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Hennepin County property tax collections are lowest in decades

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Plummeting commercial real estate values prompted by the shift to remote work are causing a trickle-down financial crunch on cities, schools, park districts and other public operations that depend on tax collections.

The reason: more commercial property taxes are going unpaid than at any time since the Great Recession of 2008-09.

Minneapolis, for example, typically collects around 99% of taxes levied. But by the third quarter of 2023, just 97.5% of taxes levied had been collected — leaving $11 million in unpaid taxes.

Some public bodies, like the city, rely less heavily on property taxes to fund operations, so the immediate impact is less severe. But the tax-collection drop is a major hit for the Park Board, which ended the year with a $1.9 million difference between taxes levied and those actually collected. The board depends on property taxes to finance almost 80% of its general fund — and might be a harbinger of what can happen when collections fall short of expectations.

“This is a big reality check,” said Park Board President Meg Forney, who noted the revenue loss comes as the Park Board is working on major capital projects and in negotiations with union park workers looking for higher pay. “So heads up everybody, roll up your sleeves, because we have a big lift here.”

For Minneapolis Public Schools, which is already facing financial challenges as a result of declining enrollment, property taxes represent one-fifth of its operating budget. A 1% decline in its collection rate would be a loss of roughly $1.5 million, said Donnie Belcher, the district’s executive director of marketing and communications. At last year’s collection rate, then, MPS is down nearly $3.5 million in tax revenue.

Top delinquent taxpayers

While tax delinquencies are an immediate issue for local entities like the Park Board, the steep and steady decline in commercial property values is a longer-term problem because delinquent taxes are a first-priority lien — meaning they receive payment ahead of other debtors even in the case of a foreclosure on a building.

Tax revenue lost to declining values is likely to be a much bigger problem for municipal coffers. Already, the value of many commercial buildings in Hennepin County has been falling — by double digits in some cases, siphoning tens of millions in tax revenue from state and local budgets.

In downtown Minneapolis, the owners of the IDS Center saw its value fall about $62 million in three years after peaking at $319 million in 2020. The value of the tower, which is current on its property taxes, is only slightly more than what a Florida-based investor paid for the building a decade ago.

Many office owners are already in a precarious position as they struggle to make loan payments and pay taxes on buildings that are no longer worth what they paid for them. Many refinanced their loans on the eve of the pandemic when values peaked and interest rates were at record lows, and now many are coming due again.

Trouble is, values are down significantly and lending rates are higher, causing a growing number of borrowers to default on their loans — and leaving lenders to decide whether to foreclose or buy time with a modification to the loan terms.

That’s what happened recently after the loan came due on the IDS, raising the prospect of foreclosure on the region’s tallest and most iconic office building. After months of negotiations, the owners of the building were recently able to modify the terms of its loan, averting a crisis for building owners, tenants and the city.

A deepening glut of office space is to blame. Office vacancies across the metro rose to a record 13.6% at the end of last year, according to a new report from Colliers. For most of the pandemic, downtown Minneapolis was the epicenter of the problem, but the financial pain is spreading, especially into the southern suburbs. At the end of last year, the office vacancy rate along the Interstate 494 corridor eclipsed downtown Minneapolis.

Bloomington’s Normandale Lakes Office Park — the largest office complex in the metro — amassed the highest amount of delinquent taxes in Hennepin County last year. In 2023, its owner, New York-based Opal Holdings, owes several million in unpaid property taxes, not including penalties and interest, just a year after buying the property.

The second-largest suburban property behind on taxes is the Huntington Place apartment complex in Brooklyn Park, which owes nearly $383,000 and has been penalized $42,700. It is a 55-year-old building with perennial problems of crime and blight, and leads the county in evictions. The affordable housing provider Aeon purchased the complex in 2020, and last spring the city of Brooklyn Park stepped in to monitor stabilization efforts.

