Good afternoon and welcome to the tax expenditure review commission. Uh today is Wednesday, July 25th, 2026. Um I am attending uh here in person in capital room 120 with a number of our members and we have some additional members um also joining us online. Miss Schneer, would you please take the role? >> Representative Agbaj, >> present. >> Abbaj, present. Representative Davids, >> present. >> Davids, present. Senator Clark >> here. >> Clark present. Senator Hemingson Jagger >> here. >> Hemingson Jagger present. Senator Karan >> present. >> Karan present. Commissioner Markwart excused. Representative Robbins >> present. >> Robbins present. Representative Smith >> present. >> Smith present. Senator Weber excused. Madame Chair we have a quorum. >> Uh thank you Miss Schne. Um, as you probably heard, uh, we have a new member joining our, uh, the Turk Commission. Um, so today we are welcoming Senator Amanda Hemson Joerger, uh, as a new member of the Tax Expenditure Review Commission. Uh, Senator Hemson Jerger is joining us in the seat previously held by Senator Klein. Um, if you're watching the news, you probably know why. So, um, but Senator Heger, welcome. And, uh, if you want to take a couple minutes just to introduce yourself and to the commission. Thank you. Thank you so much, Madam Chair. So, yeah, Amanda Hixson Jagger, senator for uh district 47, which is Woodbury and South Maplewood. Uh served on the Texas committee last session and just excited to be a part of this uh learn lots of new things and get involved pretty quickly and get hit the ground running. So, thank you. >> Awesome. Thank you so much. We're glad to have you, Senator. Um, we'll move on to the next order of business, which is approving the minutes of the last meeting from June 17, 2026. They should be in your packets, um, or online. Uh, members, if there's any corrections or else, I'll take a motion to approve the minutes. >> So, move, madam, chair. >> Thank you, Chair Davids. Uh, Chair Davids moves the minutes from June 17, 2026. Uh, and I, all those in favor, please say I. >> I. >> All those opposed? All right. Okay, the minutes are approved. Um so on our next order of business, um we are we will review um the tax expenditures that we had talked about previously. Um and then we're also going to take a vote on them because we have the surveys back from almost everyone or at least we have enough to be able to have a discussion and make a make a decision on whether we want to continue, repeal or uh modify those. So, um, so we'll take a vote on those and then LBO director Christian Larson, he's going to walk us through those tax expenditure evaluation summaries for, uh, the three tax expenditures that are listed on the agenda, which I believe are the small winery credit, the interest on contributions to a first-time home buyer account, and the home mortgage interest tax deduction expenditure. So, with that, I'll turn it over to you, Mr. Larson. Uh, please state your name for the record and begin. Cher bajay cheer Davidson and members my name is Christian Larson director of the legislative budget office the has prepared turk member evaluation summaries in accordance with the duties outlined in Minnesota statutes 3.8855 subdivision 59 and in accordance with the procedures of the tax expenditure review commission. The recommendations made today by the commission will be included in the 2026 tax expensure review commission annual report. We have LBO and Hortman revenue staff available to respond to member questions about these tax expenses if needed. The tax expenditures covered today were presented to the commission on December 10th, 2025 and June 17th, 2026. The commission has three tax expenditures on the agenda today for a vote for recommendation to the legislature. Each of the three tax expenditures has a tabulated summary of member responses available in your packets. We received the responses from five members for each of the tax expenditures. Following a brief walkthrough of the tabular results for each tax expenditure, the commission will consider making recommendations to the legislature for the various tax expenditures. Uh the first tax suspension we're going to walk through today is the small winery credit that's 7.2.03. This was heard by the commission or the evaluation was presented to the commission on December 10th, 2025. It was presented as part of the small alcohol producers bundle of tax expenditures. The commission made a recommendation to the legislature on the credit for small brewers and the micro distillery credit last tax expendure or last Turk meeting in June. Uh the commission voted to recommend the legislature repeal those two tax expenditures. Uh the small winery credit has an estimated annual revenue loss of $100,000 and it was adopted in 2017. It does not have a sunset date and it's a credit to the alcoholic beverage tax. The objective of the small winer credit tax expenditure is to promote the development and survivorship of small wineries. members responded with uh some responses of what they believe the taxpenture is trying to accomplish along with their um evaluation of the measurement and effectiveness ratings. I'll skip ahead to the recommendation to the legislature. Commission members suggested that one uh I'm sorry, recommen uh commission members, one commission member suggested the tax measure be continued, one suggest that it be repealed and three suggest that be modified. And there are comments left by members in their evaluation summaries for your review. And from there, I'll turn it over to the chair for uh discussion and a vote. >> Uh thank you so much, Mr. Larson. Um I'll open it up to members if there's further discussion on the small winery credit. [clears throat] Not seeing anything online. >> Madam Chair, >> yes. Uh oh. Uh Vice Chair Clark. >> Thank you, Chair Bau. Um, so as as I dove into this, I I the the but for piece that the the professor from Georgia brought back on the data center presentation just continues to flow in my mind. It doesn't seem that that's clear that this is happening that this industry you know it would expand due to this. I think it it helps in some manners in some manner, but it doesn't seem to be putting folks over the edge and like, oh, this is something that's that's desperately needed. It's about $100,000 spread across a whole bunch of folks. If we're to keep this, though, I would like to see how we ensure that it is for Minnesota producers. It's it's a tax credit that goes to anybody who's selling here versus producing here. And if we're encouraging a Minnesota industry, I think that's a reasonable modification that if we decide to recommend to modify it, that should be part of this. Um, it did seem that there uh I'm not sure who mentioned the go to to go to quarterly filings instead of monthly filings. It does seem rather ownorous for the the producers to be filing this. So, if if we keep it again, that's a a good modification as well. though I do have the overall are we sure we we need this when it's $100,000 of a very a much larger industry. [cough] >> Thank you. Uh Senator Clark. >> Okay. Um well with that um I'll just note that as the chair um chair did say anything. No. Okay. Um, you know, we seem to from the comments that folks put back in and then also with the um number of people who suggested to modify, it looks like there's a potential here to um suggest to the tax committees that perhaps this is something that they would want to look at. So, um, Chair Davis, do you want to make the motion to modify? >> Madam Chair, I'll make the motion to uh to recommend a modification. The tax expenditure can be well modified in accordance with the duties outlined Minnesota statute 3.8855 subdivision 5. >> All right. Thank you, Chair Davis. Chair Davids moves that uh tax expendure 7.203 small winery credit is modified in accordance with the duties outlined in Minnesota statute 3.8855. Um all those in Oh, do we need to take a role? Mel, would you please take the role? >> Representative Avaj. >> Avaj votes I. Representative Davids >> I. David's votes I. Senator Clark >> I. >> Clark votes I. Senator Hemingson Jagger [snorts] >> pass. >> Hemingson Jagger abstains. Senator Karan >> I. >> Karan votes I. Commissioner Markwart excused. Representative Robbins >> I. >> Robbins votes I. Representative Smith >> I. >> Smith votes I. Senator Weber excused. Six eyes's one abstain. No nays. Two excused. Okay. Uh the motion passes and the recommendation is that the small winery credit uh be modified by the tax committees. Um we will then uh go back to uh director Larson. If you could please continue with the next uh evaluation. >> The second tax expensure we'll review today is taxpenture 1.4.14 interest on contributions to a first-time home buyer's account. This is is a subtraction from the individual income tax and was the evaluation for this tax adventure was present presented to the commission on June 17, 2026. It has an estimate estimated annual revenue loss of less than $50,000. It was adopted in 2017 and does not have a sunset date. The objective of the interest on contributions to a first-time home buyer account tax exemption is to support and encourage first-time home buyers to save for the purchase of a home. Uh skipping past the measurement effectiveness ratings uh and moving on to the recommendation to the legislature. One member suggests that tax expansion be continued. Four suggest that it be repealed. And once again, there are comments for your review. >> Thank you, Director Larson. Um [clears throat] any further comments or discussion from membership? Uh Chair Davis. >> Thank you, Madam Chair. And I love first-time home buyers. I think they're wonderful. It's an exciting time in life, but nobody's using it. uh $50,000. I