Geography matters for city tax bases

Minnesotans often like to think of ourselves as one big community. In reality, however, the state is made up of a wide range of economic regions and sub-regions including the Twin Cities metro area, the Iron Range, the Minnesota River Valley, the Red River Valley and many more. In all areas of the state, the strength of each region’s property tax base varies when compared to other regions and even amongst its own communities. The chart below illustrates the degree of variation in property tax bases among cities.

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Source: MN Dept. of Revenue Data. Tax base and rates based on 2010 Adjusted Net Tax Capacity

As shown in the chart above, cities’ property tax bases vary greatly. Browns Valley, one of the property poorest cities in the state, can generate only $1.88 per person for every percentage point it raises its tax rate. If the city wanted to levy enough to have a revenue base of $500 per person (slightly above the 2010 average for city levy plus Local Government Aid), the city would need a tax rate of 266 percent. Bemidji, typical of greater Minnesota regional centers, has a tax base that can generate $6.57 per tax rate percentage point per person and would need a tax rate of 76 percent to levy $500 per person. While that is one-third of the tax rate Browns Valley would need to impose to meet the 2010 average, it is still triple the tax rate Edina would require and over nine times the rate needed in East Gull Lake.

The variation in tax base is amplified when it occurs within the same region of the state. Take Brainerd and Baxter. Both cities are located in central Minnesota and share a common border, Brainerd to the east and Baxter to the west. Baxter has one of the strongest tax bases in the state while Brainerd’s is very weak in comparison. Brainerd would need a tax rate over two times as high as neighboring Baxter to levy $500 per person.

Disparity in tax bases crosses all geographic and city size lines. East Gull Lake, population 1,003, has one of the strongest tax bases in the state. In order for St. Paul, the state’s second largest city, to generate the same amount of revenue per person as East Gull Lake, the city would need a tax rate nearly seven times as high.

Because all tax bases are not created equal, state legislators created aid programs like local government aid (LGA) to help offset tax base disparities. We’ll take a closer look at the inception for programs like LGA in future Greater Minnesota Advocates.

Local chambers join cities in supporting LGA

Business communities from across greater Minnesota are joining their city councils in signing resolutions in support of the LGA program and continued funding. CGMC has received signed resolutions from the Albert Lea-Freeborn County Chamber of Commerce, the Crookston Chamber of Commerce, the Morris Area Chamber of Commerce, the Luverne Area Chamber, the Bemidji Area Chamber of Commerce and the Laurentian Chamber of Commerce (representing Eveleth, Gilbert, Mt. Iron and Virginia). CGMC has invited all greater Minnesota chambers to join us for our annual Legislative Action Day this year to learn more about our efforts to protect the affordability of their communities and ensure that residents and businesses have access to essential and quality-of-life services statewide. Through a partnership of city and business leaders, CGMC aims to demonstrate that LGA is critical to the economic viability of our communities.

Jobs, jobs, jobs for greater Minnesota

Both parties at the legislature have made job creation a top priority for the 2011 session, with a flurry of proposals introduced each week attempting to grow Minnesota’s economy. CGMC has long played an active role in helping greater Minnesota cities increase economic output and attract new businesses to their areas. A key component of this strategy is ensuring state economic development grants and programs reach greater Minnesota cities and are available to rural areas.

One program that has achieved significant success in growing jobs in greater Minnesota is the Greater Minnesota Business Development Public Infrastructure (BDPI) grant program. This competitive grant provides up to 50 percent of capital costs of the public infrastructure necessary to expand economic development, retain or create jobs or increase the tax base (§116J.431). Over 90 cities have received a grant under this program since 2003, and approximately 2,430 jobs have been created. The grant receives its funding through regular appropriations in a bonding bill.

The CGMC will be preparing a BDPI funding bill this session. If you are interested in supporting this legislation, or for more information about the CGMC’s economic development program in general, please contact J.D. Burton at jdburton@flaherty-hood.com.

Reminder: RSVP to CGMC Legislative Action Day

Join city officials from across the state for CGMC’s annual Legislative Action Day, which will be held Wednesday, February 9. Each year, mayors, city council members and city staff from greater Minnesota meet in St. Paul to discuss important policy issues for the session and visit with their local legislators at the Capitol. At night, you are invited to join our members in a more casual setting at Mancini’s Char House for dinner and mingling. A social hour will start at 5:30 p.m. with dinner being served at 6:30 p.m. The cost of dinner is $24 and can be paid at the event. If you are able to attend, please RSVP to Colleen Millard at cfmillard@flaherty-hood.com or 651-259-1914.