Fiscal Rarity

In the annals of public finance, something special happened this spring. The Minneapolis–St. Paul area’s unique fiscal-disparities arrangement—a tax-base sharing system long hailed nationally as one of the treasures of the Twin Cities—escaped unscathed from a life-or-death challenge in the Minnesota Legislature.

That’s how advocates for the system view the outcome of the battle over how to finance the Mall of America’s proposed $2.1 billion expansion. Legislators passed a bill enabling the Bloomington mall to fund the project partly through taxes levied by the city and its hotels and on the mall’s customers. But a key element of the mall’s proposal failed: exemption from the metro area’s tax-base sharing pool.

A powerful coalition of trade unions and contractors pushed hard for the exemption. Their dream: 7,000 construction jobs and another 7,000 permanent jobs—work sorely needed these days.

Defenders of the system counter-ed that the exemption would open the sluice gates for raids on the fiscal disparities pool. Their nightmare: Developers of projects ranging from competing shopping centers to sports venues would drain the pool. Private interests would trump the public good.

The exemption drew tough opposition from Representative Ann Lenczewski, the Bloomington DFLer who chairs the house tax committee. Other DFL leaders, nodding to their organized-labor constituencies, supported the proposal. It sailed through the DFL-controlled Minnesota Senate.

Sharing Eases Disparities

The fiscal disparities system moderates disparities by redistributing part of the property tax base. Up to 40 percent of the seven-county metro area’s commercial and industrial tax base flows into an area-wide pool. Then the pool gets redistributed to local taxing units according to a formula based on each community’s overall property tax base per capita and how much it deviates from the metro-area average.

This system became a Minnesota law in 1971. House researchers say the Twin Cities were the first metropolitan region in the country—and remain the only one—with such a metro-wide mechanism. Years ago, legislative attempts to establish similar disparity-easing property tax systems failed in at least three states: Michigan, Maryland, and California.

The Minnesota law drew kudos from around the country, but not everyone here was so ecstatic. Robert Schaefer, then city administrator for Inver Grove Heights, called the law “taxation without representation”—the same cause that led to the Boston Tea Party. Burnsville city officials, unhappy that the system would boost their taxes, challenged it all the way to the U.S. Supreme Court. They lost.