I would think that we I would support repealing it and when all discussion is done, I'd be making a motion to repeal. And it it's doesn't look good when you're voting against first-time home buyers, but but this uh is something that I don't know if it costs more to administer than what is paid out to people or not. I don't have the numbers on that, but uh I'll be moving to repeal it. >> Thank you, Chair David. Anyone else? Senator Cluck. >> Thank you, Chair. Um, I'll be supporting uh Cochair Davids's motion to repeal. There is a we can find a much more effective way to inscent this than we currently have in this manner. So, it's it's well intended. Uh, let's find a better way to make it happen. >> Thank you, Senator Clark. Any others? Anyone online? Not seeing anyone online. Okay. All right. Um, in that case, uh, since Chair Davis would like to make the motion, um, Chair Davis, would you like to make the motion to Yes. Yes. You have it. >> Yeah. Madame Chair, I would move to recommend the interest on contributions to a firsttime home buyer account uh, be repealed in accordance with duties outlined in Minnesota statute 3.8855, subdivision 5, parenthesis 9. >> Thank you. Chair Davids has made a motion uh, that tax expenditure 1.4.14 4.14 uh interest on contributions to a first-time home buyer account be repealed in accordance with the duties outlined in Minnesota statute 3.8855 subdivision 59. With that, Mission Able, will you please take the role? >> Representative Abbaj, >> uh Ibaj votes I. Representative Davids >> I. >> Davids votes I. Senator Clark >> I. >> Clark votes I. Senator Hemingson Jagger [clears throat] >> abstain. Hemingson Jagger abstains. Senator Karan >> I. Karan votes I. Commissioner Markwart excused. Representative Robbins >> I. >> Robins votes I. Representative Smith >> I. >> Smith votes I. Senator Weber excused. Six eyes's when abstain. Zero nos. Two excused. With six eyes. The motion passes. And we can move on to uh the third uh ex uh expenditure evaluation review. Uh Mr. Larson. The final tax expenditure uh before the commission today for a recommendation to the legislature is tax measure 1.3.05, the home mortgage interest tax deduction. This is a deduction from the individual income tax. Uh this was heard by the commission on June 17th, 2026. The home mortgage interest tax deduction has an estimated annual revenue loss of $90,900,000. It was adopted in 1993 and does not have a sunset date. The objective of the Minnesota home mortgage interest deduction is to recognize expenses incurred in generating personal income or wealth and to encourage home ownership among all income levels. And moving to the recommendation to the legislature, two members suggest that the tax benefit be continued. One suggest that it be repealed and two suggest that it be modified. And once again, there are comments available for your review. >> Thank you, Mr. Larson. Um, opening now for discussion. um on how we would like to make a recommendation to the tax committees. Uh Senator Clark, >> thank you chair. Um I note starting with the a commission approved objective. The objective of this interest deduction is to recognize expenses incurred in generating personal income or wealth and to encourage home ownership at all levels of income. What the report showed was that 6% of taxpayers are are able to take advantage of this. So 94% of motans do not take advantage of this and those 6%s are skewed at the highest income levels. So good good for them. Um but for the 94% who largely fall below the top tiers of income in Minnesota and it's largely due to the higher uh standard income deduction. [clears throat] This does not help. >> And so you know and we're at a a home ownership rate that is probably an appropriate we we may have achieved what we were setting out to do of a higher number of homeowners. To me, there's a modification in this. We need to start thinking differently now that we have a higher standard deduction that just completely eliminates the vast majority of folks who had been taking this. When that standard deduction went up, we went from a in the 30% I think it was taking advantage of it down to single digits and it continues to seem to drop. So, I think Minnesota needs to take a look at how we're actually trying to do what the objectives of this tax deduction are because we are not objectively meeting the objectives. It's supposed to be access to opportunity relief of poverty and we're not doing that. So, we either blow the whole thing up, which I don't think is a great idea, or do a a a big modification to get back to what we're really trying to do here, which is the objective to uh recognize the expenses of of this and encourage home ownership at all levels of income. >> Thank you, Senator Clark. Okay. Um yeah, I think um as [clears throat] the chair, I'll just state that I think, you know, one of the things our task here is to make sure that these tax expenditures are actually working. Um and if you know, they're not being taken by the majority of homeowners. I think that's an issue. Additionally, um you know, expenses incurred, you know, when you're trying to own a home or or build your wealth. Um if we're not able to find a way to actually alleviate those expenses, uh for homeowners, I think we it probably behooves us to find another way to do that. So, in my own reading of the report, I was wondering why we don't have more of a direct payment uh for homeowners to be able to uh mitigate some of those expenses in order for them to be able to stay in their home. So, um that is definitely something I would support. I think um based on the numbers that we have of the recommendations from the commission members, it looks like we um we have one for continue, one for repeal, and three for modify. So that to me looks like perhaps maybe that might be a modification motion. Um since we only have one person on repealing it. Um which hopefully will send a signal to both tax committees to um look at this expenditure and try to figure out the best way to make sure that either if we still want folks to take it from their taxes that we open it up so that way more people can do that um or we find maybe a direct payment uh that is better suited to more homeowners. So, um, yes, Mr. Chair. >> Thank you, Madam Chair. And while everything that Senator Clark said I agree with, I don't know if I'm there where I could I couldn't repeal the uh home mortgage or support repealing it. I might look at modifying it, but I'd rather just keep it. But we are in, as Senator Clark said, we are in a much different situation than we were just a few short years ago because with higher standard deduction, uh, as Senator Clark said, very few people can actually use this. And if there's some way to modify to get more homeowners to be able to use it, and I don't know what that looks like right now, I really don't want to modify it, but at this point, I think we have to look at it. >> We We've got to consider it. I think that's what a modification is. Is it looking? >> Yep. [laughter] Yeah, >> I was looking at it. So, >> it's killing me here, chair. >> No one is saying we're going to take it away. All we can tell them to do is you might want to do this better. >> Is that fair? >> I like doing things better. [laughter] >> Uh, Representative Robbins. Thank you, Madam Chair. And I agree with uh co-chair Davids on this. Um, I'm very concerned about um what a modification could look like, especially if, as you referenced, Madam Chair, um, direct payments. I would be very concerned about that. Um, I think we could expand the thresholds for taking the deduction. Um, I I I just I just want to go on record as saying I would be, you know, share Chair David's concerns about the types of modifications. Um, there might be a way that we could do more to um, uh, help on the property tax side by shifting some of this into the homeowner uh, property tax credit. that might be a way if we're really trying to help alleviate costs that might be more helpful to homeowners and capture more of motans. So I would much prefer that direction than I would a direct payment option. So I just want to put that on the record. Thank you. >> Yeah. Thank you, Representative Robbins. Um we see uh Representative Gomez has her hand up on the on the zoom. Representative Gomez. >> Thank you, Madam Chair. I appreciate the opportunity to just share a couple thoughts. Um, you know, I the reason that we uh when we passed this law originally that we did ask the um analysis to include the comparison between a tax credit and a direct like kind of what the alternative would be on the appropriation side was just to sort of highlight some of the conversation um that we're having here today. And so I'm I'm grateful that we completed this analysis. I think it's very um it's very eye opening uh what this is. I mean it is almost $und00 million a year going to the richest motans and doing nothing for the 94% of motans who aren't rich enough to itemize their deductions. And so I I think the idea in our current >> [clears throat] >> um you know budgetary reality and what people working people in our communities are facing every day the cost burden that they're under that I think if people knew that we were just spending a hundred million bucks a year to to give the rich a tax credit for something that they would do anyway. I I think they would be outraged. And so, you know, luckily I don't have a vote on this uh on this um on the Turk anymore cuz I would absolutely be proposing a complete repeal of this because there it's just it's people can use the other thing that's important for for folks to understand about this particular credit is that people can use it for second, 3rd, 5th, 25th homes if they're an itemizer. Okay? So you could use this