And that’s on top of increases that have already taken effect. Just look at a typical Lake Vermilion property. With a market value of about $210,000, the tax on this parcel was consistently less than $1,500 a year, from 1996 to 2002. Starting in 2003, however, the tax bill jumped to $1,600, then to $1,845 this year. For next year, the tax bite will jump to $1,980 and even steeper hikes are on the way.

In three years, without a change to the state’s property tax system, taxes on this same parcel could well approach $3,000 a year. None of the increases reflect new construction.

What’s happening, according to Interim St. Louis County Assessor Mel Hintz, is the phase-out of the limited market value provision, which was first passed into law in 1993. It was a provision inspired by rising anger from owners of lakeshore property, who watched in ever-increasing frustration as spiraling lakeshore values inevitably pushed up property taxes.

The limited market value provision reduced the impact of rising market values to just ten percent a year, creating a growing disconnect between the market value of a property and its so-called “taxable” value.

In places like Eagles Nest Township, where property values were rising by as much as 30-40 percent a year, the gap between market values and taxable values ballooned quickly. Eagles Nest has experienced the third biggest gap of any township in the state—by 2002, taxable values there were running 40 percent below actual market values. Breitung Township was another big winner, with a savings of 36 percent, while Fall Lake Township benefitted to the tune of 33 percent and Beatty Township by 36 percent. Greenwood Township taxpayers saw a 32 percent benefit.

The upside for lakeshore property owners in these townships was a tax bill that stayed the same, or even dropped in some cases, as the tax burden shifted to other parts of the county.

But tax changes approved in 2000, and which took effect beginning in 2001, are gradually eliminating the effects of the limited market value provision over six years. While the changes were relatively small initially, it escalates over time.

“You can see the hand-writing on the wall,” said Hintz. “As we get into 2006 and 2007, people will be seeing even greater increases.”. By 2008, the taxable value of those properties must equal the market value— and that will mean big tax increases along the way. The bigger the savings was for lakeshore property owners, the bigger the pain will be over the next three years.

The timing of the change in the law couldn’t be worse, according to Jeff Forester, executive director of the organization Minnesota Seasonal Recreational Property Owners (MSRPO). Forester says the recent real estate boom has made Minnesota lakeshore the subject of speculative investment, which has pushed market values into previously unseen territory. He says the phaseout of limited market value could well boost property taxes by as much as 70 percent in some locales.

But Forester is concerned about more than just higher taxes. He said rising taxes are increasing the economic pressure for more intensive development of Minnesota lakes. That happens, says Forester, as high land prices and taxes combine to force owners to find ways to generate revenue to pay the bills. That means owners of undeveloped lakeshore are often forced to sell, and developers of lakeshore try to develop more lots, in hopes of generating more revenue. “If you leave it to the market to make choices, you get a lot of strange disincentives towards wise use,” he said.

MSRPO was one of the key organizations behind implementation of the limited market value law, and it lobbied against its repeal in 2001. Forester said his organization will be back at the state Capitol next month in hopes of reinstating the law. MSRPO will also be pushing a bill that would peg taxable value increases to the consumer price index, rather than market prices.

Some winners

As with any property tax change, the phaseout of the limited market value provision isn’t without its winners. As lakefront homes and cabins pick up more of the tax tab in northern St. Louis County, commercial properties, especially in areas where market values have remained stable, are enjoying some of the lowest property taxes in years. Indeed, over the past three years, commercial property taxes in Tower, for example, have fallen by 10-15 percent in many cases, even though local levies have actually increased.

Hintz attributes the shifting tax load to the limited market value phaseout.

“What you’re going to see is that lake property will pick up a greater share of the tax load as time goes by,” he said.

Another bite for cabin owners

While full-time lake residents are spared some of the effects of the 2000 tax changes, cabin owners, whose property is classified as seasonal recreational, face another growing tax bite. The 2000 tax changes implemented a statewide general tax for schools— a tax which applies only to commercial/industrial and seasonal recreational properties. For many cabin owners, the new tax amounts to several hundred dollars a year. And, according to Forester, since the new tax is unweighted, it rises along with property values. And as seasonal recreational property values rise, usually far faster than commercial/industrial properties, the share of the state general tax paid by cabin owners continues to rise.

“It’s a double whammy,” said Forester.