of St. Paul's budget came from local government aid. Under the 2024 proposal, it would make up just 10%.

The result? St. Paul has increasingly turned to its property tax levy to support city services.

The costs of running a city have increased, too

Just like it has with household budgets, inflation has boosted the city's expenses.

Salaries, which make up more than a third of the city's total costs, have increased 43% over the last decade. Another 15% of spending goes toward benefits, which have grown just as much.

The city's workforce has not grown correspondingly. Over the last decade, the number of people employed by St. Paul increased by 6%.

There are a number of factors at play, especially since the pandemic: A tight labor market, a wave of retiring baby boomers and shifting work preferences have all put pressure on wages. There's also a national trend of rising health insurance costs.

Federal COVID aid has helped mitigate budget impacts in recent years, but most of those dollars must be obligated by the end of next year.

It's not just homeowners footing these costs

In St. Paul, commercial and industrial properties will bear the brunt of tax increases in 2024.

Residential properties make up more than 80% of St. Paul's tax base, and the exploding real estate market has contributed to a tough few years of tax increases.

The housing market is finally cooling from its pandemic peak, in large part due to higher interest rates. The latest property assessments in Ramsey County, used to determine taxes payable next year, reflect that slowed growth.

St. Paul commercial properties, on the other hand, saw a decline in value when the pandemic hit and many employees started working remotely. Investments in those properties have started to climb back — so their property valuations have been increasing at a faster pace.

That means the owners of those properties will take on a larger slice of St. Paul's levy pie next year. Because commercial and industrial properties are taxed at higher rates than residential buildings, homeowners could even see some relief.

With uncertainty still looming over the future of the office market, there's no guarantee the pendulum won't swing back in the other direction in future years.

But there are also some bright spots on the horizon: Several large development projects, including United Village near Allianz Field and the Heights at the former Hillcrest Golf Course, are poised to increase St. Paul's tax base in years to come.

Graphics: C.J. Sinner

Katie Galioto is a business reporter for the Minnesota Star Tribune covering the Twin Cities’ downtowns.

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