on your million-doll lake home if it was your second or third home. Um that's tens of millions of dollars of this goes to subsidize the purchase of second homes by those same five% of the richest motans. So um I'm really glad we're having a conversation about this. I think that um you [clears throat] know we all we just talked about the firsttime home buyer um credit and you know the chair Abbaj is being modest in not talking about her years and years of work on um encouraging home ownership especially for firsttime home buyers acknowledging that Minnesota in addition to having a very high home ownership rate has one of the deepest disparities between especially black and native people and white people in home ownership rates. Um that you know, so so there there are just there are a lot of things that we can do that we all agree on um to spend $90 million a year to encourage home ownership in Minnesota and I look forward to us doing that. Thanks so much, Madam Chair. >> Thank you, Representative Gomez. Any other further discussion? Chair Davis. >> Um I think the motion will probably be I don't know if Mr. or Senator Clark wants to make it or you want whoever wants to make it. >> But I do not support repeal. I do not support repeal. On the other hand, with where this thing has been heading over the years, I don't think it's a bad thing to have a discussion on it and see if there are some modifications. I really like the idea from Chair Robbins of uh could some of this go into property tax reductions for everyone. and I don't like and what you're going to see me pushing back on down the road depending on what my status would be or if I even am elected. You never assume those things. uh but um you know something like that and I don't like the income limit things because rich people work hard, poor people work hard, the middle class work hard and all these things that came down through co and all these things where you know if you make more than 75,000 bucks you don't get it and I said is that per month or and they said no that's for the year and so um I would support today to modify with the understanding on the record that I would not support repeal. If there's no modifications can be agreed to, then I would support keeping it, but but one mere vote. So, >> um well, thankfully our job here today is just to make a recommendation to the tax committee. So, you know, we will, you know, more conversations will happen in those tax committees should any of us sit on those tax committees in the next sessions. Um, you know, I will say I think again our role here is to figure out what's working, what's not working. I think we can all agree that, you know, with the limited number of folks who are now eligible to take this tax credit, it's a very small amount um that are taking the tax credit, which obviously I think does not bode well for the rest of homeowners who are under, you know, in a different tax bracket. And so they do their taxes, you know, slightly differently, right? And then if we uh you know, so our question then becomes how can the tax committee use this tax expenditure to make sure that it's actually doing what it's supposed to do? Otherwise, we just have something on the books that's not actually helping as many people as we would like it to. Senator Smith or not Senator Representative Smith, I'm sorry. >> Representative Smith, you are still muted if you are speaking. >> Uh, can you hear me now? >> Yes, we can. >> Um, first of all, how dare you, not Senator Smith. But moving on, >> uh, Chairwoman, uh, maybe just to equal out what Chair Davids, um, has said, I think we're going towards voting for a modification, uh, resolution. I will vote yes on that. But sort of on the opposite end of the spectrum, I would lean much more towards um, getting rid of this tax exemption for a lot of the reasons that um, Chair Gomez has mentioned. Um and uh maybe just one more thing to add here. In the larger case, I think for a lot of motans I talked to perhaps home ownership is not um what we should be talking about specifically as much as just people being able to afford where they live and live where they want to live. For some people that's home ownership and some that isn't. Uh which is why I appreciated uh Representative Robbins mentioning things like property tax relief and and targeted uh programs such as that rather than this program. So um thank you. I think that's just good to kind of have a equalizing opinion on the other other side of things. >> Thank you, Representative Smith. All right. Um either Senator Clark or Representative Davis, would you like to make the motion to modify? All right. Senator Clark, go ahead. >> Thank you, Chair. I'll move that uh for the home mortgage interest tax deduction 1.3.05 05 that it be modified in accordance with the duties outlined in Minnesota statute 3.8855 subdivision 5 uh parenthetical nine. >> Thank you, Senator Clark. Senator Clark moves to recommend that 1.305.05 home mortgage interest deduction expenditure uh tax expenditure be modified in accordance with the duties outlined in Minnesota statute 3.8855 subdivision 59. Miss Shabel, would you please take the role? >> Representative Abbaj, >> I. >> Agbaj votes I. Representative Davids, >> I. >> David's votes I. Senator Clark >> I. >> Clark votes I. Senator Hemingson Jagger >> abstain. >> Hemingson Jagger abstain. Senator Kuran >> I. >> Karan votes I. Commissioner Markwart excused. Representative Robbins >> I. >> Robbins votes I. Representative Smith >> I. >> Smith votes I. Senator Weber excused. Six eyes's, one abstain, zero nos, two excused. >> Thank you, Miss Shabel. With six eyes, the motion's modify, passes. All right. Uh, thank you members for your input and discussion on the topic. Um, and as a reminder, the recommendations of this commission will be included in our 2026 annual report. Thank you, Mr. Larson, and the rest of the LBO staff. Um we will next move on to presentations by the LBO on the following tax expenditure evaluations. Uh those are the mortgage registration for agriculture loans and government housing indeed transfer tax expenditure evaluation reports. Um which is actually a number of uh tax expenditures rolled into one evaluation. Um, and then the second evaluation will be the open space property tax expenditure evaluation report. That may likely be all we get to today since we only have about an hour. So, um, my understanding is this presentation might take a little bit over an hour. So, if you guys can be mindful of time, that would be wonderful. Um, these evaluations will be presented by Annie Lemieux, Thomas Rainey, and Joel Enders from the LBO. Um, and then we'll pause between each presentation for questions. Uh, but with that, I'll turn it over to LBO staff to begin the presentation. Please state your name and title for the record and then begin. [clears throat] Okay. Co-chair Baj, Co-Chair Davids, and members of the commission. For the record, my name is Annie Lemieux, and I'm a program evaluator with the Legislative Budget Office. This presentation will be a combined discussion of [clears throat] the deed transfer and mortgage registry tax exemption evaluations. For context, these are real estate transactions that take place when property is changing hands. These two tax types are commonly bundled and were bundled to reflect the request of a commission member. You have in front of you a full evaluation report and summary for the deed transfer tax exemption bundle as well as a report for the government housing and agricultural loan mortgage registry tax exemptions. The report presentations are combined due to similarities in evaluation methodology and findings. While the presentation will focus on a high-level overview of evaluation background and findings, more detail can be found in the full evaluation report. I'll cover some brief background and methodology context pertaining to each tax expenditure evaluation and then move into discussing each evaluation report included within this presentation. First, I wanted to provide some context on the evaluations included. This slide will serve as our road map as we move through a discussion of the three evaluations. On the left, two mortgage registry tax exemptions were evaluated by the LBO separately due to their unique approved tax expenditure objectives. For brief context, the mortgage registry tax is on the principal debt secured by a mortgage of real property in the state. On the right, six deed transfer tax exemptions were bundled into one evaluation due to overlapping objectives. For context, the deed transfer tax applies to any transfer of real estate by deed or instrument. I'll briefly discuss the evaluation methodology applied to both tax types, followed by a discussion of the two mortgage registry tax exemptions and deed transfer tax bundle. The valuation methodology displayed on this slide was applied to both the mortgage registry and deed transfer tax evaluations. Background research was conducted on both tax types in Minnesota and the LBO met with the Minnesota Association of County Officers to better understand the tax collection and administration of exemptions at the county level. Summary tax filing data was requested from the Minnesota Department of Revenue. However, as exemptions from the mortgage registry and deed transfer tax are administered at the county level, the department of revenue does not have access to specific exemption data for either tax type. To address these data constraints to the extent possible, the Minnesota Association of County Officers assisted the LBO in administering a survey to all 87 counties to provide further context on both the deed transfer and mortgage registry exemption collection and enforcement processes at the county level as well as