Aeon CEO Eric Anthony Johnson said hiring private security, installing a checkpoint and evicting gang elements have all been working to calm the complex down — but at a cost.

“We prioritized our spending on safety, and not the taxes,” Johnson said. “We are preparing to pay the taxes, and we will pay our taxes, but we wanted to make sure that in no way, shape or form Huntington was being viewed as a place that was unsafe.”

To cope with financial stress, many property owners have proactively appealed their assessments, even as property values slide. According to the Minneapolis assessor’s office, the number of downtown Minneapolis parcels with a property tax appeal peaked at 358 in 2020. As of July 2023, there were 269 commercial parcels with an appeal, nearly twice the number of residential parcels.

Through the past couple years, Target Corp. has shaved tens of millions of dollars in value off several of its office buildings by appealing its assessments, according to court records.

The city’s top 10 delinquent properties by late 2023 included Tri-Tech Plaza and LaSalle Plaza, which also has a pending tax appeal. Five railroad properties owned by Burlington Northern Santa Fe (BNSF), a Dinkytown commercial building and two downtown residential high-rises — the Centre Village condominiums and the East End apartments — are also on the list.

BNSF did not respond to requests for comment, but its financial statements from the third quarter of 2023 said the company’s net income had decreased 17% from the year prior because of declining volumes of all products that it transports.

A bigger burden

When Park Board Finance Director Juli Wiseman shared the tax collection news at the Park Board’s first meeting of the year, she wasn’t yet sure where the Park Board might get the $1.3 million needed just to reach its minimum general fund balance requirement. The semi-autonomous park and recreation agency has asked the city if it could spare any more of its COVID relief money, but Minneapolis had already spent or allocated all of its funding.

When property tax collections last dropped this low nearly 20 years ago, the Park Board had to borrow from its general fund balance to offset reductions in state aid. The board had to make “operational cuts,” Wiseman said, including reduced services, eliminated staff positions and deferred construction projects.

As the commercial real estate sector diminishes, more of the region’s tax burden will shift to homeowners and renters. When that happens, the lowest-income communities typically see the biggest percentage increase on their tax bills.

“If the businesses are not paying, and [taxes] get shifted to the industrial properties or residential property, it’s not a good thing for residents, homeowners,” Minneapolis Chief Financial Officer Dushani Dye said. “The city and the county, we have to collect our property tax no matter what. That’s the unfortunate part about the commercial sector dipping.”



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Former Medtronic consultant gets 18 months federal prison for insider trading

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A former Medtronic consultant received an 18-month prison sentence this week for his role in a scheme linked to the $1.6 billion acquisition of an Israeli medical device company in 2018.

A federal jury in February convicted Doron “Ron” Tavlin, 69, of Minneapolis, of one count of conspiracy to engage in insider trading and 10 additional counts related to securities fraud. That same jury found David Jay Gantman, 58, of Mendota Heights, not guilty of all charges against him. A third defendant — Afshin “Alex” Farahan, 57, of Los Angeles — pleaded guilty in 2022 and has yet to be sentenced.

“His crime was cynical and brazen. It was also reckless,” Assistant U.S. Attorney Matthew Ebert wrote in a memo calling for a 3-year prison term. “Tavlin’s conduct had the potential to blow up a deal that a team of executives and financial advisers had been diligently negotiating for months.”

Tavlin is now scheduled to self-surrender Jan. 5 to begin his prison term, which will be followed by 320 hours of community service.

According to the evidence presented at trial, Tavlin learned about a secret, pending acquisition by Medtronic of Mazor Robotics, where he worked as vice president of business development, in 2018. Tavlin also previously worked as a consultant to the Ireland-based Medtronic, which also has a headquarters in Fridley.

Tavlin illegally tipped off Farahan, his friend, about news of the imminent acquisition and told him to keep the news secret. Farahan knew the deal would likely result in a boost to Mazor’s stock price and quickly bought more than $1 million of the company’s stock throughout August and September 2018. Medtronic announced plans to acquire Mazor, which specialized in robotics for spinal procedures, in September 2018 and the deal closed three months later.

