Tax leaders in the Minnesota Legislature are preparing legislation that disregards the basic principles of Minnesota’s unique system of regional tax-base sharing — referred to as “fiscal disparities” — wrongly using the tax-base pool to directly subsidize expansion of the Mall of America (MOA).
The Twin Cities fiscal-disparities pool (in place since 1971) supports community stability across the region. Designed to reduce disparities in tax-base wealth between communities by placing up to 40 percent of commercial-industrial tax base into a regional pool, fiscal disparities reduces the need for communities to compete for economic development and encourages amenities that do not provide tax base, such as parks, schools and health care facilities.
Since the Twin Cities fiscal-disparities pool is made up of commercial-industrial tax base from the entire region, the proposal to subsidize MOA inserts state government right into the middle of regional markets for retail, office and hotel property. It is perverse to use the pool this way, because the impact is to force existing retail, office and hotel owners to pay more in property taxes to subsidize their direct competition.
Proponents have not provided evidence that more retail, office and hotel development is so desperately needed that we should raise property taxes on existing businesses to pay for it. To the contrary, office vacancy rates were running at more than 18 percent across the metro area at the end of 2012, according to the Minnesota Chapter of NAIOP, the commercial real-estate development association.
Nor has there been justification offered for one development to enjoy such a large guaranteed subsidy (it could be as high as $200 million in tax base over 20 years) that it bypasses the accountability and risk that other developers routinely face.
The case proponents have made is that Bloomington (through MOA) deserves this subsidy because Bloomington’s wealth of commercial-industrial property has made it the largest net contributor to the fiscal-disparities pool over the years. According to this type of thinking, Bloomington is the biggest “loser” under fiscal disparities.
The argument reveals a fundamental misunderstanding. The fiscal-disparities pool does not choose who the regional winners and losers are. It simply identifies who they are, then distributes tax base so that big “winners” win a little less and big “losers” lose a little less. Many in the middle stay about the same.
The idea that Bloomington is a regional “loser” is backwards. The reason that Bloomington is a large net contributor to the fiscal disparities pool is because it is a huge regional “winner.”
Bloomington’s geographic location put it in ideal proximity to develop large amounts of commercial-industrial tax base relative to its population. Bloomington, however, did not create the regional centers along the river, the airport, Interstates 494 and 35W, or state Hwys. 5 and 77. Yet these are precisely the factors that set the stage for its extraordinary commercial-industrial tax base growth.
Bloomington has certainly contributed to keeping the region strong. Yet there is no evidence that it suffers from undue budgetary stress or high property taxes due to fiscal disparities.
The Citizens League’s most recent homeowner property tax survey in 2008 showed that Bloomington ranked 67th out of 117 metro communities in effective tax rate on homeowners and did much better than its neighbor Richfield, which ranked 37th. Bloomington ranked ninth out of 12 among similar large metro cities.
This is evidence that fiscal disparities is working well, not that it needs reform, and certainly not that we should violate the very principles on which it has operated for more than 40 years. If the fiscal-disparities pool is used to fund MOA, we will have started down the path of choosing regional winners and losers through the very mechanism that was designed to reduce competition and bring our region together.
Setting such a precedent with a pool of tax base that currently stands at about $390 million could have damaging effects for years to come.
Bob DeBoer is a project director for the Citizens League.