Budget Committee March 24, 2025   3/24/2025

Good afternoon, my name is Aisha Chugtai and I'm the chair of the Budget Committee.

I'm going to call to order our Budget Committee meeting for Monday, March 24th, 2025.

Before we begin the meeting, I want to offer a friendly reminder to all members, staff, and the public that these meetings are broadcast live to enable greater public participation.

These broadcasts include real-time captioning as a further method to increase the accessibility of our proceedings to the community.

Therefore, all speakers need to be mindful of the rate of their speech so that our captioners can fully capture and transcribe all comments for the broadcast.

We ask all speakers to moderate the speed and clarity of their comments.

At this time, I'll ask the clerk to call the roll so we can verify the presence of a quorum.

Wonsley.

Present.

Vita.

Present.

Ellison is absent.

Osman.

Present.

Let the record reflect that we have a quorum.

I'll also note that we have been joined in this committee by Councilmember Cashman.

I'll also remind my colleagues that we will be using speaker management today, so please make sure to sign in.

Colleagues, the agenda for our meeting is before us.

We will first begin with the consent agenda which is approving three appointments to the 2025 Local Board of Appeal and Equalization.

Are there any questions on this item?

I am not seeing any so I will move approval of these appointments.

That item has been moved and seconded and seeing no further discussion, all those in favor please signify by saying aye.

Aye.

Those opposed say nay.

Any abstentions?

The ayes have it and that motion carries.

I will invite our City Assessor Rebecca Malmquist to join us and begin that presentation.

Good afternoon, committee members.

Thank you for this opportunity to present some of the highlights of the 2025 assessment to you today to the Budget Committee.

I want to thank our staff and I would just like to take a moment and comment on the fact that I do have several of our team with us today so that they had an opportunity for names and face and in-person

Because as you know our staff are in the community each and every day working with her property owners and I think it's important for them to be able to see you and you to be able to see them so that when you have questions or need to direct a Constituent property owner to one of them that you have already built that relationship.

So thank you for that opportunity this afternoon

It has been a tumultuous year for the Assessor's Office, and I wanted to go into that more at the end, but I just want to remind Council that we implemented our new computer-aided mass appraisal system last spring.

I'm so sorry, Director Momquist.

I'm just going to ask you to be closer.

Thank you.

Very good.

So we went live about a year ago, and instead of the entire software program going live, we did it with our cycle.

So we started with our boards last year, went into our quintile reevaluation, then our permit inspections, then setting the assessment.

And so we have essentially gone through each of the phases of our assessment, learning the new software, learning its

the ins and outs of how we used to do business and having to change some business plans so I really wanted them here so that they could really receive the things that they deserve because they're the ones that have gone through this change when I first started with the city in 2014 we were just starting the RFP process

and so 11 years later we now have a new system and it's implemented and we are working with it.

It is the Tyler Technologies software which is known around through other counties in the state as well and around the world, around the United States.

So we're thankful to our partnership there, our partnership with IT as they've helped us through this transformation but a huge thank you to our wonderful team for their dedication and commitment to making sure

that the process has gone, not perfect, but it has gone quite well and I'm very proud of all of them so thank you.

And with that I will go ahead and get started.

So a quick overview.

We recently completed the assessment for January 2, 2025 of estimated market values for approximately 131,000 properties across the city.

This is an annual process, and it is dictated in statute.

The notices of valuation and classification, commonly known as the value notices, were mailed on approximately March 14.

and so those notices are in mailboxes and people are calling with questions and concerns.

I want to remind everyone that the 2025 estimated market values are what will be used to calculate the 2026 property taxes.

We value properties one year, and then the budget and levy are set, and taxes are payable in the following year, as is true across the state of Minnesota.

And we know this can be a confusing process because property tax statements are also mailed at approximately the same time as the notices.

and the payable 2025 property tax statements that people are receiving from the county were calculated using last year's 2024 assessed value.

It's another important reminder is that the data that we used to set the annual assessment for January 2nd, 2025 was based on market-based sales transactions that occurred in history between October 2023 and September of 2024.

In Minnesota, property taxes provide a significant portion of the funding for local government.