administrative burden. The survey was administered via email and resulted in an overall response rate of 31 out of 87 counties. However, not all counties were able to provide data responses for each question. The following slides discuss the evaluated exemptions and results in more detail. The two mortgage registry tax exemptions evaluated are an exemption on agricultural loans and an exemption for borrowers receiving loans under low and moderate income housing programs or other affordable housing programs. I'll discuss the mortgage registry tax as a whole and then discuss each exemption in detail. It's also important to note that the overall evaluation findings for both mortgage registry evaluations are inconclusive due to a lack of comprehensive data on exemption utilization across the state. The MRT is based on the amount of debt secured through a mortgage on a real estate purchase and imposed when the mortgage is recorded. The mortgage or or borrower is liable for the MRT. The lender typically collects the tax at closing and remits the proceeds to the county where the mortgage is recorded. MRT is assessed and processed at the county level. Each county remits 97% of the revenues to the state general fund and the county retains the other 3% for its administrative expenses. A statement on the mortgage registry form indicating the specific exemption is sufficient to claim the exemption. The MRT1 tax form is an alternative way to claim an MRT exemption. This form is not required to claim an exemption. Responding counties estimated that 11% of mortgage registry exemptions claimed utilize the MRT1 form. Additionally, counties reported using a variety of software vendors to process land transactions. There is not one uniform way of processing or tracking mortgage registry tax exemptions across the state. The process can vary between individual transactions and counties. As such, it is important to note that the level of detail reported in the next slide on survey responses varied greatly. As mentioned, there is limited data on the number of MRT claims that counties process and a dollar amount for each claim or exemption type. to get some idea of what those numbers might be for a limited number of counties. Survey questions ask for a variety of data points. More information is available in the survey section within the report, but to provide a brief look, the overall median is displayed on the slide. Available response data was also utilized to understand minimum and maximum exemption use for counties that reside in metropolitan statistical areas and counties that reside outside of metropolitan statistical areas. These areas are defined by the Minnesota Department of Employment and Economic Development, which are based on the Bureau of Labor Statistics definition that defines an MSA as an urbanized area with a population of 50,000 or more, as well as other qualifying factors. This definition was chosen over the traditional 7count metro as we did not have 7ount metro responses for all of the data points. The survey is not representative of all Minnesota counties and not all county respondents were able to answer all questions due to data limitations. It's also important to note that there is no way to isolate this data by exemption type. The data collected in the survey was collected for all MRT exemptions and not isolated to the two evaluated by the LBO. However, we still wanted to provide these basic statistics to allow for an overview to the extent possible. As mentioned, the two mortgage registry tax exemptions were evaluated separately due to their unique objectives. I'll now move into a discussion of the government housing MRT exemption evaluation. Beneficiaries of this exemption include borrowers receiving loans under affordable housing programs. A qualifying government entity must either be a lender at the time of recording or the grantee of an assignment of the affordable housing mortgage. The assignment does not need to be presented at the same time as the mortgage for the exemption to be claimed. And qualifying exemption claims generally include a mortgage loan for incomerestricted housing where the borrower is a current or prospective owner or developer of the qualifying property. For more examples, see appendix A of the government housing report on qualifying federal, state, or local government agencies. The objective of this exemption is to incentivize and promote affordable housing in the state of Minnesota. The estimate of annual revenue loss from fiscal year 2024 through 2027 remains constant at 3.3 million. If this tax expenditure were repealed, the mortgage registry tax could be reduced from 0.23 to 0.22%. Due to data limitations, it is not possible to empirically determine the degree to which increases in affordable housing in Minnesota can be attributed to utilization of this exemption. Therefore, the LBO cannot conclude whether or not the government housing MRT exemption is meeting its objective of incentivizing and promoting affordable housing in the state. Without a comprehensive understanding of utilization of this exemption, it is not possible to isolate its specific contribution to the broader policy area. I'll now move into a brief discussion of the agricultural loan MRT exemption and then pause for questions before moving into a discussion of the deed transfer bundle evaluation. But feel free to stop me at any point for questions. The tax expenditure to exempt agricultural loans from the mortgage registry tax is allowed if the proceeds are used to acquire or improve qualifying agricultural real property that is classified as agricultural for property tax purposes. The intended use of the qualifying real property must be for the production for sale of agricultural products and qualifying agricultural products are defined in Minnesota statute. The objective of this exemption is to increase the competitiveness of Minnesota banks offering agricultural loans with federal lenders whose loans are not subject to the state mortgage registry tax. The estimate of annual revenue loss for fiscal year 2026 is 4.7 million. And if this tax expenditure were repealed, the change in the mortgage registry tax rate would be negligible. As with the government housing MRT exemption, the LBO cannot conclude that the agricultural loan MRT exemption is meeting its objective. It is important to note that even if the albioho did have access to statewide exemption data, it would still be a challenge to isolate this exemption's independent effect on lending behavior, borrower outcomes, or lender competitiveness. The following potential modifications apply to both MRT exemptions. One potential modification to gain access to data to evaluate both exemptions would be to systematically track MRT exemptions by exemption type. One option would be to require the use and submission of the Department of Revenues MRT1 form electronically with each claim. The MRT1 form is an existing method utilized to claim both of these exemptions. However, it is not currently required and alternative statements on mortgages are acceptable ways to claim these exemptions. Utilizing the MRT1 form with every transaction could allow the state to obtain exemption level data. I'll pause here for questions before moving into a discussion of the deed transfer tax evaluation. Um, Miss Lemieux, um, one question that I have. So, in the slide it says that the if the tax expenditure were to be repealed for the government housing, that shows a decrease of 0.01%. But in the agricultural loan one, that is negligible. And I'm wondering because the amounts are like a million plus difference from each other. So I'm just wondering why one is negligible and [clears throat] one has a rate decrease that you can see. >> Sure. Um chair and members. Um I can speak to my understanding of it and I know the department of revenue calculates those estimates. Um but my understanding would be based on [clears throat] excuse me based on um the impact of the tax expenditure and the estimate of foregone revenue that would impact um what that rate change would be. >> Thank you. Um >> oh does Mr. Wlette have an additional comment? Uh, madame chair, members of the of the commission, I'm Eric Wlette from the Minnesota Department of Revenues research section. We were just discussing that very observation that you made and I suspect one of the two is a typo because if it's a big if the bigger number the bigger number one should at least have the same rate impact as a small number one. So, we'll check on that and get back to the commission. >> Okay. Thank you so much, Mr. Willock. Um, and then just on [clears throat] the Miss Lemieux on the aspect of the ability to track like who's taking these or how do we know? I guess one thing um at least on the government housing one, is it possible to know if the same uh developers or or folks who buy buildings that want to use it for low-income housing, are they not also probably taking similar other tax credits in Minnesota or even federal tax credits? And is there a way to is that would that be another way to kind of either approximate more of how many people are taking this tax credit chair and members? Um that's certainly a possibility and that would be something we can look into. At this time we don't know um which developers or which local state or federal agencies are taking this tax expenditure just due to um a lack of data. So, we at this time wouldn't really be able to match that. Um, but we could certainly look into kind of overlapping tax expenditures um and see theoretically who who could qualify for those. >> And is that because the uh form is not submitted electronically but only submitted by by paper or submitted through other means? You had explained that but if you could explain