Winners and losers in fiscal disparities system

Key lawmaker expects no changes this session

By Cliff Buchan, ECM Writer

The release of a report on fiscal disparities has pushed the controversial 40-year-old tax base equalization program into the spotlight.

Ushered into law by former Anoka County state Rep. Charles Weaver in 1972, the program attempts to equalize tax bases in the seven-county metro area by having the haves share their tax base wealth with the have-nots.

“I don’t think you ever could do this again,” said Anoka County Commissioner Dan Erhart of passing such legislation.

Under the program, 40 percent of the growth in the commercial/industrial tax base is siphoned off and placed into a regional pool. These dollars are then doled out to recipient localities, those areas with lower tax base growth.

The idea behind the program is that it could promote orderly development, provide incentives to work for the betterment of the region as a whole, offer needed funding for communities at their early stages of development, according to the report.

Arguably there are winners and losers.

In terms of tax rates, the study estimates that the current law total tax rate without fiscal disparities in Anoka County, for instance, would increase from about 116 percent to about 132 percent — about 16 percent difference.

For Washington County the current law total tax rate of about 90 percent would increase to about 101 percent without fiscal disparities — an 11 percent difference.

Conversely, Hennepin County, without fiscal disparities, would see its current law total tax rate decrease by about 1.5 percent.

Erhart, a staunch defender of fiscal disparities, argues it offers positive benefits. The program allows metro communities, for one thing, to vie for business development on a more level playing field, Erhart said.

Without the fiscal disparities, some communities, intent on building their tax base, would offer so many tax breaks and other incentives to business to locate that in the long run they would damage more than help themselves, he explained.

Rep. Jim Abeler, R-Anoka, acknowledges the program has critics. “It’s an ongoing threat to Anoka County and our area,” he said of removing fiscal disparities.

Both House and Senate tax committees will be taking up the fiscal disparity issue in upcoming days.

Whatever the merits of the program, the fiscal disparity debate is not a partisan one, explained House Tax Committee Chairman Greg Davids, R-Preston.

“This is one where Republican and Democrat — you can toss that out of the window,” Davids said. The fiscal disparity debate is geographical, he said.

Indications are lawmakers are more likely to simply examine the fiscal disparity program this year than take wrenches to it.

“I don’t foresee any tweaks or changes right now,” said Dayton Revenue Commissioner Myron Frans.

The fiscal disparity program needs to be examined in the broader light of overall tax reform, he explained.

One Dayton Administration goal regarding property taxes is to make them more understandable to taxpayers, Frans explained.

“I think it’s (property taxes) a mystery for a lot of people,” he said.

Frans said he believed the fiscal disparity program has merit. “Well, I do,” he said.

For one thing, Frans believes the program does serve to lessen potentially zero-gain competition for business development.

Senate Tax Committee Chairwoman Julianne Ortman, R-Chanhassen, said the fiscal disparity program will probably be more fully addressed next year.

“I don’t know if we’re going to do anything this year,” she said.

Still, some lawmakers are keenly interested in the program, she noted. And legislation is possible, Ortman indicated.

Ortman criticizes the fiscal disparity program on several levels.

For one thing, it makes an already complicated property tax system even less understandable, she explained.

“Complexity is layered on top of complexity,” she said.

Beyond heaping complexity, the program serves to “distort” the property tax picture, Ortman argued.

And she questions why growing cities, such as Chanhassen, are required to share their tax base with older, more established cities.

Yet Ortman indicated that simply jettisoning the program is unlikely. “I don’t think that’s an option,” she said.

Local communities are counting on fiscal disparity dollars, she explained.

Ortman cited a number of potential program tweaks, including looking at the 40 percent commercial/industrial threshold percentage.

The fiscal disparity issue is not only financially intricate, but politically intricate as well, she noted.

Some of her cities are contributor cities to the program, she said. Others are recipients of fiscal disparity dollars, she explained.

Sen. Ray Vandeveer, R-Forest Lake, suggested the program could continue into the future. “I think it would be a very difficult road to remove it,” he said.

The House will have two hearings on Feb. 15 on fiscal disparities. The Property and Local Tax Division will meet at 8:15 a.m. with the Tax Committee meeting at 10:15 a.m.

The Senate Tax Committee hearing is scheduled at 8:30 a.m. on Feb. 16.

The report cites a number of fiscal disparities variables open for discussion.

For example, it’s been argued the 40 percent threshold is arbitrary and not proven to be the point after which commercial/industrial property pays for itself, the report notes.

Questions of exclusions from the program for regional benefits, such as the Mall of America, have been raised.

It’s been argued, the report notes, that the 1971 commercial/industrial base value starting point in the program discriminates against localities that have experienced most of their growth since that time.