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LEAGUE OF MINNESOTA CITIES CONNECTING & INNOVATING SINCE 1913 Fiscal Disparities 101 Local government units within the Twin Cities metropolitan area, which .is comprised of the counties of Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, and WashIngton, have participated in a property tax base sharing program known as Metrop~lit~n Fiscal Dis~arities since 1975. A similar program began in 1998 for local government unIts ill the TaconIte Area, which includes portions of the counties of St. Louis, Itasca, Crow Wing, and Aitkin, and all of Lake and Cook counties. Under these programs, a portion of the growth in commercial, industrial, and public utility property value of each community is contributed to a tax base sharing pool. Each community receives a distribution of property value from the pool based on the market value and population of each city. Contribution The contribution to the pool is equal to 40 percent of the growth in commercial, industrial, and public utility value since the base year (1971 for the Twin Cities; 1995 for the Taconite Area). This measure of growth includes both new construction and inflationary increases in existing property values. In 2007, for example, the total amount of tax capacity contributed to the Metropolitan fiscal disparities pool was $302.7 million, which represents approximately eight percent of the total tax capacity within the seven-county area. The contribution value is not available for local tax purposes and therefore, the contribution value must be subtracted from the total tax capacity of each cQmmynity before the local tax rate is computed. The Taconite Area program is much smaller, with just over $2 million of tax capacity contributed in 2007. Distribution The tax capacity contributed to the pool is based on a distribution index. This index 145 UNIVERSITY AVE. WEST ST. PAUL, MN 55103-2044 compares each city's total market value per capita to the average market value per capita for all cities and towns in the seven counties. Cities that have relatively less market value per capita receive a relatively larger distribution from the pool than cities with greater market value wealth per capita. How are property taxes generated? The tax capacity contributed to the pool ultimately translates into property tax dollars for each local government. These property taxes, also known as the distribution levy, are computed for each local government by multiplying its distribution value by its prior year tax capacity rate. The distribution levy represents the amount of each local I government's certified levy raised through the fiscal disparities program. The balance of the certified levy is used to compute the local tax rate. PHONE: (651) 281-1200 FAX: (651) 281-1299 TOLL FREE: (800) 925-1122 WEB: WWW.LMC.ORG