Fiscal Disparities

Tax-base sharing in the metro area

Downtown Minneapolis commercial-industrial buildings.The Twin Cities attracts national and international interest because of an innovative tax-base sharing program, known as the Fiscal Disparities Program. The size of the seven-county metro area it covers and the amount of commercial-industrial tax base shared make the program unique.

With the support of the Metropolitan Council, the Minnesota Legislature created the metro area program in 1971. Tax-base sharing supports the Council’s goals of:

  • Improving equity in fiscal resources
  • Supporting cost-effective regional wastewater treatment and transportation services
  • Promoting a regional approach to planning and development
  • Encouraging land uses that protect the environment and increase livability

Tax-base sharing spreads the fiscal benefits of commercial-industrial growth no matter where the property exists within the metro area. It reduces large differences in property tax wealth between communities with a lot of commercial-industrial tax base and those with little. Differences reflect how commercial-industrial development tends to concentrate near regional infrastructure and services, such as highways, wastewater treatment, and transit.

The program started in 1975. The Minnesota Legislature created tax-base sharing to:

  • Share resources produced by growth of the metro area.

  • Make orderly development more likely.

  • Work within the existing system of local governments and local decision making.

  • Give incentives for all to work for growth of the seven-county metro area as a whole.

  • Help communities in different stages of development and redevelopment.

  • Encourage environmental protection.

Local taxing jurisdictions contribute 40% of growth in commercial, industrial, and public utility property tax base since 1971 into an areawide shared pool of tax base. Local property tax administrators distribute the shared pool of tax base.

  • Communities with below-average property tax value per person receive a somewhat larger share of the area-wide tax base.

  • ‚ÄčCommunities with above-average property tax value per person receive a somewhat smaller share of the area-wide tax base.

Flow chart showing the mechanism of the program.

The Fiscal Disparities Program shared over $531 million in tax base for taxes payable in 2023.The chart shows the change in the shared pool since 1975.

  • The shared pool represents over 34% of total commercial, industrial, and public utility property tax base and 9% of total tax base in the seven-county metro area.

The program shared nearly $710 million in tax revenue for taxes payable in 2023.

  • Tax revenue equals the distribution of tax base from the shared pool to the community multiplied by the community’s tax rate for the previous year.

The Metropolitan Council analyzes tax-base sharing to share results and increase awareness of the program. Analysis also helps the Council and the Minnesota Department of Revenue determine which communities participate in the program, as required each year by state law. To be fair, communities whose planning and zoning policies exclude most commercial-industrial development, for reasons other than preserving agriculture, cannot participate in the program.

How it impacts communities

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 difference is 6 to 1 with tax-base sharing and 16 to 1 without it. The map shows the distribution of top 20 net contributors and top 20 net recipients in the metro area.

More communities gain tax base (107 net recipients) than lose tax base (72 net contributors). For net recipients, the distribution from the shared pool of tax base exceeds the contribution to the shared pool.

The top 20 net contributors concentrate near major highways and job centers.

How It Affects Commercial-Industrial Property

Part of a commercial, industrial, or public utility property is taxed at an areawide rate, and the rest is taxed at the local rate. The area-wide tax rate reduces differences in tax rates across the metro area.