Property taxes are the Minneapolis General Fund's largest and most flexible source of income and support many of our core government services.

Each property's share of taxes is based on its market value, its property's use, and the local government budgets, which become the tax rate.

You can see the image at the bottom of the screen for a simplified illustration.

So market value is the price a property would sell for on the open market.

The assessor's role is to reflect the real estate market and set fair and accurate market values by following market trends.

The Assessor also classifies a property according to its use.

Different uses of properties, even if they have the same value, pay different taxes because of class rates set by the legislature.

And we will provide an example of that in a moment.

The tax rate is determined using budgets of local governments such as city, county, and school districts and watersheds.

The intermediary step in converting value to taxes is called the tax capacity.

This slide illustrates how this works for some common types of properties in the city.

The calculation for tax capacity is the market value, which is in the second column, multiplied by the class rate in the third column.

For example, as you can see here a residential property which is on the first line and a commercial property on the bottom line if they are both assessed at $300,000 will pay different taxes and that is because the class rate for a residential property is 1% and the class rate for a commercial property is 2%

As a result, a residential property will pay approximately half the property taxes of a commercial property.

I must note that this is a very simplistic illustration, however, because there are more complex factors that affect the taxes such as special taxing programs like the homestead, the state general tax, and fiscal disparities.

So this slide is a historical view of the city's total estimated market value.

The overall estimated market value, or EMV as we refer to it, for the city decreased by just under 1% to $64.8 billion.

This does not include utilities and railroads which are assessed by the state as those values are not made available yet.

This does include the new construction added for permit work totaling approximately $700 million, which is down from previous years.

This slide is a visualization of the breakdown of the three major property type categories by the 2025 total market value on the left and then the tax capacity which is on the right.

Because of the calculation of tax, value to tax discussed on the previous slide, there is a change in the distribution between the three categories when we move from the left for estimated market value to tax capacity on the right.

You can see here that residential values in green comprise over 62% of the total city market value on the left.

However, when the class rates are applied, the residential portion of tax capacity is just over 53%.

You can also see the commercial value in blue comprises just over 16% of the total market value of the city, however, comprises almost 27% of the tax capacity after the rates are applied.

Still on net tax capacity, this is a historical view of the net tax capacity as a percentage of the total tax capacity by property type.

If we compare 2024 to 2025, the two bars furthest right, you can see the year-to-year shift between commercial, apartment, and residential properties is just over 3%

For commercial and two percent shift for residential ish approximately That means that the residential property owners will bear a greater burden of taxes in payable 2026 than they did in 2025

This slide illustrates the change in total market value by each of your wards.

Each ward is represented by a bar and the percent of increase or decrease is a label at the end of each bar.

Now this chart does look different than last year where we saw increases I believe only in four and five and decreases across the rest of the wards and we have seen some rebound from there with the

The largest decrease still being in Ward 7, but we'll dive deeper into this.

This is residential.

It's an historical look at the total residential value changes.

This year the overall residential market increased by about 2.6%.

Last year marked the first time in many years that we saw an overall decrease in the residential value in this city, and we have seen a slight rebound since then.

While the previous slide illustrates the overall value increase for residential properties, this slide further breaks down the data into our three major types of residential property, condominium townhome, duplex triplex, and single-family.

Overall, there were increases this year in each of these submarkets, and there was about $118 million added in new construction, but that number is down from previous years.

Getting into the analysis of our assessment.

Our assessment is very closely scrutinized by the state to ensure accuracy and equity.

We follow requirements mandated by the state which are based on the International Association of Assessing Officers standards on sales ratio and standard on mass appraisal.

This data reflects the residential market.

The analysis is of properties that have sold so that we can compare our assessed market values to what they are selling for to analyze how accurate and equitable the values are in comparison to sale prices.

The first measure I will review is the sales ratio, which is actually the third column.

This is a measure of the level of assessment.

It is a comparison of the estimated market value to the sale price of each property.

Simply stated, it is the sale price divided by the market value.

We use what is referred to as the median ratio as our measure of central tendency here.

So looking at the bottom row of the 3,645 sales, the median ratio is 95.4%.

An acceptable median ratio is between 90 to 105.