that one more time. >> Yeah, chair and members. Um so that that is correct. So the form the MRT1 is not currently required. Um and that would be where it lists out the exemption type. So an alternative method is um writing on the mortgage itself what the exemption is. So at the county level this is processed um every time a transaction takes place. But at the county level, it's not necessarily tracked by exemption type based on the data system that the county uses. >> All right. Thank you. Any other questions from members? >> Uh, Representative Robbins. >> Thank you, Madam Chair. I I would just like you to expand a bit on um the slide number 14 where it says that the purpose of the agricultural loan loan mortgage registry tax is to increase competitiveness of Minnesota banks offering egg loans with federal lenders whose loans are not subject to this tax. Um why is that [laughter] chair and members? um why the federal agency >> right if you're a federal lender you're not subject to the state tax even though the mortgage is held here in the state >> miss lemux >> chair and members that is that is correct >> repres but that's only on the egg loan side it's not on the home mortgage side miss lemmux >> chair and members that's my understanding um I would maybe want to do some more research and confirm that and get back to you >> representative Robbins >> thank you I I would like more information on that. Thank you. Thank you. Uh Senator Clark. >> Thank you, Chair. And and to Representative Robbins points, if you could find out if that's a state exemption or a federal override of of the potential tax we would put on, that would be helpful, too. >> You have another question. >> Yes. Um, so on the uh government housing exemption, um, I I I want us to go down the path of who's actually receiving the that as well. I don't know that it will change my mind and whether we would need to repeal it, not by or uh, keep it. Um, because I think ultimately if we are providing government housing, we the taxpayers are going to end up having to pay for whether you know one way or the other, whether it's exempted 3.3 million or or not. Perhaps there is a creative way we could get through it. But it is a point of data that perhaps you could just audit a few of those mortgages um a sampling of them to go all right we did 3% and that gave us enough to go here's a better understanding of who it actually is getting it. Thank you. >> Uh Miss Leia do you have any other comments or no? Chair and members, my understanding is that um depending on the county, that data would not be available for for our use, but we can certainly uh follow up with the Minnesota Association of County Officers and see if that would be a possibility. >> Okay. Senator Clark. >> Thank you, Chair. I guess my question then is why would it not be available? Is there data practices or and if so if you could include that in your report because that does feel like something since we are providing we we have authorized the tax expenditure that we should be able to know who is receiving it. Yeah, I think uh this is something that's come up before about sort of where the data points are across the state when it comes to these various taxes and who's taking them or tax exemptions and who's taking them. So, I think this maybe kind of go back to a larger question that we had talked about a couple meetings ago uh where the LBO was like looking at additional data sets or data sources. And so I don't know if that's something that still needs continued conversation or if it or if there's something that needs to be done to be so that way you guys have the access that you need to the information that you need to so we can have uh you know [cough] we can make more informed decisions. Um, in the meantime though, I think if there is a way to be able to figure out whether you know, Representative Robin's question about the, you know, the federal carveout or, um, finding out, as Senator Clark is asking, you know, going through a sample of some of the reports from the counties um, before we can actually get things more electronified or, you know, put up electronically. So, I think that's just something we're going to have to continue to figure out as we move forward in these cuz I think we'll probably start uh seeing some more obscure expenditures or even non-obscure expenditures that are just somehow not being tracked, which I think is really important to make sure that we understand where state dollars are actually going. So, >> um Senator Clark, >> thank you, Chair. And I think uh you know some are more obscure and so they cost like $50,000 and probably don't need really need to be tracking them. Others cost 3.3 million 4.7 million seem a little less obscure. So I think there is a a risk assessment we can do on on understanding which ones were like all right it's okay that we aren't collecting that it's the viola gopher count carnival that did not collect the tax information for bingo I know versus cargill transferring funds within their their portfolio of of land across the state and so I think there's different expectations we could have for different taxpayers. >> Sure. All right, Miss Le, if you would like to uh continue with the presentation. >> Co-chair and members, the following six deed transfer tax exemptions were evaluated as a bundle due to their overlapping objectives. So, I'll discuss some background related to the deed transfer tax and then move into a discussion of the evaluation. Should be noted that similar data limitations impacted the scope of this evaluation as were discussed with the mortgage registry tax exemptions. The deed transfer tax is imposed on the value of property transferred from one individual to another, known as a transfer tax. In Minnesota, the standard deed transfer tax rate is 0.33% of the price paid for real property. As with the mortgage registry tax, each county remits 97% of the revenues to the state general fund and the county retains the other 3% for its administrative expenses. The DT1 form serves as a certification of the deed tax amount. However, this form is not required to claim a deed tax exemption. A written statement on the deed indicating the specific exemption may be used in place of the DT1 form. Responding counties estimated that 2% of deed transfer exemptions claim to utilize the DT1 form. This serves to emphasize that there is no uniform way of processing or tracking the deed transfer tax exemptions across the state. Additionally, I'll point out that as with the MRT, counties reported using a variety of software vendors to process land transactions, and there is not one uniform way of processing or tracking deep transfer tax exemptions across the state. As with the MRT, it is important to note that the level of detail reported in the next slide on survey responses varied greatly. As with the MRT, there's limited data on the number of deed transfer tax exemption claims that counties process and a dollar amount for each claim or exemption type. Survey questions asked for a variety of data points. Due to data limitations, no counties were able to provide total deed transfer tax dollar amount exempted by year. Provided on the slide for context of the scale of deeds processed is an average and median count of deeds recorded and count of deeds with an exemption for 2024. It should be noted that as with the mortgage registry tax, there is no way to isolate this data by exemption type. The data collected in the survey was collected for all deed exemptions and not isolated to the six exemptions evaluated by the LBO. Within this bundle of six exemptions, there are three categories of approved objectives. The objective of property partition between co-owners, distributions by personal representatives, cemetery lots, and mortgage and lean foreclosure sales is to define the tax base for the application of the deed transfer tax. The objective of the exchange of permanent school fund lands exemption is to help ensure the permanent school fund secures maximum financial return consistent with fund goals and fiduciary responsibilities. And [clears throat] the objective of the decree of marriage dissolution exemption is to define the tax base for the application of the deed transfer tax and lessen the financial burden on individuals undergoing divorce proceedings. To recap, four exemptions share the objective of defining the tax base. The permanent school fund objective seeks to secure maximum financial return consistent with fund goals and the decree of marriage dissolution has the dual objective of defining the tax base and lessening the financial burden of those undergoing divorce proceedings. The estimates on this slide are the same estimates provided by the department of revenue in the 2024 tax expenditure budget. Each line shows the estimate of annual revenue lost for each tax expenditure included in this bundle by fiscal year. The asterisks indicate that the estimate of annual revenue lost is less than $50,000. All tax expenditures that share the objective of defining the deed transfer tax base meet their objective through utilization. By existence, they are defining the tax base and exempting these particular life events from the deed transfer tax. The decree of marriage dissolution exemption also meets its objective of lessening the financial burden on individuals undergoing divorce proceedings through utilization. Without the exemption, individuals undergoing divorce proceedings would be required to pay the deed transfer tax. And finally, the exchange of permanent school fund lands exemption meets its objective of helping to ensure the permanent school fund secures maximum financial return through utilization as well. Without this exemption, exchanges of permanent school fund lands