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Finance Committee 4. 3. <br />Meeting Date: 10/25/2011 <br />By: Diana Lund, Finance <br />Title: <br />Fiscal Disparities <br />Background: <br />The Fiscal Disparities Program: Commercial - Industrial Tax Base Sharing <br />What is the fiscal disparities program? <br />The fiscal disparities program is a system for the partial sharing of commercial- industrial (C /I) property tax <br />base among all jurisdictions within a geographic area. In Minnesota, two programs are used: the primary one was <br />created in 1971 and operates in the seven counties of the Twin Cities metropolitan area; a smaller scaled version <br />was created in 1995 for the Iron Range in northern Minnesota. <br />Why share commercial /industrial tax base? <br />The main purposes and goals of the program are to: <br />Support a regional approach to development. Tax -base sharing spreads the fiscal benefit of business <br />development spawned by regional facilities, such as shopping centers, airports, freeway interchanges, and sports <br />stadiums. It also may make communities more willing to accept low- tax -yield regional facilities, such as parks. <br />Equalize the distribution of fiscal resources. Communities with low tax bases must impose higher tax rates to <br />deliver the same services as communities with higher tax bases. These high tax rates make poor communities less <br />attractive places for businesses to locate or expand in, exacerbating the problem. Sharing C/I tax base can reduce <br />this effect. <br />Reduce competition for commercial- industrial development. Communities generally believe that some kinds of C/I <br />properties pay more in taxes than it costs to provide services to them. This encourages communities to compete for <br />these properties by providing tax concessions or extra services, which can weaken their fiscal condition. Tax -base <br />sharing reduces the incentive for this competition, thereby discouraging urban sprawl and reducing the cost of <br />providing regional services such as sewage and transportation. <br />How does the fiscal disparities program work? <br />Contributions to the areawide tax base. Each taxing jurisdiction annually contributes 40 percent of the growth in <br />its C/I tax base since the year of enactment to an abstract entity called the "areawide tax base." This contribution <br />value is not available for taxation by the jurisdictions where the property is located. <br />Distributions from the areawide tax base. Each municipality receives a share of the areawide tax base through a <br />formula based on its share of the area's population and its relative property tax wealth (tax base per capita). The <br />municipality is allowed to tax this distribution value at the same rate as the tax rate paid by its residents. All taxing <br />jurisdictions whose boundaries encompass the municipality are also allowed to tax the municipality's distribution <br />value (i.e., counties, school districts, and special taxing districts). <br />Calculating the property tax for each commercial- industrial property. The property tax statement for each C/I <br />property has a local portion and an areawide portion, based on the relative amount of the tax base that is contributed <br />(areawide portion) versus the relative amount that is retained (local portion) for the municipality where the property <br />is located. <br />How has the metropolitan area program grown? <br />