However, to be consistent with our surrounding suburbs and jurisdictions, we typically aim for a median of 95% because we don't want to be at a significantly different assessment level than the jurisdictions surrounding us.

For example, we don't want to be valuing properties at 95% of sale price where others are valuing at 90% of sale price because our level of assessment needs to be consistent so that there is not an advantage

tax advantage to living in one city versus another city, for example, based on the assessment.

The second measure that we use is the coefficient of dispersion, the COD.

It measures how uniform our assessment is.

It essentially measures how far away

The other ratios are from the 95.4%.

An acceptable number here is under 15 and we meet this requirement.

The last measure is the price related differential.

It is very critically important as well.

It measures the vertical equity of our assessment.

So in low valued properties,

are valued at a greater percentage of market value than higher valued properties, we would consider our assessment regressive.

When low valued properties are valued at a percentage lower percentage than high valued properties, the assessment is considered progressive.

And assessments for tax purposes should be neither progressive or regressive, and our assessment is well within the acceptable range for the PRD and all the statistical analysis figures.

This is a historical look at the required statistical measures that our assessment is judged on for accuracy and equity.

It is important to point out that we have seen a drastic decrease in sales volume since our peak in 2022.

The 3,645 sales represent a 45% decrease in sales transactions since 2022.

This means we have less data to rely on when we set the assessment.

However, we do feel confident that we have adequate sales to set the assessment.

It just means the picture may not be as clear as prior years.

This slide illustrates the comparison of the median sales price in blue to the median sales price in market value in orange, excuse me.

These lines should be closed together and going in the same direction and you can see that this measurement has also been improving.

Our median EMV increased by 3.2% this year, increasing from $323,000 to $333,400.

This slide breaks down the residential value changes by the percent of change between 2044 and 2025.

So nearly 45% of all the residential properties will see an increase of 0 to 5%.

This is a map

of the single-family residential changes by parcel and by ward.

This visually demonstrates the bar chart that we looked at earlier.

And so you'll just see that there will be a lot of green on this map.

This is a ward comparison of residential values and the same statistical measures that we mentioned earlier.

The columns to the left

Oh the columns to the right are the 2024 and 2025 total market values, the amount of new construction.

Oh it was on the left, there we go.

The amount of new construction and the net change in total value.

Moving across the chart is the median market value, number of sales, median sales price, as well as the sales ratio and the COD we discussed earlier.

What I want to mention here is the range of sales ratios is very tight between 95 to 95.9 in the second to the last column.

and this really does indicate the level of our assessment is quite consistent across the city.

Also the COD or that measure of uniformity across the city ranges from 7.9 to 12.2 indicating a uniform assessment across the city.

Pivoting to the commercial market.

Separating commercial from industrial, you can see an overall decrease of 5.5% on the bottom line, with the commercial market decreasing 8.6% and the industrial market increasing slightly by 2.1%.

staying with the commercial industrial market.

This is a historical look at the commercial industrial market values.

And you can see that this is, again, the second year since the height in 2023 of $13.2 billion down to $11.5 billion.

Further breaking that down,

To help tell a more complete story, we've broken down the markets into geographical sub-markets.

This slide separates out the downtown and the uptown markets, the commercial market outside of downtown and uptown, and the industrial market.

You can see here that we are still seeing overall decreases in the downtown market and a slight increase in the industrial market.

Reviewing the commercial industrial statistics, the median ratio, COD and PRD, these are all within acceptable ranges and these have definitely improved over previous years.

We were sort of on a watch list by the Department of Revenue to ensure that our statistics were looking good for these specific market types and I will continue, I will say that our staff continues to improve year after year, improving these sales statistics

to ensure property owners that our market values are fair and equitable.

Let's go to the apartment market.

There was a net decrease overall of 3.4%.

There was still $479 million in new construction added.

However, that is down by about half from last year.

Again, the statistical measurements of the sales ratio, COD, and PRD are all within the acceptable standards.

The PRD was out of range in recent years and has improved with the last two assessments.

So another thank you and shout out to our team there

The notices, value notices are in the mail.

The notices are color-coded in gold this year to coordinate with the Hennepin County initiative to align value notices with tax statements.

