Property taxes: Which cities and towns give and which take in the Twin Cities region

Courtesy of the Met Council
Communities highlighted in pink were net recipients under the Fiscal Disparities Program; those highlighted in blue were net contributors.

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 commercial and industrial 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 rates 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 tax rates.

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.

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Comments (16)

  1. Submitted by William Lindeke on 04/05/2016 - 09:43 am.

    Some sense of scale?

    I’d be useful to know how much each of these cities “give” or “get,” rather than simply that their either net negative or positive. For example, I had understood that Bloomington (with the MOA) is the #1 donor, while Minneapolis was closer to neutral.

    • Submitted by Sara Amaden on 04/06/2016 - 08:11 am.

      Local government aid

      I would like to know how this relates to local government aid (LGA), which comes out of the general fund. Bloomington received $400,000 in LGA in 2014.

  2. Submitted by David Markle on 04/05/2016 - 11:36 am.

    TIF

    Without having examined the current formula, I wonder if St. Paul’s black hole of TIF affects their net recipient status.

  3. Submitted by Thomas Weyandt on 04/05/2016 - 11:59 am.

    Shallow?

    I am not sure this article adds much to the debate.

    For example Lino Lakes looks like a city that gets more than it pays. Is the reason for that the presence of the Lino Lakes Correctional Facility? As someone else asked is it a matter of a few dollars to go from one category to another or millions?

    • Submitted by Adam Miller on 04/05/2016 - 01:06 pm.

      Maybe I’m wrong

      But I understood this to be just how the revenues are shared, having nothing to do with spending.

  4. Submitted by Adam Miller on 04/05/2016 - 01:08 pm.

    Can we do this with other revenues too?

    Maybe it’s out there somewhere, but I’d also like to see where state sales and income taxes are generated versus where state spending goes.

  5. Submitted by Craig Johnson on 04/05/2016 - 01:29 pm.

    Winner and Losers?

    Entities with high property tax rates and values contribute to communities with low property tax revenue and values – to some extent based on the amount of public land and the use of TIF financing – which conceives to increase aggregate property value as the expense of property tax revenue.

    My concern is that it seems that some jurisdictions are gaming the system – lower tax and lower rates are being subsidized by more successful communities. In other words the government is picking winners and losers. To a very real extent, jurisdictions have to make a decision to embrace development and level the playing field or stand in the past with their hand out. Lake Elmo seems to fit that criteria.

    You may like your lower taxes and large open spaces, lack of municipal infrastructure, thats fine, but why should I help you?

    Government never makes the right decisions on picking winners and losers. The Fiscal Disparities Act disserves all who are involved. The Act should be repealed. It perpetuates non responsive local governments.

    • Submitted by Greg Kapphahn on 04/05/2016 - 02:16 pm.

      When You Consider the Good of the General Population

      it rapidly becomes clear that “the market” is far WORSE at picking winners and losers.

  6. Submitted by Greg Kapphahn on 04/05/2016 - 02:24 pm.

    It is the Fiscal Disparities Act and Metropolitan Council

    that allow the greater metro area to function as efficiently as it does.

    Lacking such region-wide planning and revenue sharing,…

    we could easily end up with a situation such as the Atlanta, Georgia area,…

    where it takes decades to accomplish the planning and construction of badly needed freeway projects,…

    because each and every jurisdiction within the Atlanta metroplex functions independently,…

    and must approve the planning and execution of their little piece of that freeway.

    Despite its need for occasional adjustments,…

    regional planning and fiscal sharing provide far MORE benefit to the citizens of the greater Twin Cities metro area,…

    than the continuous sniping and competition between the various entities within that area could EVER provide,…

    should those regional structures and systems be wiped out

  7. Submitted by paula pentel on 04/05/2016 - 03:09 pm.

    A few problems with Fiscal Disparities

    Having been a council member for 9 years in the city of Golden Valley I came to learn that we needed to increase our levy by millions each year to meet our FD net contributor status….so here’s a problem….corporations can challenge their taxable value and have their value subsequently lowered but there is no mechanism for affected cities to recoup FD overpayments. So in a city like Golden Valley with many large corporations ( General Mills, Honeywell, Alliance, Tennant) this can be a issue.

    • Submitted by Wayne Coppock on 04/06/2016 - 08:51 am.

      So GV’s tax haven plan didn’t go so well

      So Golden Valley’s strategy of luring corporate offices out of the city center by acting as a tax haven didn’t work out so well long-term? In a world where corporations will soon be able to overturn the laws of national governments thanks to the TPP this isn’t exactly surprising.

  8. Submitted by Craig Myers on 04/05/2016 - 09:43 pm.

    Why are some suburbs with very valuable homes takers?

    I’m curious as to how 4 or 5 of those listed as takers are affluent suburbs. Generally I don’t complain about paying taxes, but if I’m paying even a little bit extra some someone with a half million dollar house can save money I’d be upset.

    • Submitted by Matt Brillhart on 04/06/2016 - 11:11 am.

      Lack of commercial-industrial?

      Agreed, at first glance it is almost unfathomable how the formula would produce a result where distant 3rd-ring exurbs like Lino Lakes, Andover, and Cottage Grove are net “takers”, while older inner-ring burbs with lower HH incomes like Maplewood are net contributors. But I’m guessing that the former have very little commercial-industrial tax base compared to other peer suburbs, despite their fairly high incomes and home prices. A key fact is that the fiscal disparities formula is heavily based on commercial-industrial tax base growth (since 1971), so that helps explain how some inner-ring communities are contributors while some outer-ring exurbs are takers.

      If anyone is wondering how Minneapolis is a contributor while St. Paul is a huge taker, I think it has a lot to do with downtown development. Minneapolis has tens of billions of dollars worth of office towers built after 1971. St. Paul has just a couple, significantly smaller modern towers. St. Paul has a lot of tax-exempt property due to the whole Capitol complex, but Minneapolis does too, maybe even more (sports stadia, entire U of M campus, etc.) One look at fiscal disparities really beats back the notion from angry online commenters everywhere that Minneapolis is being subsidized by everyone else in MN. On the contrary, it is Minneapolis (and its wealthy, job-rich suburbs) that are funding and subsidizing the entire state.

  9. Submitted by David Markle on 04/09/2016 - 09:09 am.

    St. Paul TIF

    Take a look at John Mannillo’s excellent op-ed piece in the April 6th Pioneer Press, “The High Cost of TIF in St. Paul.”

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