would be charged the deed transfer tax. While the deed transfer tax exemptions were found to meet their objectives through utilization, potential modifications include systematically tracking deed transfer tax exemptions by exemption type. As with the MRT, one option to do this would be to require the use and submission of the Department of Revenues DT1 form electronically with each claim. The DT1 form is already an existing method utilized to claim deed transfer tax exemptions, but is not currently required. As with the MRT, utilizing the DT1 form with every transaction could allow the state to obtain exemption level data. Additionally, for future evaluations, further analysis could include revisiting the proposed objective statements of defining the tax base to include lessening of tax burden on specific groups. For example, the decree of marriage dissolution exemption has a dual objective of defining the tax base and lessening the financial burden for those undergoing divorce proceedings. An analysis of whether such a dual objective would be appropriate for the other deed transfer tax exemptions might allow for further understanding of the effectiveness and efficiency of these tax exemptions. In conclusion, the LBO is not able to analyze how many claims or the exempted value of each claim for any of the mortgage registry or deed transfer exemptions due to current data limitations. Overall, one possible modification could be to require the use of the MRT1 and DT1 form to claim mortgage registry or deed transfer tax exemptions. Implementing structured reporting by exemption type could enable longitudinal analysis, improve accountability, and support evidence-based decisions regarding the continuation or modification of this exemption. The last component of review is that the commission may consider these findings for a recommendation to the legislature to continue repeal or modify the policy. With that in mind, we're happy to provide more information to the content presented today or the material within the report. And I'll also mention that the slide deck does contain more material than we have time to present on today. So we encourage members to reach out if any material or follow-up would be helpful. To that end, we appreciate your time and attention and we're happy to answer any questions. >> Thank you. Um any comments? Representative Robinson. >> Thank you, Madam Chair. You know, it occurred to me in both sections of the presentation to ask what how do we compare to other states on a mortgage registry tax, whether it's the egg or, you know, or in these defined um I forget what we're calling them, but deed transfer taxes. So, if you don't know that, I would love to see how Minnesota compares in the rate of the tax versus other states. Miss Lumia chair and members, off the top of my head, I don't remember the specific rate comparison between Minnesota and other states, but I kn do know that we have a section in the report that at least lists out um what other states have similar mortgage [clears throat] registry and deed transfer tax exemptions. So, we could look further into the actual rate comparison. >> Representative Rob, >> thank you. >> Any other comments? Uh thank you so much for your presentation uh Miss Lemieux. Um and then we will move on to the second presentation. >> Oh rep, uh Representative David, >> Senator Clark, sorry. >> Thank you, Chair. Um just to note, um where I was talking previously about there might be some revenue or some lost revenue items that we having more data isn't necessarily necessary. Cemetery lots is $100,000 a year. I don't think you need to run down who's actually doing that or personal representatives. So, um, again, just the these ones are bit smaller. You don't need to know that Northeast United Methodist Church transferred a lot over to Grace United Methodist Church in 2024. Maybe we do, but I to the point of it would cost more money on the data collection than um would be be helpful. Thank you. >> Thank you, Senator Clark. And thank you again. I think we'll look through um I know there's more information in the full report that you guys have provided. So, you know, if we have additional questions from that, we'll be sure to reach out. But thank you again for for the report. And we'll move on to the second presentation. [clears throat] Mr. Rainey and Mr. Enders, uh please introduce yourselves for the record and begin. >> [clears throat] >> Chair Vajay and members for the record my name is Thomas Rainey and I'm a program evaluator with the LBO. If you can just give me one moment while I pull up the slides um and while I'm doing that I'd like to note that the full report is included in your packets and if you just have that ready we'll have you pull that out to reference at one point throughout the presentation. >> Thank you. Okay. So, I will be presenting the open space tax expensure evaluation along with my colleague Mr. Enders. So I will cover some background information about the program, the objective of the tax expenditure, an overview of how the open space program works, and a few findings. And Mr. Enders will conclude the presentation by discussing additional findings related to estimated tax liability, shift estimates, and other components of review. So the open space program was enacted in 1969. There have been numerous modifications since then, the last of which was in 2005. Under the open space program, private, recreational, social, open space, and park land is given preferential valuation and tax deferral as long as it meets certain criteria. For property tax purposes, the property is valued at its current use rather than a higher value that would reflect its potential use. Qualifying property includes golf courses, ski areas, lawn bowling, croquet, polo, and archery and firearms ranges. When the open space property no longer qualifies for preferential valuation, taxes are due equal to the amount by which the preferential valuation reduced the tax for the previous seven years. The open space property tax law is intended to encourage the preservation and development of private outdoor recreational open space and parkland which would otherwise not occur or have to be provided by a governmental authority. The objective is approved and adopted by the tax venture review commission on March 15th of 2024. 69 facilities received a deferral in taxes payable year 2024. Many of these facilities are comprised of one or more parcel. In some cases, they consist of up to 20 and there are total of 284 parcels between the 69 facilities that received deferral. For simplicity, statistics and estimates are provided based on facilities rather than parcels. Again, in taxes payable year 2024, there were 56 golf courses, 10 firearms or archery ranges, and three ski areas. There were no croquet or polo facilities in the program. 59 of those facilities were located in the Twin Cities metro and mo most of which were located in Henipin County. The estimated shift impact in taxes payable year 2024 is $15,900,000. So, I'm going to work through the mechanics of this program over the next several slides, and I'd like to acknowledge the fact that the property tax system is quite complex and that we have simplified our explanation for the sake of clarity. Uh, please ask questions along the way if anything is unclear. Additionally, we've outlined a few property tax resources in appendix D of the report located on page 38. I'm going to go over a few key terms on this slide and I would also note that there is a broader glossery in appendix A of the full report on pages 26 to 28. The first term is the estimated market value. This is the value determined by the assessor as the price the property would likely sell for on the open market where the buyer and seller are not related and both are educated about the property. The next is the taxable market value. This is the amount that is used in calculating taxes for a property. In the case of open space, this would be the use value of the qualifying portion of the property plus the highest and best value of the non-qualifying portion of the property. Preferential valuation. This is a reduction in or deferral of property tax liability by assessing property at a value lower than its highest and best use value. The market value deferral. This is the portion of estimated market value being deferred until the property is sold or no longer qualifies. The net tax capacity. This is the property's taxable market value multiplied by classification rates. And lastly, uh tax liability deferral. This is the portion of tax liability being deferred until property is sold or no longer qualifies. And again, the facility must pay back the previous seven years of tax liability deferrals. So, how does the open space program work? The open space program is administered at the local level. Local assessors begin by calculating two values for qualifying facilities. First, the estimated market value which is based on the highest and best use of the property and then the taxable market value which is based on the current use of the qualifying portion of the property. The difference between tax liability based on em the estimated market value and tax liability based on the taxable market value is deferred so long as the property remains eligible for the program. So open space facilities may be subject to uh four property tax types each of which is a portion of the total tax liability of the facility. I'll give a highle overview of each tax type and how the respective rates apply and I'll then work through a hypothetical open space calculation. So the first tax type is a net tax capacity based property tax. The taxable market value of a property is multiplied by the property's classification rate to produce the property's