KINNEY - Feeling more grief than relief, Northland property-tax payers are wondering what happened to the breaks so many lawmakers and Gov. Jesse Ventura promised in 2001.

Heralding reform that pulled the costs of public education from the backs of property-tax payers, lawmakers predicted and promised that property taxes across the state would shrink by double-digit percentages.

But that sure didn't happen for William Morse, or his neighbor Elaine Hill, in Kinney. Like others in Northeastern Minnesota, Morse and Hill saw their taxes jump.

Taxes on Morse's house, valued at $18,000, rose from $114 to $178, while Hill's taxes more than doubled, from $156 to $362.

Morse admits his taxes are far from high, but his house is no palace either, he said.

"You know what this house is?" Morse asked. "You take an old man, you put a brand-new suit on him -- you take the suit off and he will fall apart."

The same can be said for Kinney. "All we got is one bar, no grocery store, no nothing," Morse said. "We're a sleeper town."

But the folks who visit the one bar in this "sleeper town" are talking, and they are talking taxes, said Larry Hauta, owner of Liquid Larry's.

"They all got hit," Hauta said.

SHERIFF OF NOTTINGHAM TAX POLICY

Because changes made in 2001 were structured mostly to ease taxes on businesses, lake cabins and high-value homes, a bigger burden was shifted to low- and moderate-value homes like Morse's, said Rep. Tom Rukavina, DFL-Virginia.

"I call it the 'Sheriff of Nottingham tax policy,"' Rukavina said, in reference to the legend of Robin Hood. "Because they sure in hell didn't rob from the rich to give to the poor."

Seven of 15 Northland lawmakers voted against the 2001 measure, warning that the changes would lead to higher taxes for low- to moderate-value homes.

Rukavina supported the measure in 2001 because it contained tax cuts for the mining industry, but he did so grudgingly, he said.

At the time, it was unclear what the long-term impact of the law would be, he said.

That impact is clear now, especially for Iron Range cities such as Kinney, which saw property taxes increase by 126 percent on average from 2001 to 2002.

With an average home value of $25,500 in 2002, Kinney's increase is stark compared to tax cuts received by some of the most-property-rich Minnesota cities.

Wayzata, a Twin Cities suburb, has an average home value of $388,000, but saw a 13 percent average decrease in its property taxes in 2002.

"This was the dirty little secret that no one wanted to see," Rukavina said.

AGGRAVATING FACTORS

But Rukavina's hot rhetoric only reveals part of the picture, other lawmakers, city officials and tax analysts said.

Under the changes, tax classifications were expanded so all homes valued up to $500,000 would be taxed the same.

Previously, tax rates were incremental based on value -- homes valued at more than $76,000 paid higher rates.

Equalizing the classifications meant cities lost some of their capacity to tax. So even if local budgets stayed flat, tax rates have to increase to keep revenue streams level, said Jeff Van Wychen, a legislative consultant and tax researcher for Duluth, St. Paul and Minneapolis.

As Rukavina suggests, tax decreases for richer properties will be offset by increases for poorer ones.

But other changes to property tax law and the way state aid is distributed to cities magnify the impact, Van Wychen said. Some cities lost local government aid. Others lost some capacity to tax because law changes also capped tax capacity for commercial and industrial properties.

The effect of all the reforms, which have already begun and are scheduled to go into full effect by 2008, is likely to be higher taxes for all property owners, Van Wychen said.

In some cases, local governments did raise levies, or voters supported local school budget referendums that may have offset any gains from the 2001 reform. But local levy caps that were part of the 2002 changes prevented cities from increasing levies substantially, Van Wychen said.

"Those limits were put in place to keep cities and counties from spending up the property tax relief," he said.

LIKE JELL-O

Supporters of the 2001 law change said it was only meant to provide short-term relief and be a start for long-overdue tax reform. More cities saw decreases in 2002, said Rep. Tim Pawlenty, R-Eagan.

Pawlenty, the Republican candidate for governor, admits there are flaws and problems with the change, but he still defends them, saying it was better than nothing.

"There was some relief, but the longer-term benefit was the reform, which is to clean up the system so that the responsibility for future tax increases or decreases could be sorted out by the citizens and the local decision makers could be held accountable," he said. "The whole point here is we want decisions and accountability to flow to the local level."

Some of the double-digit increases can be tracked to local governments increasing their budgets on the heels of the tax reform, Pawlenty said.

"Some of these cities saw this relief coming and decided to take an extra-deep scoop," he said. "This reform was not perfect, but overall it was good."

Relief for industrial and commercial properties was essential for economically challenged areas of the state, Pawlenty said.

"People need to remember we also have a state with one of the highest commercial/industrial property-tax rates in the country and we are losing jobs," Pawlenty said. "That's particularly important to Northeastern Minnesota and the Arrowhead Region."

To help draw business to economically stressed regions, Pawlenty is proposing tax-free zones for businesses.

Still, Pawlenty agrees that some cities, like Kinney, got hit unfairly with increases because of complicating factors, and in general, the state's property-tax law is a mess, he said.

"I'd like to blow the whole thing up," he said. Property-tax law has been altered so much over time that the state has a complex system that's difficult to understand. The 2001 changes were an attempt to simplify that system, he said.

Inevitably though, any attempt to lower taxes in one area means they will increase someplace else if cities and schools hope to offer the same level of services they have in the past.

"It's like Jell-O," Pawlenty said. "You push it in one place and it bulges out someplace else."

FACE OF FAIRNESS

But where it's starting to bulge the most are places already struggling with other problems such as widespread unemployment, shrinking populations and declining student enrollment, said John Ongaro, St. Louis County's legislative lobbyist.

When the owner of a $60,000 home gets a property-tax increase, somebody who can afford a $500,000 home shouldn't get a reduction, Ongaro said.

And at a time when Minnesota and the nation saw their highest levels of growth in wealth in history, Ongaro said, the more affluent benefited most.

"On top of all this added wealth, we've got to give them a huge property-tax break, too," he said. "It kind of flies in the face of fairness."

An even bigger burden is likely to fall on all property-tax payers in the next few years, as state lawmakers try to settle an ongoing state budget shortfall predicted to be between $1.5 and $2.5 billion.

To avoid raising other taxes, such as income and sales taxes, lawmakers may push more services provided by the state onto city and county governments. Lawmakers may also further reduce the aid to local governments provided by the state, Ongaro said.

"It's only going to get worse," he said.