So next year's tax statements will be color-coded in gold.

If property owners have questions or concerns regarding their value or classification, they should contact the appraiser listed on the back of their notice.

They have their email address and their phone number.

If they have questions regarding Homestead, they should contact Hennepin County and that information is also on the notice.

Just a review, we do have a number of public tools that are available to assist our property owners if they wanted to do any analysis of their own.

We have the neighborhood sales finder, neighborhood value change data, a property tax estimator located on the website, and we do have that newest tool which you have seen before which is a levy impact estimator which we are already working to get started on so that it is ready in time for budget season.

Here are some of the key dates.

As I mentioned, we mailed notices March 14th.

The local board convenes on April 15th.

We will have to reconvene, I'm quite sure.

We will start on the 16th and we will go as long as we need to.

As you are in the process of appointing those three members that were on the consent agenda.

And then if property owners still disagree with our evaluation they can appeal to the county board which convenes on the 16th of June.

Our team will continue to work on those appeals but they'll be heard by a different board.

And as I do every year, I like to tell you where our teams are going in the upcoming summer.

And so those areas in the darker blue will be the areas that we are going to visit this year, correct?

Yes.

Very good.

So if your ward has a neighborhood that is in blue, our staff, this is on the residential side, our staff will be working in teams.

They typically work as a full team and they go up and down the streets together visiting with property owners and collecting the information.

And we do send notice to each of your ward offices in advance to let you know this is coming so if you can perhaps put it in your ward letters that would be great just to help get the information out.

That's always really helpful.

We do let 311 911 know so that if people have questions about who's walking around with a bright yellow vest in my yard, they will know it is our team that's out there visiting their property to collect and update our data.

With that, I again just wanted to say thank you for your support as usual, as always.

Very much appreciate it.

I had a great meeting with your council staff this morning doing Assessment 101.

Had a good time there.

I have to get them back some data.

Particularly on which neighborhoods are specifically in each of your wards so that you know who's the direct contact.

Always include me and just so that I can keep my finger on a little bit.

What boards need some more help?

I'm always happy to come to any of your ward meetings and do some meetings and meet-and-greets and to explain the process we will continue to work with NCR to do presentations to the community or neighborhood associations and Then likely to the board of estimate and taxation and then to the park board will probably continue the messaging there and

So this is where we're at as far as the 2025 market values and I look forward to working with all of you and answering any questions that you may have.

Thank you for that presentation.

Colleagues, are there any questions related to City Assessor Malmquist's presentation and while I wait for folks to get in queue,

I just wanted to flag for you.

We'd love to make sure that The presentation this presentation is shared with our clerk so we can get that added To the limbs file.

Thank you, Chair Chugtai.

Thank you, Ms. Malmquist, for the presentation.

Just a couple of questions for you.

First of all, this slide looks like you have a plan for five years.

Do you rotate through these assessments every five years?

So, for example, you know, Kenwood neighborhood is being done this year.

Chair Chugtai and Councilmember Cashman,

Yes and no.

We do have to develop a five-year plan that is monitored by our office as well as the state.

However, if we did for some reason saw some shorting or staffing shortages or something that would have to make us reevaluate the plan or let's say we for some reason we're noticing some real inconsistencies with data or values, we may shift the plan, but we really

Okay.

The second question is the Evaluations, I think word seven had the most dramatic drop Which I'm guessing is due to some of the office buildings downtown selling at like five ten percent of what they were

Chair Chogtai and Councilmember Cashman,

I can tell you that because the residential market was still seeing an increase, it is primarily due to the decrease in what's happening in downtown.

We know that we're going to get lots of questions and inquiries about the specifics of what we've done with valuations downtown.

I can tell you that overall, offices are the ones that people are watching the most.

Okay, thank you.

Last question was about budget.

If I remember correctly, at the end of last year there was, uh, over budget, I think it was a million dollars if I'm remembering correctly, so can you explain a little bit what happened there and what your plan is to, I guess, mitigate that this year in 2025?