net tax capacity and local rates are then applied to the net tax capacity and these rates come from taxing jurisdictions such as cities, counties, special taxing districts or school districts. The second tax type is the referendum market value based property tax. This is this uh the local RMV tax rates are applied to the taxable market value of the property that is enrolled in open space. These are primarily school district operating levies. Uh the next t tax type is the fiscal disparities program. Fiscal disparities are a regional taxbased sharing program that is applied to a certain classification of property. These areas include the 7count metro area in the Iron Range. A fiscal disparity disparities areawide rate is applied to a portion of a property's net tax capacity. And lastly, open space facilities classified as 3A commercial industrial are subject to the state general property tax levy. State general tax rates are applied to a net tax capacity based on the taxable market value of the property above $150,000. The net tax capacity, referendum market value, fiscal disparities, and state calculations all start with a property's taxable market value, which is a result of the market value deferral due to the open space program. This point is visualized on the next slide. So this diagram uh provides a simpl simplified visual representation of the components of the property tax calculation that are impacted by the open space program. For the sake of simplicity and clarity, these are uh there are se several aspects of this calculation that are not included in the slide. The property is valued at an estimated market value which is its highest and best use value and its use value which is equal to its taxable market value. The difference between the two values is the market value deferral. So the taxable market value is equal to the estimated market value less the market uh less the market value deferral. The taxable market value is then used to calculate taxes for all four of the property tax types that were discussed in the previous slides. provide a more detailed example of NTC based tax liability on the next slide. So net tax capacity uh liability is visualized on this slide. Again the market value deferral is subtracted from the estimated market value to get the taxable market value of the property. That value is then multiplied by the applicable classification rates to get the net tax capacity. And this is the amount that local tax rates are applied to, such as cities, counties, school districts, or special taxing districts. Okay. So now work through a hypothetical tax liability calculation with and without the open space program. So figure one on page nine of the report includes the full calculation. I'll be breaking down the calculation into four parts and referencing the table included in this slide. The calculation is based on a golf course classified as 3A commercial industrial and taxes payable year 2024. And this example holds tax rates constant for simplicity. However, real world rates adjust due to tax shifts that occur due to the program. And this point will be discussed in greater detail later on. So this table shows how the open space program impacts all four hypothetical tax liabilities included on rows D, E, F, and G. And all four of these are summed to get the total estimated tax liability. So row A indicates the estimated market value of the hypothetical property is $1 million. Row B shows the market value deferral of $250,000 and row C shows the resulting taxable market value which is 750,000. The column titled without open space shows that the tax what the tax liabilities would be without the open space program. And in this case, the open space program resulted in a $7,625 tax liability deferral. So the LBL calculated these estimates for every facility enrolled in the program and taxes payable year 2024. I'll now turn it over to my colleague, Mr. Enders, to discuss those estimates as well as the findings of the evaluation. >> Please proceed. Good afternoon, co-chairs and members. For the record, my name is Joel Enders. I'm a lead budget analyst with the LBO. I'm going to summarize how the open space program affects tax liability and the broader tax system, why properties left the program over the 20-year period covered by the evaluation, and some potential modifications for the commission to consider. The LBO estimated tax liability with and without open space for every facility that received a deferral in taxes payable year 2024. These estimates are included in figure 12 of the full report in appendix B on pages 30 through32. I will note that these estimates adjust net tax capacity and referendum market value rates due to property tax shifts caused by the open space program, but hold fiscal disparity program rates and special taxing district rates constant to balance model simplicity and accuracy. Taxing jurisdiction levies are held constant. So it is assumed that city, county, school district or other taxing jurisdictions would have levied the same amount regardless of whether an open space deferment was present. So before we get to into uh the tax liability slides, let's take a quick look at how much market value is deferred by county to to uh get a sense of scale. Henipin County has the highest number of open space facilities and the highest combined market value. Collectively, open space properties in Henipin County also have the highest percentage of estimated market value deferred, suggesting that the gap between what openspace properties are used for and what they would likely sell for on the open market is higher in Henipin County than elsewhere. The next slide shows the percentage of total tax liability deferred by facility type with an additional distinction for member onlyly golf courses and publicly accessible golf courses. Publicly accessible means that anyone can book a tea time regardless of membership status though the cost to play does vary quite a bit between courses. 87% of total deferred tax liability is due to 25 member onlyly golf courses. 10% is due to 31 publicly accessible golf courses. Approximately 1% is due to firearms or archery ranges. And approximately 1% is due to ski areas. Slide 18 visualizes the deferred tax liability of properties in the open space relative to each other. The higher the tax deferral, the larger the gap between the property's value as a recreational facility and its highest and best use, which is often residential development. For reference, the median amount of taxes deferred for all open space properties in taxes payable year 2024 was around $25,000. Minnesota statutes requires the commission to estimate the measurable impacts and efficiency of the open space program in accomplishing its objective which is to encourage the preservation and development of private outdoor recreational open space and parkland property which would otherwise not occur or have to be provided by governmental authority. However, a causal analysis that tracks the supply of private outdoor recreational properties over time is not feasible for several reasons. First, the open space program was established in 1969 and the earliest year of available data is assessment year 2004. Second, while the LBO can estimate the benefit each facility received from a deferment, the impact of that benefit is relatively unknown without the additional context of private business revenue and expenses. The third, there are significant data limitations when comparing qualifying open space facilities to the same types of facilities outside the program or comparing them to other states. These limitations prohibit the LBO from concluding whether the open space program has achieved its objective. There is sufficient data to address the following questions. What does the open what does program participation currently look like? What is the benefit per facility? What is the broader impact of this program on the property tax system? How has the open space program participation changed over time? when these facilities left the program or were sold, how was the land developed and what are some additional considerations for future evaluations of the open space program? The first two questions were touched on earlier in the presentation and we'll add some additional context in the following slides, but first we'll take a look at how the open space program affects the property tax system. Several data sources were used to address the research questions outlined on the previous slide. These include parcel level data ranging from assessment year 2004 to 2024, interviews with a sample of county assessors, county records, and publicly available articles and meeting minutes that discussed open space facility closures. So, we'll start with the question. How does the open space program affect the property tax system? Preferential valuation and tax deferment programs like openspace affect the tax system differently than income or sales tax expenditures. An open space deferment does not reduce the amount of tax revenue that is collected, but shifts tax liability from properties receiving a deferment to all other properties in the same taxing jurisdictions. The shifting effect will be greater where a relatively high amount of tax burden is shifted across a relatively small tax base. Conversely, the shifting effect will be less when a relatively low amount of tax burden is shifted across a relatively large tax base. The estimated tax shift across all jurisdictions in fiscal year 2027 is estimated at $17.5 million. Slide 22 shows the estimated amount of tax liability that was shifted from qualifying properties to all other properties in the same taxing jurisdiction in taxes payable year 2024. Detailed property tax liability shift estimates can be