Tax-base sharing supports more orderly development and improves equity

Date: Monday, August 5, 2019

People crossing a street toward an outlet mall.After more than 40 years, the region’s Fiscal Disparities program continues to support orderly and efficient development, equity, and economic competitiveness of the Twin Cities area.

Created by the Minnesota Legislature in 1971, the program reduces large differences in property tax wealth that affect the ability of local governments and other taxing entities to raise revenue from taxable property. A portion of the growth in the value of commercial, industrial, and public utility tax base goes into an areawide pool that is redistributed. Through the program, all share in the benefits of growth, no matter where it occurs in the region.

Differences among local governments can reflect how commercial-industrial development tends to concentrate near regional infrastructure and services, such as highways, airports or rail lines.

“The Fiscal Disparities program eases the burden for cities that have nontaxable land uses like large regional parks or wetlands,” said Nora Slawik, Metropolitan Council chair. “And it means that cities with business growth that’s supported by regional investments share some of increased property value. The region as a whole does well when all communities do well.”

Who’s covered by tax-base sharing?
The program applies to taxing jurisdictions in the seven-county region: cities (a few exceptions), counties, townships, school districts, and special taxing districts.

What does a jurisdiction contribute to the regional pool of tax base?
Each year, local taxing jurisdictions contribute 40% of growth in commercial, industrial, and public utility tax base since 1971.

What determines how much a jurisdiction receives from the pool?
The distribution of tax base is based on a formula that depends on a city or town’s population and how its market value of all taxable property per person compares with the average.

A city or town with relatively low property tax wealth receives a somewhat larger share from the areawide pool of shared tax base.

Tax-base sharing under Fiscal Disparities narrows the gap between jurisdictions with higher and lower per-person commercial, industrial, and public utility tax base. Without sharing, the difference between the highest and lowest would be 11 to 1 for cities and towns with over 10,000 people. With sharing, the difference is reduced to 4 to 1.

Under the program, $447 million in tax base is shared for taxes payable in 2019. This represents 33% of total commercial, industrial, and public utility property tax base in the seven-county area. Of the region’s total tax base — which also includes residential, agricultural, and other categories — the shared tax base accounts for 10%.

The program shares more than $643 million in local revenue for taxes payable in 2019.

More taxing jurisdictions gain tax base than lose tax base. A total of 105 are net recipients, which receive a greater share of the distributed tax base from the shared pool than they contribute to it. Net contributors totaled 74. The top 20 net contributing taxing jurisdictions concentrate near major highways and job centers.

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

In the 2019 tax year, the top 10 net contributors were Minneapolis, Bloomington, Eden Prairie, Edina, Minnetonka, Plymouth, Eagan, Roseville, Golden Valley, and St. Louis Park.

The top 10 net recipients were Saint Paul, Coon Rapids, Brooklyn Center, Brooklyn Park, Columbia Heights, Andover, Cottage Grove, Crystal, Apple Valley, and South St. Paul.

More about the Fiscal Disparities program

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