Yes, the Assessor's Office did go over budget in 2024 for personnel by approximately a million dollars and while that may seem concerning I'm actually quite proud of that because we did a comprehensive classification review of a number of positions in our office and they were noted as being well below market

rate and so they received Increases but because the study took as long as it did we were we had to go back to the beginning of the study and pay back pay back to 2022 Back to 2022 and that's what pushed us really over the edge.

Thank you.

Thank you very much for this thorough presentation.

I look forward to passing this information on to my constituents.

And I'm not going to hold you to this guess, but I'm going to ask you for a guess.

Your best guess on how long the commercial and industrial values will keep dropping.

Chair Chug Thai and Councilmember Rainville, I only wish I had a really good answer to give you.

As I mentioned, we act as historians looking back at what's happened and then use that information to place market values.

However, I know that it's always on everybody's mind, is this another true cycle, this real estate cycle that we will roll through?

I would say that based on what I'm hearing, our staff attend a lot of industry events with brokers and buyers and sellers.

And I would say that just lately we are hearing some optimism.

from those market players, and so I think that people are trying to be a little bit more optimistic.

We know we have a long ways to go.

But just knowing that there are investors still waiting in the wings, there's a lot of local interest in our market, that we are hopeful.

that we will not see decreases like this last year.

I believe our decreases are less percentage-wise than they were last year.

We didn't go down as much percentage-wise, but again, percentage is still based off the total and if the total went down a lot last year, then you know how percentages work.

So I don't have an answer for you, but when I listen to the market experts out in the community,

Can we say we're at the bottom?

Okay.

So, when you say the cycle is slowing, and that's a good point, good indicator, and you talk about the history, there's really never been a downturn like this where the remote work has come into play.

I was at a very interesting presentation last week in Illinois where they had an expert up in front talking about downtown markets across the United States and where they're all at because there's like the four cycles the four parts of the real estate cycle and where each

And they had Minneapolis at the end of the bottoming out and the beginning of the improvement where there's other cities that aren't, they're more at the peak and they're about to take a downturn.

So it really depends on where you are in the United States and what's happening in your community.

And then just a comment, the state oversight is right there and that's basically the mechanism that keeps all the cities honest.

Chair and Council Member Rainbow, that is correct.

They keep everybody honest.

Our assessment is compared with all of the other jurisdictions within Hennepin County first to make sure there's equity across all of our neighbors in the suburbs and that it is compared across the state.

You're welcome.

Wonderful, thank you.

Thanks Madam Chair.

Thank you so much Director Malmquist for your presentation.

I don't have any specific questions, just wanted to thank you and your entire team or much of your team for being here today.

It's really great to see you in our chambers and just a chance to connect.

I'll plan on engaging more deeper with the

Assessor's Office this year.

I got the card for the Assessor who does a lot of the work in the 12th and so just really looking forward to deeper engagement and better understanding for myself and constituents in the 12th Ward.

So thank you.

Thank you.

I'm not seeing anyone else in queue right now, so I wanted to thank you for your presentation and for bringing in your team so we can get to know them and meet them.

It's really wonderful to see all of you in our chambers and appreciate your time with us.

So the next time that you'll see myself and members of our team is after the local board concludes We come back to you to present the results of that Something else that I plan to present to you then is where we're at with our tax court filings

As I've mentioned in the past, our tax court filings are up and I believe it's important for you all to just see the amount of liability that we do have on the table and hear about the work that our team are doing as far as settling tax court cases.

We have some large cases coming up that we will be litigating and our staff will be sitting on the stand over multiple days defending the property values.

It's a very, very important part of the process.

Wonderful, thank you.

With that, I will direct the Clerk to file that report and before we conclude our committee today, I know Councilmember Palmisano and I believe Councilmember Jenkins didn't get a chance to vote on the consent agenda so I just wanted to see if you would like to be recorded as voting on that item, which is appointments to the 2025 Local Board of Appeal and Equalization.

Thank you, Vice President Choctaw.

I would very much like to be recorded as a yes on the local Board of Appeals appointments.

Wonderful.

Yes, thank you.

Wonderful.

I'm seeing nods from our clerks.

I believe they have that captured.

Did I miss anyone?

All right, so with that we have concluded all business to come before the committee today and if there is no objection we stand adjourned.