Nationally, nearly every local area in the U.S. raises revenue through property taxes, and these taxes represent the largest tax revenue source in 94 percent of localities. Property taxes are also the dominant tax revenue source for local governments here in Minnesota, generating more than any other revenue a city collects. All cities in Minnesota on average raised their 2025 property tax preliminary levy at 8.8%.

The property tax levied on real property depends on many factors, a few of the important ones are:

• Level of public services: Generally, more and better services mean higher property taxes.

• The level of state and federal aid to local governments can raise or lower property taxes. So can the amount of revenue generated by fees, charges, local sales taxes, and other non-property revenue sources.

• Tax base composition and property tax classification system: The amount of property tax generated by commercial, industrial, and other non-homestead property types, can affect a homeowner’s property tax bill.

In addition to the above reasons for changes in property taxes, this year when setting the property tax levy, cities had other factors making impacts on the levy:

• The passage of the American Rescue Plan Act (ARPA) in 2021 provided a lifeline for local governments which awarded every municipality a portion of $65.1 billion in funding.  Locally, most cities used the funding for capital equipment or supplemental project funding. With funds needing to be obligated at the end of this year, this means that future budgets will not have this revenue source to lower future levies.

• Low borrowing costs are gone for the time being, resulting in higher costs when financing large infrastructure projects.

• Finding and retaining employees cost more each year due to trying to keep up with comparable wages and benefits.

• Cities are facing increasing pressure to meet growing demands for services amid rising costs and expectations.

• Return to office trends could affect the balance between commercial and residential property taxpayers, likely affecting residential at a higher level.

To explain further how the above-mentioned factors are impacting cities locally, a sample of the biggest impacts, along with some successes:

In Tracy, the city’s foremost challenge continues to be managing the city’s large debt encumbrance primarily due to street and utilities infrastructure enhancements while continuing to invest in capital improvements and maintain operational service levels. At the same time, housing continues to be a focus for the City Council. The city received a new Small Cities grant in 2024 and will once again partner with United Community Action Partnership (UCAP) for improvements to Tracy homes as well as downtown building improvements.

The city will also work with the Southwest Minnesota Housing Partnership to explore the option of expanding rental housing in downtown Tracy and continue to market empty lots for development throughout the city.

In Cottonwood, a city-wide infrastructure plan is being implemented in multiple phases so that the city can address the 26,131 feet of poor condition clay sewer mains, 7,660 feet of cast iron water mains, and 4,000 feet of clay storm water mains. The immediate needs cost of this work is around $21 million. However, the project would reduce infiltration and inflow of stormwater into sewer lines and mean less water breaks, with a focus on Main Street where the water main has had several breaks over the years. A complete reconstruction of the Central Business District from West 2nd Street to Barstad Road is also being planned.

While Ghent’s tax base continues to grow, Ghent is also faced with an aging water and sewer infrastructure.  Planning is completed for a $9.7 million sewer rehabilitation and pond expansion as well as a $5.3 million watermain replacement and water tower project to start in 2026.  Ghent is pursuing grant and loan funding through the PFA (Public Facilities Authority) which is awaiting its funding from the Minnesota State bonding bill.  The hope is that the loan portion of this project can be funded with a small increase in rates and no levy increase will be necessary. 

However, this project has exposed some need for street improvements that are not able to be funded along with this project.  The city has seen exciting growth in the last few years.  The construction of Little Explorer’s Childcare Center and the continued construction of single-family homes has left the city with only three lots for sale in Bluebird development. 

For Minneota, the most pressing challenge is keeping aging infrastructure current, and planning for a $3.5 million project to resurface 6,000 feet of road with new curb and gutter, sanitary sewer, storm sewer and freshwater piping.  This equates to about $3.5 million for 1 mile of result.  This is an investment that will hopefully withstand the next 70-100 years. 

On the horizon, there is a potential new daycare center in Minneota, with grants and support from the State of Minnesota. The day care could provide care for up to 100 children.  The city partnered in this project by selling two lots to get the project started.

In Tyler, key priorities are ensuring that the city’s budget is allocated effectively to benefit its residents. While justifying the purchase of larger, more modern equipment can be challenging, it is important to recognize that older equipment can become increasingly expensive to maintain.

In contrast, newer equipment enables tasks to be completed more efficiently, resulting in faster snow removal and more timely repairs throughout the city. Fortunately, Tyler is seeing a new housing development with lots for sale of which 7 lots have already been sold.

Marshall too has put investments into street, wastewater, park facilities, equipment and needed funds towards supporting personnel costs. These similarities between our cities reveal that we are not alone in our funding challenges while additionally relying on the property tax. We know that without these critical investments, our communities would struggle to see the successes that we have achieved.

We will continue to work together as cities in our region to overcome funding challenges to produce the best possible outcomes for our communities.

— This column was co-written by Sharon Hanson, Marshall City Administrator, Teather Bliss, Cottonwood City Administrator, Jeff Carpenter, Tracy City Administrator, Terry East, Tyler City Administrator, Rob Vidoloff, Minneota City Administrator and Dawn Vlaminck, Ghent City Administrator