Fiscal Disparities 101 - Laserfiche WebLink

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How are commercial/industrial and utility parcels taxed? Commercial and industrial properties are not taxed twice. Instead, a portion of each commercial or industrial property's tax capacity is taxed at the area-wide tax capacity rate and the balance is taxed at the total local tax rate. As a simple example, in a community where exactly 40 percent of all commercial, industrial, and utility property is contributed to the fiscal disparities pool, 40 percent of each parcel's value is taxed at the area-wide tax rate and 60 percent is taxed at the total local tax rate. In 2008, for example, the Twin Cities area-wide tax rate was 115.78 percent and the Taconite Area-wide tax rate was 142.35 percent. Policy Issues The original intent of the program was articulated through the following six objectives: . Provide a way for local governments to share resources generated by regional growth; . Encourage orderly urban development by reducing competition for commercial and industrial development; . Establish incentives for regional cooperation; . Provide a way for regional resources to be available through the existing system of local governments; . Make resources available to communities at the beginning stages of development or redevelopment; and . Encourage environmental protection Descriptions of the program, such as those offered by the Minnesota House of Representatives Research Department and the Metropolitan Council, often highlight two main goals that encapsulate several of the original objectives: . Promote orderly urban planning and development; and . Work towards a more equitable distribution of fiscal resources. Assessment of the program's success in accomplishing the second of these goals often points out the "winners," cities that are net recipients, and "losers," cities that are net contributors. Proponents of the program focus on the relative uniformity of the taxation of commercial and industrial property across the metropolitan area and the stability the net contributors provide to the region as a whole. They argue that greater uniformity and stability give the entire region a competitive edge in national and global marketplaces. The critics of the system argue that the contribution rate of 40 percent is arbitrary and that the distribution formula is solely based on the relative property tax base wealth of each city. Also, the formula uses non- adjusted assessment levels. Cities with high assessment levels contribute more tax base than cities with lower levels, creating a disincentive to raise the assessment level. Although fiscal disparities is generally considered to impact commercial and industrial properties, a House Research study found that homestead tax rates are also affected. For example, the homestead tax rate in St. Paul was 8.8 percent lower in 2004 because of the program. In the same year Bloomington, a net contributor, experienced a 5.5 percent increase in the average homestead tax rate. The study found that tax base sharing did not lead to such extreme changes in most cities. Within cities, property classes can experience the impacts of tax base sharing differently. Declines in the market values for Twin Cities 2