Property Taxes: Which Cities Give And Which Take In Twin Cities Region?
When it comes to property taxes, the cities and towns of the seven-county metro region really are in it together.
That’s thanks to the Fiscal Disparities Act of 1971, which shares property tax base — and in turn property tax revenue — among communities in the seven-county Metropolitan Council area.
A recent analysis shows that the program, considered part of the foundation for regionalism if the Twin Cities, shared $594 million in tax revenue among nearly 200 taxing entities in 2015. Detailed formulas determine which communities are contributors to the pool and which are recipients.
In general, net contributors to the program are clustered in the south and west of the region, while net recipients are found to the north and east.
The intent of the program was to even out large differences in property tax wealth between communities with a lot of commercial and industrial properties — which generate a large amount of property tax revenue — and those with relatively few.
This would help end an incentive for communities with less property value to compete within the region for commercial development that might create more revenue but also create the need for expensive infrastructure.
In return for regional policies that encouraged growth in areas with already developed highways, wastewater treatment plants and transit, those areas share the resulting increase in property tax base with the entire region.
Another effect of the program is to even out the tax assessments on commercial and business properties, making it less likely that property tax bills in one community would be significantly higher or lower than the bill for comparable property in another community, and therefore reducing the likelihood that businesses would shop around locations within the region in search of lower taxes.
According to the analysis, 101 communities — 84 cities and 17 townships — were net recipients in 2015. Those jurisdictions have 32 percent of the region’s commercial and industrial tax base and 51 percent of the population. The top five recipients were St. Paul, Brooklyn Park, Coon Rapids, Brooklyn Center and Columbia Heights.
The same report showed that 78 communities — 53 cities, 25 townships and the state fair grounds — were net contributors. Those communities have 67 percent of the region’s commercial and industrial tax base and 49 percent of the population. The top five net contributors were Bloomington, Eden Prairie, Minnetonka, Plymouth and Edina.
“The region as a whole benefits when all communities do well,” said Met Council Chair Adam Duininck in a statement.
A unique balance
In their book “Region: Planning the Future of the Twin Cities,” Myron Orfield and Thomas Luce, Jr. wrote that the Fiscal Disparities Act strikes a balance that is unique to the Minneapolis-St. Paul region.
“On the one hand, the design reduces the incentives for communities to compete for tax base, because they do not keep all the resulting revenues,” Orfield and Luce wrote. “On the other hand, because localities retain enough of the tax base to cover the costs of growth, the incentive is not so strong that local areas will be unwilling to allow new development.”
The program does have a mechanism for the Met Council and the state Department of Revenue to kick a community out of tax-base sharing if they exclude areas for development for reasons other than farmland preservation. That prevents a community from blocking all development because its leaders know they will continue to receive a share of the property tax gains regardless of where it occurs.
One criticism of the program leveled in Orfield and Luce’s book is that the area covered by the Fiscal Disparities Act has not grown since 1971, despite the expansion of development to counties outside the Met Council’s seven-county jurisdiction. While Legislatures past have discussed including counties such as Chisago, Isanti, Sherburne and Wright, no legislation has been successful.
For an explanation of how the complex formulas implement the act, try this pamphlet produced by the Citizens League and the National Association of Industrial and Office Properties.