Twin Cities metro area has unique tax-base sharing program
The Twin Cities attracts national and international interest because of a unique tax-base sharing program. The Fiscal Disparities Program shares tax base from commercial-industrial development in the seven-county metro area. Tax-base sharing spreads the benefits of commercial-industrial growth no matter where the property exists within the metro area.
Tax-base sharing supports the Metropolitan Council’s goals of orderly and efficient economic growth, equity, and economic competitiveness. The Fiscal Disparities Program:
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Improves equity by reducing large differences in property tax wealth among communities. Commercial-industrial development tends to concentrate near regional infrastructure and services, such as highways, wastewater treatment, and transit.
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Supports cost-effective regional wastewater treatment and transportation services. Tax-base sharing reduces incentives for local communities to compete against each other and develop in less efficient ways.
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Reinforces how we compete as a metro area in the global economy.
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Encourages land uses that raise little or no tax revenue, such as regional parks and low-income housing, because participating communities share the benefits of commercial-industrial development. Likewise, it supports preserving open space and wetlands.
Tax-base sharing designed to achieve six goals
The Minnesota Legislature created the metro area program in 1971, and tax-base sharing began in 1975. State law defines six goals of the program:
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Working within the existing system of local governments and
local decision making.
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Giving incentives for all to work for growth of the seven-county
metro area as a whole.
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Helping communities in different stages of development
and redevelopment.
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Encouraging environmental protection.
How tax-base sharing works
Local taxing jurisdictions contribute part of growth in commercial, industrial, and public utility property tax base to a shared pool of tax base. Local property tax administrators then distribute tax base from the shared pool.
Taxing jurisdictions include cities, townships, counties, school districts, and special taxing districts. Property tax base (net tax capacity) equals the taxable value of property multiplied by its class rate. Each class of property, such as commercial/industrial/public utility, has one or more class rates. The net change from tax-base sharing is the distribution from the shared pool minus the contribution to the shared pool.
Figure 1. Explanation of how tax-base sharing works
A community with below-average property value per person receives a somewhat larger share of the area-wide pool of tax base. A community with above-average property tax value per person receives a somewhat smaller share.
Results
How much tax base the program shares
The Fiscal Disparities Program shared $373 million in tax base for taxes payable in 2016. This represents 33% of total commercial, industrial, and public utility property tax base and 10% of total tax base in the seven-county metro area.
How much revenue the area-wide pool shares
The program shared $561 million in tax revenue for taxes payable in 2016.
How tax-base sharing impacts communities
More communities gain tax base (99 net recipients) than lose tax base (80 net contributors). Top net contributors concentrate near major highways and job centers.
Tax-base sharing narrows the gap between communities with the highest and the lowest commercial, industrial, and public utility property tax base per person. For communities with over 10,000 people, the ratio of the highest to lowest is 5 to 1 with sharing and 12 to 1 without it.
How tax-base sharing affects commercial-industrial property
Part of a commercial, industrial, or public utility property is taxed at an area-wide rate, and the rest is taxed at the local rate. The area-wide tax rate reduces differences in tax rates across the metro area.
More information
For more information, visit the Metropolitan Council’s website at Fiscal Disparities: Tax-Base Sharing in the Twin Cities Metropolitan Area.