At 50, innovative tax-base sharing program still going strong

Date: Wednesday, August 25, 2021

A worker in a beer manufacturing building.The Twin Cities metro area is known nationally for its outstanding parks, clean government, and vital civic life.

But it’s also renowned for legislation signed into law 50 years ago — in August 1971. The Fiscal Disparities Act established a program that promotes greater equity in the distribution of fiscal resources among local taxing jurisdictions in the metro area.

It still attracts national and even international attention. The program remains unique in the nation for the amount of shared tax base and its geographic scope — 179 communities in the metro area.

Over the years, the program has survived legal and political challenges. The Minnesota Supreme Court upheld its constitutionality in 1974. The next year, a legislative bill was introduced to repeal it, but failed.

Program supports fiscal equity

Property taxes are a primary source of revenue for cities and townships to pay for services they provide.

Under the program, local taxing jurisdictions share part of the growth in commercial, industrial and public utility property tax base since 1971. Read more about how the Fiscal Disparities Program works.

Narrowing the wide differences, or “disparities,” in property tax wealth moderates the competition for tax base and improves equity in the distribution of fiscal resources. The program shared $500 million in tax base for taxes payable in 2021 and $697 million in tax revenue. Over time, the program has gradually reduced differences in commercial-industrial tax base across the metro area.

Impact of Fiscal Disparities Program

In effect, it narrows the gap between communities with the highest commercial-industrial property tax base and those with the lowest (calculated per person).

For communities with more than 10,000 people, the ratio of highest to lowest commercial-industrial tax base per person was 14 to 1 without tax-base sharing. With tax-base sharing, the gap  narrows to 6 to 1.

Program achieves more efficient development, cost-effective services

The program supports key goals of the Met Council. By reducing incentives to compete for tax base, it supports more efficient development, enabling more cost-effective regional services such as wastewater treatment and transit services. It spreads the benefits of business development attracted by regional facilities, such as highways or airports.

The idea originated in the late 1960s with a Twin Cities public-interest organization, the Citizens League. Paul Gilge, the former associate director of the organization, said “The Council provided great leadership supporting passage of the legislation.”

Similar ideas have sparked discussion in other parts of the country. In his recent book, Gilge notes that “The law…continues to attract interest across the nation, Similar actions are rare, however, and none is as far-reaching as Minnesota’s.”

Steve Hinze was a legislative analyst in the Minnesota House of Representatives Research Department after the Fiscal Disparities legislation had been introduced, debated, and enacted. He said that his office several years ago calculated a “what if” scenario of the program’s impact.

If the program didn’t exist, the residential property taxes of the biggest net recipient communities would be 10% to 20% higher, and commercial/industrial property taxes would be 0% to 10% higher, Hinze said. Residential property taxes in the biggest net contributor communities would be 0% to 5% higher, and commercial/industrial property taxes would be 5% to 10% lower.

Metro Cities supports Fiscal Disparities program

Patricia Nauman, executive director of Metro Cities, said her organization supports the program. She said her organization “would oppose any diversion from the Fiscal Disparities pool for a specific purpose because it would contradict the purposes of the program.”

Her organization’s policy, she said, is that “if any legislation would modify the Fiscal Disparities program, it should be considered within a framework of other comprehensive reform efforts of the state’s property tax system.”

Why did the Fiscal Disparities program happen here? Tom Weaver, former Met Council regional administrator and former Governor Carlson’s legislative director, said, “There are some things about this region that allowed it to happen that may not have existed in other places.” For example, he said, the Citizens League, which put forth the recommendation, is a respected, nonpartisan organization. It was also important to have the support of the local newspapers.

“It wasn’t easy sledding — it nearly died several times in the legislature.” But, he said, there were enough legislators who put aside their parochial interests to support it. In fact, he said, “There were some legislators representing communities that would be net contributors under the program, but they supported it because they recognized the advantages to the region as a whole.”

Posted In: Council News