found in figures 11 through 16 in appendix B of the evaluation. Okay. Okay, so now we'll do a quick walkthrough of figure 12 and appendix B that shows the estimated shift from an open space facility to a residential homestead in the same taxing jurisdictions. A few things to keep in mind before we begin. First, the methodology used to produce this estimate is similar to what you might see in a taxes committee. And I'll also note that as we mentioned earlier in the presentation, these estimates hold fiscal disparity program rates, special district rates, and levies constant. So with that, please turn to figure 12, which is on page 31 of the full evaluation. I will briefly walk through the column headers so you can see how these estimates work. For those of you in person, figure 12 is the large fold out near the back of the evaluation. I'll pause here, Mr. Anders. I just want to be mindful we have about 10 minutes left, so All right. So, we'll just run through these really quick. Um, so columns A and B show the three primary taxing jurisdictions that the facility is in. County, city, and township. County, city, township, and school district. Open space properties are often subject to several other taxing jurisdictions, but for space purposes, these are not shown in figure 12. Column C is used for tracking purposes and denotes the exact combination of taxing jurisdictions that the facility is in. Note that you may see a facility listed more than once on this table if the property is bisected by multiple taxing jurisdictions. Columns D and E show the ownership show the owner taxpayer name and what the facility is used for. Columns F through H show the property's estimated tax liability with and without open space and the difference that is shifted to all other properties in the same taxing jurisdictions. Columns I through L show the tax burden shift from open space properties to a specific property type, residential homesteads. Column I shows the average estimated market value of residential homesteads in the same taxing jurisdictions for taxes payable year 2024. Column J shows the amount of property tax liability that is shifted from the facility to an average valued residential homestead in the same taxing jurisdictions in taxes payable year 2024. For reference, most average valued residential homesteads in figure 12 see a shift of $5 or less. Columns K and L show the effective tax rate of an average valued residential homestead in the same taxing jurisdictions with and without the property receiving an open space deferment. Effective rates show tax liability as a percentage of the property's market value. This allows comparisons uh it helps us compare tax burdens between properties of different values, types, and location. Note that for most open space properties, the shift amount is too small to affect the average valued residential homestead. Okay. Now we'll uh come back to the presentation and look at participation trends and what became of properties that left the program. So the number of participating facilities fluctuated somewhat between 2004 and 2024. 51 facilities were continuously enrolled. 22 facilities entered the program. 25 facilities exited the program and six facilities entered and then exited the program during the 10year time period. Net enrolled facilities declined from 76 in 2004 to 72 in 2024. The most facilities enrolled during this time period was 82 in 2010. Facilities left the open space program for a variety of reasons over the 20 years between 2004 and 2024. Properties were most often sold for residential development, particularly golf courses in the metro area. Two properties were purchased by cities, one to preserve the property as a golf course and the other was ultimately converted back into a wet wetland area. The two properties were sold for other development types including a distribution center and a medical clinic. 10 facilities lost open space status or did not reapply for a deferment but are still operating as private recreational facilities and four facilities simply closed and the land was not redeveloped. In addition to the open space program, some golf courses may also qualify for the 4C2 golf course classification. A property classified as golf course would have a classification rate of 1.25% 25% applied to the property's taxable market value to determine net tax capacity instead of what would generally be a 3A commercial classification rate of 1.5% for the first $150,000 of taxable market value and 2% for taxable market value over $150,000. The force the 4C2 classification shifted an estimated $430,000 from qualifying properties to all other properties in the same taxing jurisdictions, assuming qualified properties would have otherwise been classified as 3A commercial. The LBO identified seven other states where privately owned golf courses were explicitly referenced in state law for preferential valuation purposes. The LBO did not identify any states where skiing, lawn lawn bowling, croquet, polo, archery, or firearms ranges were explicitly referenced, but similar types of recreational facilities could receive preferential valuation under broader provisions in state tax codes. Assessments can also be impacted by local level zoning regulations and deed restrictions. A more detailed discussion on other state practices is included in the full report on pages 11 through 13. LBO conversations with county assessors identified two potential modifications for the commission to consider. Uh first, administrative burden for county assessors and applicants could be reduced by changing the reapplication frequency to every other year or greater and aligning the annual application due date with other significant property tax dates. For reference, the annual application that facility owners submit to counties is included in your packet. The second, there is less open space program guidance around use value calculation compared to other tax deferment programs. Assessors reported that use value determinations were often complicated, timeconuming, and needed to be performed by seasoned staff, but staffing capacity relative to the number of open space properties varied from county to county. For some counties, the administrative burden was minimal. Uh but for others, staff turnover or retirements was a serious concern. Some counties share data and methodology, but there isn't a central source of information. The commission could consider recommending the Department of Revenue provide additional guidance and resources for county assessors. The evaluation presented here could serve as the groundwork for future open space evaluations. Additional research topics for the open space program are included on pages 23 to 24 of the evaluation and could could include additional research on preferential valuation of golf courses in other states. Establishing a baseline measure of existing government provided facilities that would otherwise qualify for the open space program if privately owned. Additional research into the valuation of privately owned recreational facilities and possibly surveying owners and operations owners and operators of these facilities. In conclusion, the LBO is unable to determine if the open space property tax law has encouraged the preservation and development of private outdoor recreational facilities over time due to several data limitations. From assessment year 2004 to 2024, most of the facilities enrolled in the program have been golf courses. Net enrolled facilities declined in from 76 in 2004 to 72 in 2024. properties that left the program most often sold for residential development. Open space deferments shift tax liability from qualifying properties to all other properties in the same taxing jurisdictions. And interviews with county assessors revealed potential modifications for the commission to consider. And then before we conclude, I'd like to expend extend special thanks to county assessors, Department of Revenue staff, and legislative staff for their review, input, and advice, which was invaluable. This concludes our summary of the open space program evaluation, and I'd be happy to answer any questions that you may have. Thank you. >> Thank you, Mr. Rainey, and thank you, Mr. Ender. Uh, we only have about four minutes left. So, what I will probably do is we'll bring this uh evaluation back up again next month so we can have uh more questions and conversation about it. Um and then for now uh we'll talk about the next order of business in uh in August uh which our next meeting is August 19th. Um so we'll do a similar format but we'll talk we'll have we'll have some time at the beginning for discussion for this one. Um just so that way we can ask questions before we actually review it. So maybe not send out the uh survey just yet until we have that conversation. Um so the next Turk meeting in August will include evaluations about the beginning farmer management credit, sales of agricultural assets to beginning farmers credit and the employer transit pass credit. Um and then hopefully we'll get to some initial reviews so we can uh continue on with the evaluations. Um any other items or member or comments for members for next meeting? Okay. Thank you, co-chair Davids. Um so just as a reminder, we have moved to an online survey. So at least for the uh first one on the mortgage uh was it the mortgage deductions rates? Um mortgage registry and deed transfer taxes, you should uh fill out the survey for that one. you won't have to worry about filling out the survey for the open spaces since uh we'll still give some time to discuss that one. Um and then make sure that once you receive it, you get your surveys in within the week. And then if there are no other comments or questions, we are journ. Thank you. [music]