Commercial and industrial businesses in small Freeborn County communities may see as much as 15 percent increases in their property taxes during 2012 in large part because of the elimination of the homestead market value credit.

While the estimates are not as high for Albert Lea businesses, they, too, may see an about 8 percent increase.

Those were the estimates given Tuesday during an informational meeting set up by the Albert Lea-Freeborn County Chamber of Commerce to help business owners find out how the recently approved state budget, coupled with potential levy increases, may impact property taxes.

The estimates included the proposed levies already approved by Freeborn County and Albert Lea but assumes no change in school levies or the state general property tax.

“We want to get the word out there in any way we can,” Albert Lea City Manager Chad Adams told a crowd of about 25 business leaders. “We just want to let you know changes are coming.”

Adams, Freeborn County Administrator John Kluever, Freeborn County Auditor-Treasurer Dennis Distad and Freeborn County Assessor Ryan Rasmusson said they wanted to help business owners know what to expect before they receive their November tax statements and also help them understand why the changes are coming.

House Property Tax Committee Chairman Greg Davids, District 31B representative, and District 27A Rep. Rich Murray were also in attendance to share remarks with the audience.

Rasmusson explained that many of the changes are taking place because of the elimination of the homestead market value credit. This was one of the cost-saving measures the state used to close the $5 billion two-year state budget deficit.

Under the market value tax credit, homeowners claiming homestead on their tax statements received credits reducing their gross tax. The state reimbursed local governments for a portion of the market value credits granted to individual taxpayers on tax statements.

Now, to cushion the blow of the elimination of the credits to homeowners, the state instituted a homestead market value exclusion, under which about 40 percent of the first $76,000 in market value of a home will be excluded when figuring out taxes. The exclusion reduction is equal to 9 percent of the market value over $76,000 until it hits zero exclusion at $413,800 of the market value.

This will in effect also reduce tax capacity.

Adams said the one benefit to the change, however, is that it will take away any question about whether the state will reimburse all the money it promised because there will no longer be a payment to cut.

In seven of the last eight years, the state did not pay the full credit amount to some local governments because of budget problems. Now, local governments will receive the full amount they levy from their taxpayers.

This was a reason Davids, R-Preston, said he ultimately agreed to this idea.

Rasmusson said commercial and industrial businesses will not be the only classes to feel the effects of the shift; residential nonhomestead properties and even homestead properties will also see a change in their taxes.

He said nonhomestead residential properties in Albert Lea can expect an about 10 percent increase in property taxes from 2011 to 2012, including proposed levies for Freeborn County and the city of Albert Lea.

Residential homestead properties in Albert Lea valued at $50,000 will see a slight decrease in property tax, but residential homestead properties at $100,000 and higher will see increases, depending on the value.

According to estimates, a homestead property valued at $200,000 will see a 7 percent increase; a $300,000 property will see a 9 percent increase and a $400,000 property will see a 10 percent increase.

These are including proposed levy increases for Freeborn County and Albert Lea.

Murray applauded local leaders for their efforts to address the market value credit change.

“We’ve got a broken program, and we need to do a better job of working with this,” Murray said.

‘The pain might have just doubled’

Albert Lea Economic Development Agency Executive Director Dan Dorman distributed charts at the meeting that showed changes in property taxes from 2003 to 2010.

He pointed out that cities such as Albert Lea and Austin have seen 7 and 8 percent property tax increases for commercial and industrial businesses valued at $1.5 million since 2003, while cities such as Chaska, Eden Prairie and Minnetonka have seen decreases by at least 10 percent.

That’s not including the impact of the legislation passed this year, Dorman said.

While commercial and industrial businesses in Freeborn County could see increases as low as 8 percent and as high as 15 percent, businesses in the metro area will only see increases by about 1 percent.

“The pain might have just doubled in one legislative session,” he said, noting it will be difficult to grow tax base and be competitive locally — with both other cities outside of the state and even with other cities in the metro area.

He and others talked about the need for greater geographic equity.

Albert Lea resident Matt Benda asked the city and county leaders what each entity is doing to expand the tax base or to control operating costs since property tax base has decreased as a result of legislation.

Kluever said most department budgets in the county have remained flat during the last three years, with the Department of Human Services seeing probably the largest reductions.

He said the county has reduced 15 to 17 positions during the last three years.

Davids said as tax chairman one of his main goals is competitiveness for the cities in the state. He noted he is working on some major proposals he thinks will be beneficial to this area.