Prosecutors said Farahan netted more than $245,000, and Gantman made $255,000 in profit by selling the securities quickly after the deal was publicized. Farahan paid Tavlin for the secret information about the pending deal — including a $25,000 kickback about a year later —according to prosecutors.

U.S. District Judge Donovan Frank, who sentenced Tavlin Monday, also ordered Tavlin to pay a special assessment fee of $1,100 – or $100 per each count. Frank did not impose a fine.



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Charges detail assault in Minneapolis that led to shooting rampage, killing one in Kandiyohi County

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Another friend of the ex-girlfriend arrived to help. He pulled up in a car as the group exited the apartment and Matariyeh immediately pointed a gun at him before pounding on the windshield with the gun. Everyone fled as Matariyeh ran back inside the apartment.

The two men met in a parking lot before attempting to return to the apartment. That’s when they looked up and saw Matariyeh on the balcony. Matariyeh immediately began firing multiple shots at them as they took cover behind parked cars.

It was around this time that Minneapolis police officers arrived and made contact with Matariyeh’s ex-girlfriend. She believed he was still inside the apartment, but officers later learned that he had fled. They reached him on the phone. He told officers he was going to kill innocent people if he couldn’t speak with his ex-girlfriend or see his daughter, who was at daycare at the time. He later told police negotiators that “he wanted to go out by ‘suicide by cop.’”

All the while, Matariyeh was speeding westbound.

Police officers pursued him near Cosmos in Meeker County after being alerted that Matariyeh might have stolen another vehicle at gunpoint in Carver County.

Around 2 p.m. he pulled into the rural driveway of Peter Mayerchak in Lake Lillian. Mayerchak, who was in his yard placing hay over his septic mound, went and greeted Matariyeh, who shot him in the chest.



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DFL’s last-minute push to keep their trifecta

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Mixing progressive dreams with dire warnings, a group of DFL leaders riled up a group of volunteers in St. Paul on Thursday morning, urging them to push on through the day’s freezing rain and fatigue in the remaining days before the election.

Several elected officials including Lt. Gov. Peggy Flanagan and U.S. Sen. Amy Klobuchar told the group of about 150 campaign staffers, volunteers and union members about how meaningful their work is to keeping DFL control of the Legislature, as the electeds start a statewide bus tour to turn out votes.

“We are here to keep our trifecta here in Minnesota,” U.S. Rep. Ilhan Omar told volunteers on Thursday. “We’ve got five days, people!”

On the Republican side, House Minority Leader Lisa Demuth, R-Cold Spring, said earlier this month that the House Republican Campaign Committee had raised a record $2.7 million ahead of the election and she said Republicans have also set records in volunteering and door-knocking as they work to break DFL control.

Minnesota Democrats hold a rally before starting a bus tour around the state to get voters excited, including Rep Ilhan Omar, Sen Amy Klobuchar, Lt. Gov. Peggy Flanagan, House Speaker Melissa Hortman, Senate Majority Leader Erin Murphy, Rep Betty McCollum and Sen Tina Smith on Thursday. (Glen Stubbe/The Minnesota Star Tribune)

“Republicans have the momentum and resources heading into the final stretch to win the majority and restore balance to Minnesota,” Demuth said in a statement. “Minnesotans are ready to move on from the expensive two years of Democrat one-party rule.”

House Speaker Melissa Hortman, DFL-Brooklyn Park, said she thought voters preferred action to the gridlock of divided government. “They’re looking for people who can get things done,” she said.

These last-minute get-out-the-vote efforts come as Democrats around the country push to keep control of state legislative chambers and try to flip a few statehouses that Republicans hold by just a few seats.

The Democratic Legislative Campaign Committee, the arm of the national Democratic party that works on statehouse races across the country, has spent $500,000 on Minnesota races this year, including House races and the state Senate contest.



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