MANKATO — City and county officials are still sorting out the implications of a change to Minnesota’s complex property tax system passed in the July special session, but an analyst for the League of Minnesota Cities said the bottom line is inescapable: a substantial rise in property taxes for commercial and industrial properties, apartments and high-value homes.

Some homeowners — if they live in a bedroom community without much commercial property — will feel the impact, too, said Gary Carlson of the League of Minnesota Cities.

“You’ve effectively got a $261 million increase in property taxes,” Carlson said.

That figure represents the anticipated cost in 2012 of the Market Value Homestead Credit, which lawmakers eliminated as part of an effort to erase $5 billion in red ink from the state’s two-year budget.

The Market Value Homestead Credit was created to reduce property taxes on lower-valued and mid-valued homes. It automatically reduced the tax bill sent to homeowners, with homes valued at $76,000 receiving a large reduction and declining amounts provided for homes up to $414,000 in value.

Looking at North Mankato homes in 2010, for example, property taxes were reduced $282 for a $100,000 home, $192 for a $200,000 home and $105 for a $300,000 home.

Under the program, the state reimbursed cities, counties and school districts for the lost property tax revenue.

The credit isn’t an insignificant piece of the state’s convoluted property tax system. In Blue Earth County, which is collecting $28.3 million in property taxes this year, the Market Value Homestead Credit reduced homeowner taxes by nearly $1.7 million, according to Finance Director Lisa Lyons.

In Nicollet County, where the total levy is $15.7 million, the credit saved homeowners $925, Auditor Bridgette Kennedy said.

In recent years, though, the cash-strapped state paid just a portion of what it owed to cities and counties. That left a hole in their budgets, but homeowners still got their entire tax break.

The Market Value Homestead Credit ceases to exist after this year under the tax bill passed by the Legislature in the early hours of July 20, part of a package of bills that ended the state government shutdown.

Lawmakers attempted to shield owners of lower value homes from the impact of eliminating the credit, creating a new tax “exclusion” that reduces the portion of a home’s value that will be taxed. A $76,000 home, for instance, will be taxed as if it’s worth just $30,400 under the new system, a $150,000 home will be taxed on $126,260 of its value, and the taxable market value of $300,000 home will be $289,760.

Homes valued at $414,000 and above will be taxed at their entire assessed market value.

“It’s very much mirrored on the old program,” Carlson said. “The Market Value Homestead Credit phased out at exactly the same level.”

With the credit now eliminated and the new tax exclusion in place, the tax base of cities, counties and school districts will decline because of the reductions in taxable market values of homes. When local governments set their budgets this fall, the amount of taxes they levy will be portioned out across the market values of all the properties in the jurisdiction and fall more heavily on businesses, apartments and high-value homes which don’t benefit from the exclusion.

“It’s definitely going to cause a tax shift from residential to non-homestead residential and commercial,” said Nicollet County Assessor Doreen Pehrson.

That shift is what will happen in cities that have a mix of property types. But in bedroom communities, where virtually the entire property tax base is homes, the positive effect of the exclusion will disappear because tax rates automatically are increased at the assessor’s office to generate the total levy budgeted by city councils, county boards and school boards.

“Our three small cities — Lafayette, Nicollet and Courtland — are basically residential,” said Pehrson, adding that the actual impact of the change won’t be clear until tax notices are prepared and sent out in the fall. “By the end of September, we’ll know more what’s going to happen.”

Sen. Julie Rosen, a Fairmont Republican who serves on the Senate Tax Committee, is hopeful that the impact won’t be severe.

“Everybody is crying wolf right now, and maybe we should let this happen and see how it plays out,” Rosen said.

Rep. Terry Morrow, DFL-St. Peter, is worried about the impact on the bedroom communities in his district and on businesses throughout the district — especially small businesses.

“The ultimate effect of this tax bill is to increase the burden on those small businesses,” Morrow said.

Cities and counties are also facing reduced or stagnant payments of other forms of state aid. If local elected officials raise the property tax to make up for that, owners of lower-valued homes will see their property taxes rise, too, and owners of non-homestead property will see big jumps in taxes, Carlson said.

But even if local governments cut spending dollar-for-dollar to reflect cuts in other state aid, the elimination of the Market Value Tax Credit will drive up taxes for non-homestead properties, he said. The precise amount will be clear when Truth in Taxation statements are sent out in three months.

“That November statement is going to be an eye-opener for a lot people — city councils, county boards, school boards and property owners,” Carlson said.

Pehrson is already thinking about how to unravel all the nuances when upset property owners contact her office after receiving their notices. It will be particularly hard to persuade people that there’s a logical reason their taxes would go up even if counties or cities aren’t collecting more taxes.

“We’ll have some ’splainin’ to do,” she said.